Portugal Golden Visa Investment Fund | Read this first!

UPDATE: The minimum investment requirement for the Portugal Golden Visa Investment Fund increased to €500,000 from  January 1, 2022. For more information, consult our Portugal Golden Visa changes guide here.

Portugal offers spellbinding experiences for avid travelers, foreign investors, and international families alike. Thanks to its golden visa program, it’s possible for expats to acquire residency by investment and even Portuguese citizenship in this charming nation. One of the best ways to get a Portuguese Golden Visa is via the Portugal golden visa investment fund pathway.

In this guide to Portugal’s investment funds for the golden visa, we cover the following:

• Benefits of the Portugal investment fund
• Key considerations to take into account before investing in funds
• Fund eligibility criteria

Portugal Golden Visa Investment fund highlights

The Portugal Golden Visa Program is a five-year residency by investment scheme. Qualifying applicants must invest a significant amount into the Portuguese economy to obtain a Portuguese residence permit. Portuguese citizenship is attainable after five years of holding your investment. Note that the golden visa investment fund option is one of many qualifying investment options. For more information about the Golden Visa benefits, investment options, and requirements, consult our Golden Visa Portugal Guide here.

A capital transfer in investment funds or venture capital funds to the amount of or greater than €500,000 is needed to procure legal residency in Portugal.

The funds themselves must be focused on the capitalization of companies registered under Portuguese law, with a minimum maturity of five years at the time of the investment and at least 60% of the value of the investments made in commercial companies on national territory.

Interestingly, Portugal Golden Visa Statistics point to an influx of investors rushing to invest in the Golden Visa this year,  with enhanced interest in the funds investment golden visa option.

The rising popularity of the investment fund option for the Golden Visa

Property is usually the preferred route for investment in Portugal when it comes to applying for the Golden Visa. However, more and more investors are turning to the Golden Visa Investment Fund option, seeing it as a new way to acquire legal residency.

Having ownership of a property can be attractive to some, especially when it can result in rental income or even a holiday home. In practice, this method may not suit everyone, as finding and purchasing the right property can be difficult and time-consuming. For extra clarity, consult our fund investment Portugal guide where we compare the traditional real estate investment route with funds.

Venture capital funds (or FCR – Fundo de Capital de Risco) are considered a qualifying investment for those wishing to apply to Portugal’s Golden Visa. With a minimum investment of €500,000 in an FCR fund that qualifies for Golden Visa, investors can now successfully apply for the Portugal residency by investment program and have immediate access to the program’s benefits.

The name Venture Capital may sound daunting and complicated but it is simply a designation of investment funds that are managed by corporate experts in the field who seek to invest in start-ups or medium-sized projects with strong growth potential. Each fund has a specific well-defined investment mandate and may focus on sectors such as energy, industry, technology, healthcare, or real estate. Funds are regulated by Portugal’s regulator, the CMVM.

Benefits of the Portugal Golden Visa investment fund

There are a number of benefits for picking the investment fund option for the Golden Visa, that the other investment routes lack. Here you can find an in-depth overview of the key benefits. 

