“MAL-TAming” – Malta aimed and Luxembourg tamed the Maltese investor citizenship scheme. Is there anything to learn from an FDI perspective?

Johannes Barbist (Binder Grösswang, Partner)

Malta and certain other EU member states (e.g., Cyprus, Bulgaria, partly even Austria) have been operating schemes with preferential access to citizenship or residence for quite some time and partly still do. The standard strenuous path to citizenship or right of residence in these EU member states could be eased into a fun downhill ride for individuals making comparably high investments and/or payments in such jurisdictions in exchange for lower eligibility thresholds (e.g., terms of minimum residence in the respective jurisdiction). That was the idea behind “golden passports” or “golden visas” (see the 2018 Transparency International Report).

In the case of Malta, the European Commission was not amused with the Individual Investor Programme initially adopted under the Maltese Citizenship Act in 2013/2014 and revised in 2020. Given that the pre-litigation procedure could not solve the issue, the Commission brought an action before the Court of Justice of the European Union under Art 258 TFEU seeking a declaration that, by establishing and operating such investor citizenship scheme, Malta has failed to fulfil its obligations under Art 20 TFEU (Union citizenship) and Art 4 para 3 TEU (principle of sincere cooperation).

After outlining the main findings of the Court, this blog post will provide an overview of initial reactions from practitioners and academia, followed by a first assessment of the potential consequences arising from the judgment, in particular with respect to foreign direct investment (FDI) screening in the EU.

The ECJ judgment

On 29 April 2025, the Court rendered its judgment in Case C-181/23 (Commission v Malta). The Court – looking from the heights of the Luxembourgian plateau de Kirchberg to the sunny sea-side levelled island of Malta – held that the Maltese citizenship-by-investement (CIB) scheme is contrary to EU law.

The main findings of the Court (paras 79 -121) can be summarized as follows: The judgement rests on the premise that every person holding the nationality of an EU member state is a citizen of the EU and union citizenship constitutes the fundamental status of nationals of the EU member states. Union citizenship is a “+” (additional) to and does not replace national citizenship. Each EU member state is competent to define the conditions under which its nationality can be granted, lost or withdrawn. However, this national competence must be exercised having due regard to EU Law, also when deciding upon the grant of nationality (Malta had argued that, in such constellations, only significant breaches of the Union values and objectives could constitute a breach of EU law).

The principle of mutual trust between the EU member states + the principle of mutual recognition are of fundamental importance. They allow to have created and maintained an area of freedom, security and justice without internal frontiers, in which every Union citizen can move and reside freely, can exercise the fundamental freedoms (work, right of establishment, right to provide services), can exercise political rights and can access diplomatic and consular authorities of other EU member states. Thus, the Court regards the provisions relating to Union citizenship as an integral part of the Union’s constitutional framework. Moreover, it is one of the principal concrete expressions of the solidarity which forms the vary basis of the process of integration and which is an integral part of the identity of the EU.

In turn, and in accordance with the principle of sincere cooperation (Art 4 para 3 TEU), each EU member state must refrain from any measure which could jeopardise the attainment of the Union’s objectives. The national competence to grant (or withdraw) nationality is consequently not unlimited. While each EU member state is competent to and has a wide discretion to define the conditions for establishing this particular relationship with its nationals (grant of nationality), this power may not be exercised in a way that is manifestly incompatible with the very nature of Union’s citizenship. The bond of nationality with a Member State is based on a special relationship of solidarity and good faith characterised by the reciprocity of rights and duties between the State and its nationals. This special relationship between each EU member state and its nationals also forms the basis of the rights and obligations reserved to Union citizens under the Treaties.

An EU member state manifestly disregards the requirements for such a special relationship (EU member state – national) and thus breaks the mutual trust on which Union citizenship is based (violation of Art 20 TFEU and Art 4 para 3 TEU), if it establishes and implements a naturalisation scheme based on a transactional procedure at the end of which the nationality of that EU member state (and thus the status of EU citizen) is essentially granted in exchange for predetermined investments or payments. A programme of that sort amounts to the commercialisation of the status of nationality of an EU member state and by extension Union citizenship, which is incompatible with the basic concept of Union citizenship as defined by the Treaties. Such a transactional naturalisation infringes the principle of sincere cooperation and would call into question the mutual trust between EU member states, which underlies the requirement that one EU member state must recognise the effects of the granting of another EU member states’ nationality to a person in order for the latter to exercise the rights and freedoms arising from EU law. This mutual trust relates to the premise that the grant of the nationality of an EU member state must be based on a special relationship of solidarity and good faith justifying the grant of rights resulting, in particular, from Union citizenship.

