By James Hartshorn
Ireland’s population is similar to that of a large district in Beijing or Shanghai at just over 4.5 million people1. When you are speaking about a country of that size to investors in China, it is not uncommon to be met with questions like ‘where?’
Irelands profile as an investment destination, however, is increasing amongst Chinese investors. Large scale deals such as HNA’s $2.5 billion acquisition of Ireland aircraft lessor Avalon last year attracted a lot of press both domestically and internationally. Ireland also became the only EU country to have its ban on beef imports lifted2 and more recently the country increased its promotion of its Immigrant Investor Program (IIP).
IRELAND’S BUSINESS RELATIONSHIP WITH CHINA
Ireland and China’s economic relationship has been gathering momentum in recent years. With annual trade approaching $10 billion3 a year, both governments have stated intentions to proactively build upon this in the coming years. Strong connections continue to form and Chinese businesses have begun to take advantage of Ireland’s inviting tax structure, educated work force and proximity to Europe. Leading Chinese companies such as ZTE, Huawei, Tencent and many of China's largest banks now have major operations in Ireland.
Ireland - China relations far exceed trade, interestingly, both economies share a unique link as the Chinese plan for the Shenzhen Economic Zone was closely modelled on Ireland’s Shannon Free trade Zone (SFZ)4, after a group of Chinese officials, which included future president Jiang Zemin, visited the SFZ while searching for economic models to incorporate into Deng Xiaoping's reform period. The model was a massive success and was replicated across the country, contributing most likely to China's economic advances of the past 40 years.
In 1957, the Irish Minister for Foreign Affairs, Frank Aiken, decided to vote for a debate on the representation of China at the United Nations5, which ultimately resulted in the body’s recognition of P.R.C over Taiwan. Since P.R.C’s inclusion in 1971, Ireland has never voted against China in the United Nations. It was an Irishman, named Michael Morris, who used his position as head of the International Olympic Committee to ensure China's fair admission and membership in the games, resulting in China and Taiwan both participating in the games6.
IRELAND IN THE GLOBAL MARKET
Despite Ireland’s significant gains in China it still has a long way to go to catch up with its largest foreign direct investment contributor, America. Many of the readers might not be aware that the value of American investment in Ireland, at $165 billion7, is actually greater than the corresponding American investment into Brazil, Russia, India and China, combined.
With an education system that ranks in the top ten globally8, there is a very strong argument for career development in Ireland. For a small city, Dublin has one of the highest concentrations of Fortune 500 companies in the world. All of these companies have excellent graduate programs and active recruitment campaigns. Some employers rank graduates from Ireland number one in Europe.
It is also expected that there might be a large relocation of many financial institution from London to Dublin as a result of Brexit. This windfall of business relocation has already begun with JPMorgan Chase’s acquisition of a 12,000-square-meter office in Dublin9, capable of housing over 1,000 employees.
Ireland has been the best preforming economy for the past three years in a row, with a growth rate of 5.2 percent last year10, GDP growth is forecast at 3.8 percent in 2017 and 3.6 percent in 2018. Unemployment is expected to average more than 6 percent in 2017 and more than 5 percent in 201811, down from almost 15 percent during the recession.
IRELAND’S EDUCATIONAL SYSTEM
In addition to its economic performance, the quality of the Irish education system is a big contributor to the increased demand of immigration investment to Ireland. Every child in Ireland currently on a Stamp 412 visa is entitled to free, state-run primary and post-primary education.
According to the 2016 Global Competitiveness Report, released by the World Economic Forum, the Irish School system ranks 6th in the world. Its Education system overall ranks 9th globally and all Irish Universities rank in the top 5 percent globally. Trinity College Dublin is Ireland's premier University and was founded in 1592. Trinity College is modelled after the collegiate universities of Cambridge and Oxford in England, and is also one of the Seven Ancient Universities of Britain and Ireland.
All of these factors add considerably to Ireland’s attractiveness as a destination for immigration investment. This is very much evidenced in the sharp rise in demand in 2016, where the applications number soared by 500 percent, rising to 329 from 66 the year before with Chinese nationals making up 313 of those applications13.
HOW IRELAND’S PROGRAM WORKS
The program itself is straightforward and designed in a way to mitigate risk for investors. One of the strongest points is that an investor will actually have their application approved before they are required to make their investment14.
The purpose of the Immigrant Investor Program is to enable non-EEA nationals and their families who commit to an approved investment in Ireland to acquire permanent residency (Stamp 4 Visa) in Ireland. The Irish government set up the program in 2012. It estimates that last year the program generated about €140 million for the Irish economy.