Lower investment	Compared to other investment routes, such as capital transfer, for which you need an investment of €1.5 million, the investment fund option allows you to obtain Portuguese residency from a €500,000 investment.
Low fees and taxes	Investment fund investments do not lead to large fees and taxes, such as the real estate option. Purchasing a property in Portugal requires an IMI transfer tax (average 6%), stamp duty (0.8%), and annual municipal taxes (ranging from 0.3-0.5% annually). In contrast, the investment fund route has none of these taxes.
A safe and secure investment	The funds are regulated and must comply with the rules stipulated by the Portuguese Securities Market Commission (CMVM), which means that fund managers are regularly audited by third parties. Alongside being registered by the CMVM, the Bank of Portugal, and the external Fund Management company also regulate the fund. In addition, the Portuguese Tax Authorities audit the fund. The thorough and high levels of regulation mean that the fund must comply with the Portuguese legislation and tax laws.
Tax-efficiency	While all real estate rental income is subject to a fixed 28% taxation, venture capital funds are a tax-efficient vehicle — dividends and capital gains returned to investors may be tax-exempt. Some cases allow for exemptions to withhold tax on income generated through the fund, especially if the investors are not tax residents in the country.
Diversification	The Portuguese legislation governs the funds to obtain a certain level of diversification. There are quotas as to what percentage a particular asset or investment in the fund may constitute of the total fund portfolio. This allows for diversification of investments within the fund, and an alleviation of risk for the participating investors.
Potential earnings	The annual yields and eventual capital gains may be significantly higher than other investment funds related to the Golden Visa program, depending on the focus of the investment fund.
Management delegation	The investment fund Golden Visa is professionally managed by experts in each specific sector. While being a real estate landlord can be a hassle, owning a participation unit in an investment fund is much more straightforward. The management burden is delegated to the fund managers. This may also be a disadvantage for control-loving investors, making it both an advantage and disadvantage of investment funds.

Disadvantages of the Portugal Golden Visa Investment Fund

Investment funds also have some disadvantages to them, which are outlined below. 

Lack of control	While also an advantage, in that the fund manager does all the work, the investment fund route requires the investor to trust his or her funds with an external fund manager that will determine the investment decisions and steer the strategy. Some investors may not like this lack of control.
Exit issues	Most investment funds will contractually ensure the participants that the fund will not be dissolved before a minimum number of years to make sure that the participant can achieve the time period where he or she is able to apply for permanent residency in Portugal. There can be some issues with this: (1) the resale of the participation unit before the fund dissolves is difficult in most cases (2) funds normally have extension periods, but these are managed by the fund managers and participants have no say, and (3) if the ultimate objective of the investment fund is to sell the portfolio at a target appreciation, then there will be no guarantee of what the corresponding market will be when the fund decides to sell.
Sharing the earnings	The potential yield and ultimate capital appreciation are shared between the managers of the fund. The management and performance fees will vary from fund to fund.
KYC burden	Participants will need to share some documents and critical information with the managers of the fund, including proof of income and source of income. Such Know-Your-Client (KYC) burden does not exist in real estate acquisitions.

Golden Visa investment options

For your ease, the full investment options can be found below.

Portugal Golden Visa Program: Fees and costs

	Real estate	Real estate (rehabilitation project)	Capital transfer	Investment fund
Minimum investment	€350K	€500K	€1.5 million	€500,000
Taxes
IMI Transfer Tax	4.58%	6.5%	0%	0%
Stamp Duty	0.8%	0.8%	0%	0%
Notary Cost	€1,000	€1,000	0%	0%
Exit fees	5%+VAT	5%+VAT	0%	0%
Commission	5%+VAT	5%+VAT	0%	0%
Performance Fee	0%	0%	0%	35% of the profit*
Management Fees	0%	0%	0.5%	1.5% annually**
Legal Fees***	Varies	Varies	Varies	Varies
Total amount (approximate without Exit Fees, Management Fee, or Legal Fees taken into consideration)	€369,840	€537,500	€1.5 million	€500,000

*This will vary depending on the investment fund. It is typical for the performance fee to range between 20-50% above the hurdle of the profit.

**This will vary depending on the investment fund. It is typical for the annual management fee to range between 1-2% of the amount invested.

***Legal fees will vary considerably, depending on the law firm, the number of your family members, alongside other variables. Legal fees will not differ greatly between different investment routes.

Fund investment profile & diversification

The overall level of security of risk of a Portuguese venture capital fund or ‘Golden Visa Portugal investment fund’ will depend on many factors including investment mandate, managers’ credentials, leverage and liquidity, and legal documents.

Some funds may offer limited potential for capital appreciation with a safer investment profile while others may have a more leveraged approach with an aim to provide investors multiples of the capital invested. For example, high-growth companies focused on technology have a different profile to property development projects that tend to have a more predictable cash-flow curve.