What next?

The present article is not meant to discuss further details of the Maltese CIB scheme and to deep-analyse the specific considerations of the Court to declare that the Republic of Malta established a transactional naturalisation procedure in exchange for predetermined payments or investments amounting to the commercialisation of the grant of the nationality of a Member State and, by extension, that of Union citizenship, resulting in the Republic of Malta having failed to fulfil its obligations under Article 20 TFEU and Article 4(3) TEU.

The Government of Malta quickly issued a press release reassuring that it would respect the decision of the Court, while taking pride in the wealth generated through this scheme over recent years (over € 1.4 billion), expressing its disappointment with the Court’s judgments and defending its case also post festum: issues related to citizenship would fall entirely within the national sphere of competence, and also the Advocate General’s opinion had backed the Republic of Malta’s position.

Commentaries from the CBI industry and certain legal observers were less diplomatic and castigated the ruling as inconsistent with the rule of law and thus judicial activism (Steve Peers), as discarding constitutional guardrails when political expediency so demands (Martijn van den Brink) or as an ultra vires attack against the principle of solidarity (Dimitry Vladimirovich Kochenov and again) and at least a regretfully weakly reasoned judgment (Guillermo Íñiguez):

• no reference to any EU law constraints on member states’ nationality law in the EU treaties;
• the 1992 declaration no. 2 annexed to the text of the TEU and Section A of The Edinburgh Decision make it absolutely clear that member states interpret the Treaty to mean that nationality is defined solely by national law);
• and so on, arguably lacking a sound legal reasoning in substance and on procedure (burden of proof, right of defence and need to dismiss a case where the Commission’s genuine link reasoning is not followed) where the constitutional implications are seismic.

Others welcomed the activist Court, for example the EPP Group in its (rather harsh) political statement “EU citizenship must not be for sale” also pointing towards the background of corruption when the scheme was introduced.[1]

Implication of the Court judgment

1. Does the judgment have retroactive effect? Simon Cox argues that Malta did not ask the Court to limit the temporal effect of its ruling so that it must already be applied to investors who gained the Maltese nationality under the CBI scheme. The Republic of Malta would thus be obliged to rescind CBI granted citizenships, which may again pose questions of law for the Luxembourg court if these citizenships are rescinded (fundamental rights) or not rescinded. The abundance of (Austro-German) literature shows that this question is at least highly disputed. So the Maltese government may have some more weeks to brain-think and will likely exercise coolness in a wait-and-see strategy?
2. Can non-Maltese EU member states suddenly start to deny the status of EU citizenship to new Malta citizens with non-Maltese sounding names? I would strongly advocate to not unilaterally let erode the status of EU citizenship. Better to solve this question in disputes under No. 1 above.

Does the Commission v Malta judgment have any repercussions on FDI proceedings in EU member states?

This question is only relevant to EU jurisdictions that exempt EU citizens from having to obtain FDI clearances for contemplated M&A transactions (such as Austria).

Let me translate the headline into an example: Would the Austrian FDI authority be allowed to qualify nationals of the Republic of Malta (and thus Union citizens) as non-Union citizens if these individuals previously were citizens of a non-privileged foreign country and were granted Maltese citizenship under the mentioned Maltese CBI scheme? Not unless it is clear that the Maltese government has already revoked the citizenship of such an individual.

Would the EU FDI authorities still be allowed to ex officio examine and “call in” acquisitions by CBI Maltese citizen-investors based on the anti-circumvention clause? The EU FDI Screening Regulation specifies in its Recital 10 that anti-circumvention “should cover investments from within the Union by means of artificial arrangements that do not reflect economic reality and circumvent the screening mechanisms and screening decisions, where the investor is ultimately owned or controlled by a natural person or an undertaking of a third country” (see in further detail Frequently asked questions on the EU framework for FDI screening, No. 12).

Legal counsel practicing public administrative law (incl FDI) are often and rightly sceptical when certain artificial arrangements (e.g., pure shell / letterbox companies in the EU) should disoblige a foreign person from a mandatory FDI clearance requirement. However, establishing the existence of circumvention in a case where a third country citizen first successfully secures the Maltese citizenship before investing in an Austrian target company would, to my view, go beyond any rational reasoning – the Maltese authority granting the nationality would need to be seen as “partner in circumvention”.

[1] At some stage, I stopped reading the bulk of online articles that have been published within days post judgment. So apologies for missing clever pros and cons. A neutral Austrian public lawyer (the 70^th anniversary of Austria's neutrality is approaching) should stop short of commenting and should rather briefly reflect on the steps that must or may follow.