There are essentially two components to an IIP application, the person and the investment. The personal criteria relate to the good character of the individual, their net worth and the providence of the funds to be invested. The investment component relates to the nature of the proposed investment.
Individuals can apply to the IIP without committing any investment funds.
An individual must choose one of four eligible investments and once the application has been approved, the investment may then proceed, and once the funds have been invested the individual and their family will be issued with permission to reside in Ireland.
Successful applicants receive residence permission for 5 years. An initial permission will be granted for two years, and following a review at that point to ensure the investment is still in place, the investor will be granted another period of 3 years.
After this initial 5-year period, the investor will be free to apply for residence indefinitely in 5-year periods. The residency requirements for the program are only one day per year, which is very convenient for those applicants wishing to maintain their businesses in China, or elsewhere, while still being able to maintain Irish residence.
A minimum of €1 million invested in either a single Irish enterprise or spread over a number of enterprises for a minimum of three years. The enterprise can be a start-up or existing business but must be registered and headquartered in Ireland and the investment must support the creation or maintenance of employment.
The investment must be made in the name of the individual seeking residence. A business plan must also be submitted for all businesses, indicating how the investment will help create or maintain employment. Despite the reference to jobs there is no specific number of jobs that need to be created, as with the ten-job metric in EB5 program for example.
A minimum of €1 million invested in an approved investment fund. The investment must be held for a minimum period of three years. The funds and fund managers must be regulated by the Central Bank. There are a number of funds in Ireland that have been set up specifically with IIP investors in mind.
Real Estate Investment Trust (“REIT”)
A minimum of €2 million invested in any Irish REIT that is listed on the Irish Stock Exchange. The full investment must be held for a minimum period of three years. During this period the number of shares approved must be retained even if their value rises above the original €2 million investment. After three years the investor may divest up to 50 percent of the shares purchased for the IIP, and after four years the investor may divest no more than a further 25 percent. After five years there are no retention obligations.
A minimum endowment of €500,000 is required in a project of public benefit in the arts, sport, health, cultural or educational field. It will be regarded as a philanthropic contribution and investors will receive no financial return. Where a group of five or more investors wish to combine their philanthropic endowments to contribute to an appropriate project, a minimum investment of €400,000 per investor will qualify under the program.
WHO IS ELIGBLE?
The program is open to non-EEA nationals with a net worth of over €2 million. Individuals must be of good character and not convicted of a criminal offence in any jurisdiction. The funds used for the investment must be the individual’s own funds, they cannot be borrowed.
ELIGIBLE FAMILY MEMBERS
Residency under the program is also available to spouses/partners and children under 18 years of age for whom the applicant and/or their spouse or partner has legal guardianship. Children between the ages of 18 and 24 will be considered where they are unmarried and are financially dependent on their parents.
INCREASED INVESTMENT THRESHOLD
The program saw exponential growth in 2016, which led to an increase in the investment amount from €500,000 to €1,000,000. Many in the industry have been critical of this move, as it has led to a significant decreased demand for the program, and have begun lobbying to have this price increase addressed.
The financial crisis all but decimated the Irish banks and with them all of the significant developers. This meant for a period of around eight years there was no money for projects and nobody with the skillset to develop them. This lack of spending on infrastructure during the recession has created huge potential for investment. It is most acutely evident in chronic shortages of housing, healthcare and energy facilities throughout the country.
Two areas requiring significant capital expenditure are Social Housing and the Healthcare sector. The Social housing requirement is particular significant as the government have committed to the construction of over 110,000 houses. The estimated capital cost of this would be in the region of €22 billion, which would need to be raised privately due to borrowing restrictions imposed by the EU following the 2008 financial crisis.
Given their strategic importance to the government, both are qualifying investment types under the IIP.
This opportunity is not lost on the global investment community either. Since 201, there have been many funds flooding into Ireland to explore opportunities in real estate created by the financial crisis. Blackstone, Hines, Colony NorthStar and Kennedy Wilson, to name just a few. Incidentally, Kennedy Wilson in part developed the aforementioned JPMorgan chase office in Dublin.
As with any new territory, it’s crucial to partner with the right people who know what they are doing. A great way to see this is to just look at what they have previously done in Ireland. A great benefit of Ireland’s size is that the business community is quite small and all of the reputable players will know each other. A good test is to walk into one of the big four and mention the name of the company you are thinking about working with, if they don’t know them, that’s a bad sign.
One need not look past Tom Barracks wisdom, that ‘the Jungle is a safer place with professionals than a paved road with amateurs’. That is as true in Ireland as it is in any other jurisdiction.