Funds may offer the opportunity of an early exit but as a rule of thumb, usually, the investor should expect to realize all gains after five to ten years.

The risk-return profile of these funds will vary according to the sector exposure and portfolio diversification (i.e. how many companies comprise the fund’s portfolio).

Examples of risk-return levels based on sector exposure and portfolio diversification

List Of funds that qualify for Portuguese Golden Visa

Portugal is known for its real estate market potential and stable growth in recent years which has attracted thousands of foreign investors. It is no surprise to find a whole variety of investment funds in this sector ready to take advantage of the market conditions. Both local and foreign investors find plenty of options on where to invest.

We at Global Citizen Solutions are constantly monitoring the real estate market and the opportunities this thriving sector brings. Regularly check back in to see what fund types are on offer.

Portuguese Golden Visa Funds with real estate exposure

If you’re looking to invest in funds to qualify for the Portuguese residence permit, you’ll notice that a big portion of the eligible investment funds is concentrated on real estate. Within this sector, each fund can be broken down into a particular segment such as residential, commercial, hotel developments, logistics, and even agriculture.

The expected return across such funds varies to some degree. While some funds explore the development and rental of properties, others are engaged in purchasing real estate, revamping them fully, and selling at a margin. While the former offers the possibility of dividends derived from their rental activities, the latter offers a higher potential for capital growth.

Capital growth funds

Funds that explore the residential market either by renovating buildings in prime locations like Lisbon or Porto or by building new properties will likely use the profits from one project to fund the next one within the life of the fund. That means all capital and profits are likely to be distributed upon fund liquidation once all projects are completed.

Say these projects take two to three years to be completed. A six or seven-year term fund will likely have two cycles of projects where profits may compound and get distributed at the end of the term.

Dividends and growths funds

Funds that invest in yielding generating assets such as retail parks, warehouses, and hotels may offer expected annual dividends once all the capital is deployed.

The expected dividend yield usually varies from 2% to 5% depending on the rental proceeds net off management fees. In addition, the net value of the assets may increase over the long term, and thus the value of the shares too.

Finance real estate 

Some funds have an alternative strategy where they focus on preferential cash flows at the expense of lower returns. Usually, such strategy involves the fund lending a great portion of its capital to the companies (SPVs) that hold real estate assets, while taking a smaller equity position in them.

In other words, the fund would acquire a percentage of the company shares (whose valuation is done independently), and then it would lend money to the company with a fixed interest rate. The real estate asset, project, or licensing may sometimes work as collateral in the absence of senior debt.

Therefore, the rate of return of such funds predominantly reflects the fixed income from such debt instruments.

Who can participate in the Golden Visa fund?

The following applicants are eligible to qualify for the Golden Visa fund option:

• Be a non-EU/EEA citizen or a non-Swiss citizen,
• Have a clean criminal record
• Be over 18 years old
• Have sufficient legal funds to invest in

Depending on the fund and the fund management company, the investment funds may have extra requirements.

In some cases, the investor must:

• Have some experience with a financial instrument like company stock, government bond, company bond, fund, etc.
• Submit proof of having enough funds
• Show where the source of funds come from

Can a US Citizen Invest in a Portuguese Investment Fund for Golden Visa?

Absolutely yes, an American citizen can certainly qualify for the investment fund pathway under the Golden Visa scheme. However, do note that the IRS requires foreign financial institutions and certain non-financial foreign entities to report on the foreign assets held by their U.S. account holders. So, any bank, fund, and fund manager in Portugal who has an American client or investor, must abide by the U.S. government’s governments.

While some banks and funds shy away from working with American investors, there are banks and funds in Portugal that are open to accepting Americans. For more information, consult our Portugal Golden Visa Qualified Investment Fund Rules and Regulations guide.

