For the sixth consecutive year, Japan topped the list of the most powerful passports in the world in 2023. But it’s wrong to think the Japanese passport, which allows its holders to visit 193 of 227 destinations visa-free, is the best boutique. Travellers and entrepreneurs trying to find a “one-stop shop” to become a global citizen believe there are more factors to be considered.
Unlike other rankings such as the Henley Passport Index (HPI), which measures solely on visa-free travel privileges, the Nomad Passport Index is based on different weightings – requirements to pay tax, ability to live freely, compliance with regulations, and avoidance of scrutiny when traveling. Essentially, a passport should be more than just a travel document.
The Nomad Passport Index is ranked based on 5 factors:
- Visa-Free Travel – 50% weightage
- Taxation of Citizens – 20% weightage
- Perception – 10% weightage
- Dual Citizenship – 10% weightage
- Personal Freedom – 10% weightage
Japan is not even in the top-30 of the Nomad Passport Index. Just because the Japanese passport allows visa-free access to the most number of countries, it does not necessarily mean the passport has the greatest demand. Instead, the UAE (United Arab Emirates) has the strongest passport in the world, jumping from 35th last year to the No. 1 spot this year.
The UAE passport suddenly emerged top largely due to recent changes allowing foreigners to apply for dual citizenship. Even though the emirate has visa-free travel privileges to 181 countries, it beats Japan, as well as Singapore and South Korea which are tied on second spot (allow travel to 192 countries) based on Henley Passport Index because all the three countries do not recognize dual citizenship.
Additionally, the UAE has no income taxes and offers a business-friendly environment, all of which make it attractive to aspiring global citizens. The factor of taxation is defined as the long-arm reach of a country’s tax laws, as well as a country’s tax rate. It makes perfect sense as nobody likes to pay taxes. Here’s how the taxation is categorized in the Nomad Passport Index:
- Citizen-based tax: where passport holders must pay no matter where they live – score of 10
- Resident-based tax: where residents are taxed on worldwide income – score of 20 (if rates exceed 50%) or 30 (if they don’t)
- Territorial tax: where income made within the country is taxed – score 40
- No income tax – score of 50
In 2021, the UAE government announced that the country’s citizenship is attainable for foreigners – a major first for the Gulf state. It’s passport will be offered to select foreigners and professionals including “investors, doctors, specialists, inventors, scientists, talents, intellectuals, artists and their families.” The move was to attract talents, where nearly 90% of the UAE’s 10 million inhabitants are foreign nationals.
The strengthening of the UAE passport was also partly due to historic reforms and diplomatic breakthroughs that saw it becoming the first Gulf country to normalize relations and open direct flights with Israel in August 2021. In the following months, the Muslim country allowed alcohol purchase without a license, and permitting 100% foreign business ownership.
While the UAE scores full marks (50) in taxation, the United States gets the lowest score (10) thanks to its long-arm “citizen-based” tax rules that applies globally. You can theoretically live on the moon if you’re a U.S. citizen, but you’ll still need to pay taxes to Uncle Sam. Other countries scored 50 included Monaco, Brunei, Qatar, Kuwait, Bahrain, Oman, Bahamas, Vatacan City and Saint Kitts and Nevis.
Maldives scores 40 as it does not tax foreign incomes of resident citizens, sharing with Singapore, Malaysia, Hong Kong, Taiwan, Macao, Thailand, Saudi Arabia and others. Finland, Sweden, Norway, Belgium, Denmark, France, Greece, Spain, Australia, Canada, Japan, Israel, Russia, China and India are some of the countries scoring 20 for allowing citizens to relocate to avoid tax.
Perception, which carries 10% weightage, is based on both subjective views and data from World Happiness Report and the Human Development Index. It basically asked – “Will anyone bother you at the airport as being a citizen of that country?” As expected, most of European countries score the highest. Interestingly, the United Kingdom scored only 20 out of 50 full mark.
While UAE (total score: 110.50) stunningly tops the list for 2023, Luxembourg dropped to second place with total score 108.00. It’s worth noting that unlike previous years, the index has excluded “visas-on-arrival and e-visas”, leading to many countries to lose ground on this factor. Luxembourg actually beats the UAE on all categories except travel and taxation.
Switzerland, sharing the second spot with Luxembourg, has improved from fifth position last year. The Swiss is one of only three non-EU countries to make the top-10. The country has a long history of banking secrecy and strict bank-client confidentiality reaching back to the 1700s. The high levels of liberty and privacy ensure the citizens have the right to protection of financial privacy.
Ireland, also known as a tax haven for tech giants like Microsoft, Google, Apple and Facebook, has a total score of 107.50 and shares the fourth spot with Portugal on the Nomad Passport Index. Ireland offers one of Europe’s lowest corporate tax rates, while its passport’s visa scores are among the highest. Portugal has been a popular destination among Americans.
Housing prices, political divisions, high cost of living, the popularity of remote work, crime rates in some U.S. cities and a strong dollar are among the reasons Americans relocate to Europe. And Portugal has become the top on the list for expats and retirees to enjoy the good life and the country’s Golden Visa programme. The number of Americans living in Portugal jumped 45% in 2021 from the previous year.
Besides wealthy people, digital nomads – people who travel freely while working remotely using technology and the internet – have been flocking to the country. Launched in Oct 2012, the Portuguese Golden Visa allows you to live, work, and study in Portugal, and provides the opportunity to become a permanent resident or a citizen in the country in only five years.
The best part is you are only required to spend a minimum of “7 days” in Portugal per year. The programme was so popular that more than 11,500 applicants have received their Golden Visas. However, on Feb 16, 2023, the Portuguese Prime Minister announced the termination of the programme due to the housing crisis – skyrocketing rental and purchase prices – as a result of influx of foreigners.
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March 3rd, 2023 by financetwitter
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