Portugal Yield Fund Investment versus Real Estate for the Portugal Golden Visa – Which to Pick?

The Portugal Golden Visa is an attractive residency by-investment scheme, inviting qualifying applicants to invest in the nation and, in turn, obtain legal residency. One of the key benefits of the Golden Visa is the sheer range of investment routes available, including investing in real estate or choosing the fund investment Portugal option.

This guide will walk you through the fund investment option, comparing it to the more traditional route of investing in property for the Portugal Golden Visa. By the end of this guide, you should have a clearer understanding of which investment route is right for you.

 

The Portugal Golden Visa: In Brief

Since the Portugal Golden Visa’s inception in 2012, the program has attracted over 11,535 investors to date, rewarding foreign applicants with residency permits, unlimited visa-free travel access to the European Union, and the opportunity to live, work, or study in Portugal.

Known for its flexible application requirements, relatively straightforward timeline to residency, and affordable investment options, the Portugal Golden Visa scheme is a favorite among American, Russian, Chinese, and Brazilian investors. There are many different Golden Visa investment options available to investors, and the minimum investment required will depend based on the route chosen.

The Portugal Golden Visa program is also an excellent way for UK citizens to secure EU residency following Brexit. For further information, you can read our article on the Portugal Golden Visa for UK citizens.

For more information, consult our fund investment option.

The most common investment routes include:

You can consult our article on interior and low-density areas to understand the location requirements for the real estate option.

The Portuguese Golden Visa: Fund investment Portugal option

The minimum investment amount for the Portuguese Golden Visa investment fund option is €500,000. Golden Visa applicants are granted Portuguese residency in a short timeframe.

Venture capital simply means a pool of investment funds that are managed by authorized experts in the field. There are many Portugal venture capital funds that are eligible for the Portuguese Golden Visa.

Regardless of the fund you choose, it needs to be regulated. Portuguese investment funds offer investment options in areas like energy, industry, healthcare, technology, and real estate.

Some benefits to the fund investment Portugal option include:

• The dividends and capital gains returned to Golden Visa investors may be tax-exempt if you invest in a venture capital fund.
• Some funds will have a minimum return hurdle rate, which is an advantage for investors.
• A handful of funds are supported by the Portuguese government through subsidies or financed by the IFD (Instituição Financeira de Desenvolvimento).
• The funds are regulated and comply with the Portuguese Securities Market Commission (CMVM) rules.
• You can have the opportunity to invest directly in real estate development in Portugal.

As mentioned, many Golden Visa investment funds exist, such as real estate, technology, and healthcare. Examples of Portuguese investment funds include the Portugal Visions Fund and the Portugal Opportunities Fund.

For more comprehensive information, consult our investment funds Golden Visa guide.

 

Advantages of the Fund Investment Portugal Option versus Real Estate

There are numerous advantages to consider when choosing the fund investment Portugal option over real estate, including:

• The possibility to diversify your investment instead of investing in one or two properties.
• Tax advantages on fund earnings and no withholding taxes to pay
• Low acquisition fees: No transaction fees compared to property acquisition which comes with IMT tax and stamp duty.
• Professional fund managers handle the investment. With commercial and residential real estate, you are the sole proprietor of your property unless you find a third-party property manager, which comes at a cost, while for investment funds, you’ll have a designated fund manager.
• By choosing the investment fund route, you save time and legal fees compared to acquiring property.

 

Disadvantages of the Fund Investment Portugal Option versus Real Estate

However, it’s important to consider the cons if you opt for the fund investment option instead of investing in Golden Visa Portugal Step-by-Step Guide.

Specifically:

• The Portuguese funds are classified as ‘risk funds’, meaning a certain degree of risk is applied to this investment route.
• The funds do not guarantee the invested capital or a stable yield.
• Lack of control – the fund managers handle the investment. The fact that fund managers are in control can be both an advantage and disadvantage to the investment fund option.

 

Things to Consider Before Committing to the Fund Investment Portugal Option

Additional considerations must be considered when choosing the fund investment Portugal option.

1. Is my selected Portugal yield fund eligible for the Golden Visa?
2. What is my fund investment strategy, and what are my legal obligations?
3. Do the Portuguese authorities regulate the fund?

As an investor for the Golden Visa, you must keep your investment for a minimum of five years, when you can then apply for permanent residency and Portuguese citizenship. It’s essential to have an investment strategy in mind and ask about the exit strategy for the fund.

 

The Investment Funds Option versus the Real Estate Option: Final Verdict

Whether you opt for the funds or real estate investment route for Portuguese residency, the decision is ultimately a personal one. As mentioned above, the most notable difference is the capital deployed when investing in Golden Visa investment funds compared to Portuguese real estate.

Specifically, you pay less tax overall for the investment funds compared to the property route, plus there will be fewer legal fees to contend with. Funds also offer investment portfolio diversification and exposure to other sectors, while the traditional real estate route is somewhat more limiting.

Having said that, it’s important to note that investment funds carry a longer life term of six to ten years, whereas there’s no such minimum term for property investment. Also, as we’ve mentioned, be sure to have an investment strategy in place.

