EU Court of Justice finds Maltese investor citizenship scheme is contrary to EU law
The Court of Justice of the European Union (CJEU) ruled, on 29 April, that member states cannot grant nationality – and therefore EU citizenship – in exchange for predetermined payments or investments, because the acquisition of EU citizenship cannot result from a commercial transaction.
In October 2020, the Commission had launched infringement procedures against Malta and Cyprus by issuing letters of formal notice regarding their respective citizenship by investment (CBI) schemes, also referred to as ‘golden passport’ schemes.
Cyprus repealed its scheme and stopped receiving new applications on 1 November 2020. However, it continued to process pending applications. As a result, the Commission sent a reasoned opinion to Cyprus in June 2021. Cyprus then stopped processing applications and, as of 15 October 2021, revoked the citizenship of 39 investors.
The government of Malta, however, chose to defend its CBI scheme on the grounds that issues related to citizenship fell entirely within the national sphere of competence. When its original Individual Investor Programme (IIP) came close to reaching its limit of 1,800 successful main applicants, Malta adopted the ‘Granting of Citizenship for Exceptional Services Regulations’ in November 2020.
These regulations, introduced in accordance with Article 10(9) of the Maltese Citizenship Act, as amended by the 2020 Citizenship Act, established detailed rules for the Maltese Exceptional Investor Naturalisation programme (MEIN), a new CBI scheme that was limited to 400 successful applicants per year or 1,500 applicants in total.
Under the MEIN programme, foreign investors could apply to be naturalised where they fulfilled a certain number of conditions, including a non-refundable contribution of €600,000 if the application was submitted after 36 months of residence or €750,000 if the application was submitted after 12 months of residence, with an additional non-refundable contribution of €50,000 for each dependant.
The Commission subsequently sent an additional letter of formal notice to Malta in June 2021 and, in March 2022 following Russia’s invasion of Ukraine, it issued a recommendation urging member states to immediately repeal any existing citizenship by investment (CBI) schemes and to ensure strong checks were in place to address the risks posed by investor residence schemes.
The government of Malta suspended the MEIN scheme for Russian and Belarusian nationals but said it would continue to operate the scheme for all other nationalities. In April 2022, the Commission sent a reasoned opinion to Malta. Malta’s response did not satisfactorily address the Commission’s concerns, so it referred Malta to the CJEU on 29 September.
In Commission v Malta (Citizenship by investment) Case C-181/23, the Commission asserted that the MEIN scheme, which granted naturalisation to persons without a genuine link with Malta in return for predetermined payments or investments, constituted an infringement of Article 20 of the Treaty on the Functioning of the European Union (TFEU), which establishes EU citizenship for all persons holding the nationality of a member state and also lists the main rights and duties of EU citizens.
The Commission further asserted that the scheme constituted an infringement of the duty of ‘sincere cooperation’ laid down in Article 4(3) of the Treaty of the European Union (TEU), which requires member states to facilitate the achievement of the EU’s objectives and refrain from acts that could jeopardise them. This was because the establishment and the operation of CBI schemes carried risks for the whole EU while the financial benefits were only enjoyed by one member state.
The influential Advocate General’s Opinion, published in October 2024, proposed that the Court should dismiss the Commission’s action against Malta, with costs against the Commission. Advocate General Michael Collins opined that the Commission had not proved a breach of the treaty provisions governing citizenship and therefore there was no basis, in law or in fact, for the claim that Malta was in breach of the duty of ‘sincere cooperation’.
He confirmed that: “It is settled case-law that it is for each member state, acting within its exclusive competence and having due regard for international law, to lay down the conditions under which its nationality may be acquired and lost.”
The Advocate General’s Opinion was expected to guide the CJEU in its final determination, but instead the Court held that Malta had infringed EU law.
While the definition of the conditions for granting and losing the nationality of a member state was a matter of national competence, it said, that competence had to be exercised consistently with EU law. The bond of nationality with a member state was based on a specific relationship of solidarity, good faith and the reciprocity of rights and duties between the state and its citizens.
Where a member state granted nationality, and therefore automatic EU citizenship, in direct exchange for predetermined investments or payments through a transactional procedure, it manifestly infringed those principles. Such ‘commercialisation’ of citizenship was incompatible with the basic concept of EU citizenship as defined by the treaties.
It also infringed the principle of sincere cooperation and jeopardised the mutual trust between member states concerning the grant of their nationality, which governed the establishment of EU citizenship in the treaties.
EU citizenship, said the Court, guarantees free movement within a common area of freedom, security and justice. That common area was based on two essential principles: mutual trust between member states and mutual recognition of national decisions. Each member state must therefore refrain from any measure that could undermine the EU common objectives, in accordance with the principle of sincere cooperation.
An action for failure to fulfil obligations directed against a member state that has failed to comply with its obligations under EU law may be brought by the Commission or by another member state. If the CJEU finds that there has been a failure to fulfil obligations, the member state concerned must comply with the Court’s judgment without delay. If the Commission considers that the member state has not complied with the judgment, it may bring a further action seeking financial penalties.
“As always, the government of Malta respects the decisions of the courts, while at this moment the legal implications of this judgment are being studied in detail, so that the regulatory framework on citizenship can then be brought in line with the principles outlined in the judgment,” said the Maltese government in a statement.
The government said it had consistently expressed its firm intention to defend this framework which, since inception in 2015, had directly generated over €1.4 billion in revenue for Malta. The principle that issues related to citizenship fell entirely within the national sphere of competence had been confirmed by the opinion of Advocate General, who had concluded that there was no case against Malta.
“The Maltese government notes that although the Court confirmed the principle of national competence, it ignored the Advocate General’s recommendation that there was no case against Malta and instead delved into other aspects. It is important to clarify that decisions taken under both the current and the previous legislative framework remain valid,” it said.