Documents and requirements

When applying for the Portuguese Golden Visa, there are numerous documents you must submit to the Portuguese authorities. Note that if any document is missing or incomplete, your application for the Portugal Golden Visa can be significantly delayed. That’s why it’s important to stay informed about all the necessary paperwork you must prepare beforehand.

Note that the documents listed below are not exhaustive and additional documentation requirements may be requested by the authorities.

General document requirements for the Portugal Golden Visa

• Passport or another valid travel document
• Proof of entry and legal stay in the National Territory
• Proof that you are covered by health protection, namely:
  • Document certifying that you are covered by the National Health Service, or;
  • Document showing that you are an internationally recognized health insurance holder for the period of legal residence requested
• Criminal record certificate from the country of origin, or the country (or countries) where you have resided for more than one year (certified by diplomatic representation or Portuguese consular office). The certificate cannot be older than three months and must be translated into Portuguese;
• Proof of your tax identification number, or equivalent, of the country of origin, of residence, or fiscal residence;
• Completion of Application (using the approved model) containing the authorization for consultation of the Portuguese Criminal Registry;
• Declaration on Commitment to Honor, by which the applicant declares that he will fulfill the minimum quantitative and time requirements (five years) for the investment activity in the National territory;
• Present a negative statement debt issued, with a maximum advance of 45 days, by the Tax Authority and Customs and Social Security or, if not possible, declaration of the non-existence of registration with these entities;
• Receipt of payment of the ARI application analysis fee.

Golden Visa Portugal investment fund- documents required

You must demonstrate that you’ve made the investment with the minimum required amount and must respectively submit the following documents:

• Declaration by the credit institution authorized or registered in the national territory with the Banco de Portugal, attesting to the effective transfer of an amount equal to or greater than what is required;
• Certificate proving ownership of the participation units, free of charge and charges (issued by the entity responsible for maintaining a registered updated version of the holders of participation units, under the terms of the Law, of the respective management regulation or contractual instrument);
• Declaration issued by the management company of the respective investment fund, attesting the viability of the capitalization plan, the maturity of at least five years, and application of at least 60% of the investment in commercial companies based in the territory national;
• Certificate of commercial registration, if the investment is made through a company single shareholder, demonstrating that the applicant is the partner, cf. Article 65a (13) of Regulatory Dec. 84/07, of 11/05, in its current wording.

Portugal Golden Visa fund requirements

If you are interested in applying for the Portuguese Golden Visa through a Venture Capital Fund (FCR), you must carefully make your decision based on two important criteria:

• Fund eligibility for the Portuguese Golden Visa
• Fund credentials including fund strategy, management pedigree, and legal obligations

Not every private equity fund in Portugal qualifies for the Golden Visa program. You need to make sure the chosen fund fulfills all the necessary technical requirements as listed by the Portuguese border service “Serviço de Estrangeiros e Fronteiras” (SEF) and that the investment fund is regulated by the Portuguese CMVM.

A few questions the investor should consider before investing in Golden Visa funds:

• Is the fund regulated by the Portuguese authorities?
• Is the fund fully eligible for the Portuguese Golden Visa according to SEF?
• Does the fund have the right attributes to safeguard the investor’s Golden Visa status? As a Golden Visa investor, you will need to maintain your investment in the Golden Visa fund for a minimum of five years when you are able to apply for permanent residency and citizenship in Portugal.

How are the Portuguese Golden Visa investment funds regulated?

The funds are regulated by CMVM (The Portuguese Securities Market Commission) who require funds to comply with the following requirements including but not limited to:

1. Report the valuation of their net assets on a semi-annual basis. That means investors may have their participation unit price revised every six months
2. Employ independent accredited accounting firms such as PwC, KPMG, or EY for annual audits.
3. Disclose their fees in the PPM/management regulation document. That means investors should have clarity on the management entities’ fees and custodian bank charges.

Timeline

The length of time the Golden Visa process takes depends on many different factors, including how long your decision-making process takes, how quickly you are able to provide the correct documents, the experience of the law firm, and the schedule of the SEF office, amongst other things. 