 

Speak to a Fund Investment Specialist

Global Citizen Solutions is a boutique investment migration consultancy firm focused on finding the right residency or citizenship plan for individuals wanting to secure their future and become global citizens.

With offices in Portugal, UK, and Brazil, our multicultural and multilingual team guide individuals and families from start to finish, providing expert advice considering freedom, mobility, taxation, and security. If you are interested in applying for the Golden Visa in Portugal, be it through buying a property or investing in a fund, we can help.

Get in touch today and schedule a free initial consultation. If you would like more information on the Portuguese Golden Visa funds route, including discussing the Portugal Golden Visa investment fund list options, we’d be more than happy to hear from you.

Get in touch today and schedule a free initial consultation.

Portuguese Investment Funds and PFICs

What is a PFIC (Passive Foreign Investment Company)?

The Passive Foreign Investment Company (PFIC) rules are designed to prevent United States persons from deferring tax on passive income earned through non-US corporations. Also, PFIC rules are in place to avoid converting this income into capital gains that will then be taxed at preferential rates.

A foreign corporation is a PFIC if it meets either:

1. Passive Income Test – a foreign corporation is a PFIC if greater than or equal to 75% of its gross income is passive income, for example, dividends, payment in lieu of dividends, interest, rents, royalties, and annuities.
2. Passive Asset Test – a foreign corporation is a PFIC if the average annual percentage of the fair market value of all passive income-producing assets is greater than or equal to 50% of the value of the entity’s assets. This is determined on a quarterly basis. It is considered passive if it generates passive income or is reasonably expected to generate passive income in the foreseeable future.

PFICs are mostly “pooled investments” incorporated outside the US. Almost all foreign mutual funds are PFICs, including Portuguese investment funds.

In other cases, possible examples of PFICs include the following:

• Passive investments in offshore mutual funds and hedge funds, including venture capital funds, stocks, annuities, or income-producing property;
• Foreign brokerage accounts with mutual funds, bond funds, and equity funds;
• Foreign retirement accounts;
• Foreign cash value life insurance policies.

What is Form 8621?

Form 8621 is the form that a US person must file if they are a direct or indirect shareholder of a passive foreign investment company (PFIC) under some specific criteria.

Who must file Form 8621?

According to the IRS, any US person that is a direct or indirect shareholder of a PFIC must file Form 8621 for each tax year if they:

1. Receive certain direct/ indirect distributions from a PFIC
2. Recognize a gain on a direct/indirect disposition of PFIC stock
3. Are reporting information with regards to section 1296 mark-to-market election or a QEF (Qualified Electing Fund)
4. Are making an election reportable in Part II of the form
5. Will need to file an annual report pursuant to section 1298(f)

Each PFIC must have a separate Form 8621 in which stock is held. All interests in PFIC’s must be reported annually.

When must Form 8621 be filed?

The investor must calculate their pro rata share of the earnings of their investment annually, regardless of having received any distribution or not, as it will be considered taxable income for that year.

By doing this, you will maintain the beneficial capital gain rate. Otherwise, you would be subject to a considerably higher capital gain tax rate.

Nonetheless, you can only make this selection in the first year of holding. It is highly complex to make a QEF election retroactively.

Portuguese Investment Funds and PFIC

Most Portuguese Investment funds have until the end of April to report accounts, while US tax filing is available until 15 April each year.

This means that, due to the schedule difference between the date by which investment funds in Portugal issue their reporting and the date of submission of tax returns in the US, US investors may consider filing for the tax extension deadline of 15 October to secure enough time to be able to file their taxes appropriately.

Any information contained in this article is not intended as or to be construed as tax advice. We advise our clients and readers to seek professional tax consultancy from a trusted partner in their jurisdiction.

Frequently Asked Questions about the Fund Investment Portugal option versus the Real Estate Option

Which Golden Visa investment route is the most popular, the fund investment option or the property option?

While the real estate investment route has traditionally been the most popular option for the Portugal Golden Visa program, the Portugal fund investment option is growing in popularity. The minimum investment requirement is €500,000 for the Portugal Golden Visa funds option.

What will change regarding the Golden Visa investment fund route after January 2022?

After January 2022, the minimum investment for the Golden Visa investment fund increased from €350,000 to €500,000.

It is important to stay up to date with Portuguese legislation and be aware of any changes to the program. You can consult our article on the Golden Visa Changes, Updates, and New Rules for the latest information on the Golden Visa program.

What are the benefits of choosing the fund investment Portugal option compared to real estate?

Some key benefits of opting for the investment fund route include the option to diversify your investment to other sectors, as well as paying lower tax amounts. With both options, you can apply for permanent residency and Portuguese citizenship, provided you hold your investment for five years and fulfill all the requirements under Portuguese nationality law.

Remember that if you opt for the investment fund route to have an investment strategy in mind.

Who is considered a US Person?

According to the Internal Revenue Service or IRS, the term “United States Person” means:

• A citizen or resident of the United States 
• A US-based partnership 
• A US-based corporation 
• Any US estate other than a foreign estate 
• Any US-based trust if: 
  • A court in the USA can display primary supervision over the trust’s administration, and 
  • One or more US persons have the authority to control the substantial decision-making processes of the trust.
• Any other person that is not a foreign person.