Here is a step-by-step process of the Portugal Golden Visa Investment Fund process:

Step 1: Choose an appropriate Golden Visa Investment Fund

Step 2: Appoint a law firm

Step 3: Get a NIF number (tax identification number (NIF) in Portugal)  and open a Portuguese bank account

Step 4: Sign and complete the necessary subscription documents

Step 5: Fund managers evaluate and approve you as an investor

Step 6: Transfer the funds from your bank account to the fund account

Step 7: The fund manager issues the fund subscription declaration

Step 8: Provide all the Golden Visa documents to the law firm and pay the SEF application fee

Step 9: SEF Biometrics appointment scheduled and you visit SEF in person

Step 10: SEF issues a residence permit that is valid for an initial two years

Step 11: Golden Visa residence permits are renewed every two years, and you are well on your way to Portuguese citizenship

Step 12: Portuguese citizenship and passport can be granted after five years

Portuguese Golden Visa investment fund credentials

Once we’ve established that the fund is appropriately regulated and is an eligible Golden Visa instrument, the second phase of due diligence is required on the fund credentials.

The three main aspects of analyzing a Portuguese Golden Visa qualified investment fund include:

Fund investment strategy: Does the fund investment strategy make sense? What is the term of the fund? How does the fund plan on paying back investors?

Fund manager credentials: Do the managers have the right experience and credentials?

Fund legal: Are the legal documents appropriately drafted to safeguard the investor’s investment?

Useful industry acronyms for the Portugal Golden Visa investment fund

Regarding the terms, it would be useful to understand some Portuguese specific acronyms used in this industry, such as:

UP (Unidade de Participação)

PU (Participation Unit) in English, is the equivalent of stocks or shares.

FCR (“Fundo de Capital de Risco”) – Private Equity Fund or Venture Capital Fund

SCR (“Sociedade de Capital de Risco”) – Venture Capital Fund

RG (“Regulamento de Gestão”) – Management Regulation a.k.a PPM (Private Placement Memorandum)
Also, an important entity to have in mind is CMVM. It is the Portuguese equivalent of SEC (Securities and Exchange Commission).

CMVM is a legal entity governed by public law and is part of the European System of Financial Supervisors  (ESFS) and the National Council of Financial Supervisors. (Chapter 1, articles 1 – 3).

The importance of an informed decision

It is important that investors exercise careful consideration when selecting the correct fund investment. Legal documents, as well as the caliber of the managers, must be thoroughly scrutinized. Check out additional information on investing in Portugal for citizenship.

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 with Global Citizen Solutions today and schedule a free initial consultation.

Frequently asked questions about the Portugal investment fund for the Golden Visa

Can I get residency in Portugal through investment funds?

Yes, it is possible to get a residency permit in Portugal through investment funds. You must make a minimum investment of €500,000 and ensure the investment fund is accepted for the Portugal Golden Visa.

Does Portugal have citizenship by investment?

The Portugal Golden Visa program doesn’t automatically lead to citizenship. However, Portuguese citizenship is possible if you hold your respective investment for five years, and pass on the eligibility criteria which would ensure Portuguese citizenship by naturalization.

How will Portugal Golden Visa changes in 2022 affect the investment fund option?

From 1 January 2022, the Portugal Golden Visa will undergo an extensive makeover. Investment options will significantly change, including the investment amount needed for the investment fund pathway. Specifically, a capital transfer in Portuguese investment funds to the amount of or greater than €500,000 will be needed to apply for legal residency in Portugal. The funds themselves must invest at least 60% of their capital on companies registered under Portuguese law. The funds should be over a five years term in order to accommodate the requirements of the Golden Visa program.

What are the benefits of the Portugal investment fund Golden Visa?

Funds are specifically managed by experts in each sector, you can obtain residency with a Portuguese fund investment, and many investors are exempt from paying tax in Portugal. Funds are also regulated by the Portuguese Securities Market Commission.

Are all Portuguese investment funds eligible for the Portuguese Golden Visa?

Not all Golden Visa Portugal investment funds are eligible for the Golden Visa, which is why it is important to consult an expert before investing in one.

Can I invest in more than one fund for the Golden Visa application?

Yes, you may invest in more than one fund if the sum of your investment is €500,000 or more. For example, you can invest €200K in fund X and €300K in fund Y, since the total sum is €500K you will be able to apply for the Golden Visa.

Theoretically, you could invest in three or more funds (subject to their minimum ticket).

Would I lose my GV if my participation units total value depreciates?

No, if you invested the minimum required (€500 000), you should not lose your Golden Visa, regardless of the price fluctuations on shares during and at the end of the term of the fund. What matters is how much you invested initially.

Can I exit my investment prematurely for the Portugal Golden Visa?

It may be possible to exit however investors should consider the following:

1. You would not be able to renew your Golden Visa application or acquire permanent residency if you exit before the five-year minimum term required for the Golden Visa.
2. Traditionally, venture capital funds are not liquid investments, and one should expect to sell their shares either back to the fund or to another investor at a discount.

Is Portugal Golden Visa worth it?

The Portugal Golden Visa is worth it if you’re looking to widen your opportunities, procure EU residency, and even Portuguese citizenship after five years.

Who is considered a U.S. Person?

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

• A citizen or resident of the United States 
• A U.S. based partnership 
• A U.S. based corporation 
• Any U.S. estate other than a foreign estate 
• Any U.S. based trust if: 
  • A court in the USA is able to 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. 

What is a PFIC (Passive Foreign Investment Company or Qualifying Electing Fund)?

The Passive Foreign Investment Company (PFIC) rules are designed to prevent United States Persons from deferring tax on passive income earned through non- U.S. corporations. Also PFIC rules are in place to prevent 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, 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, And, it is considered passive if it generates passive income or is reasonably expected to generate passive income in the foreseeable future.

Almost all foreign mutual funds are PFICs. In other cases possible examples of PFICs include: 

• Passive investments in offshore Mutual Funds, Hedge Funds, including VC Funds, Stocks, Annuities, or Income Producing Property; 
• Foreign Brokerage Accounts with Mutual Funds, Bond Funds, Equity Funds; 
• Foreign Retirement Accounts; 
• Foreign Cash Value Life Insurance Policies. 

What is Form 8621?

Form 8621 is the form that a U.S. 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 U.S. 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 Passive Foreign Investment Company or Qualifying Electing Fund (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. 
4. In Part II of the form are making an election reportable.
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 annually their pro rate share of the earnings of their investment, regardless of having received or not any distribution, 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 considerable higher capital gain tax rate. 

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

Portuguese Investment Funds and PFIC

Most Portuguese Investment funds have until the end of April to report accounts, whilst U.S. tax filling is due until the 15th of April.  

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

Any information contained in this communication 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. 

What is the difference between venture capital Portugal and Portugal private equity?

Venture capital and private equity funds are becoming increasingly popular for individuals seeking a Portugal Golden Visa. The regulatory differences between venture capital and private equity are few: 

• They tend to use the same investment vehicles (private equity funds, private equity companies, or unregulated corporate structures)
• The equivalent tax treatment and regulatory disclosure requirements
• No real difference in fund governance between the two fund investment types 

There are more differences between the commercial terms of raising funds and the economics of investments that are made. 

Venture capital investments are generally smaller and the participation of public or state-owned investors is more prevalent, which can result in more investment restrictions. Venture capital investments are normally made via equity or quasi-equity convertible investments, meaning that these investors will typically acquire smaller stakes in investee companies with regard to buyout and growth investors, and have less involvement in the management of the investment.

What is the minimum amount I can invest in Golden visa investment fund Portugal?

The minimum investment requirement for the Golden Visa Fund investment option increased to €500,000 from January 1, 2022. The fund investment route is gaining in popularity, particularly amongst US nationals.