Portugal Golden Visa Investment Fund Option:
How It Works
Portugal Golden Visa Investment Fund Option:
How It Works
Did you know that Portugal Golden Visa can now be acquired by participating in a Portuguese investment fund? It is a lesser known investment method, but it presents a number of benefits to the investors.
Check out how the Golden Visa by investment fund option works, its advantages and disadvantages, compared to other available investment methods.
Portugal’s Golden Visa (Residence Permit for Investors – ARI) is the most popular residence by investment program in Europe. It is structured to attract foreign investment to the country, granting a number of benefits in return:
The legal definition of the option on the SEF Legislation is as follows:
“Capital transfer of the amount of 350 thousand Euros, or higher, for the acquisition of units of investment funds or venture capital fund of funds dedicated to the capitalisation of companies, capital injected under the Portuguese legislation, whose maturity, at the moment of the investment, is, at least, of five years and, at least, 60% of the investments is realized in commercial companies with head office in national territory; ”
Many Golden Visa applicants are more used to real estate investments and there is ambiguity surrounding the concept of participating in an investment fund.
In a nutshell, an investment fund is a financial instrument that collects money from investors, with the objective of investing the pool of funds in a portfolio of investments. The fund management makes the investments in accordance with a pre-defined strategy. The fund management is responsible for the administrative entity, while being regulated and supervised by the Portuguese Securities Market Commission (CMVM).
There are a number of different investment fund types available, which qualify for the Golden Visa. These types include:
The risk levels and strategies of each type of funds vary widely.
The Portuguese government has two main objectives in enabling the investment fund method within the Golden Visa program. These are:
The investment fund method of Portugal Golden Visa, apart from obtaining a residence permit in Europe, provides the Golden Visa investors with a series of advantages, compared to other possible investment types. These are mainly related to the minimum investment amount, the associated costs, and the ease of management.
The minimum investment amount required for the investment fund option of Golden Visa is 350,000 Euro.
In comparison to some of the other popular investment methods such as the 500,000 Euro real estate investment or the 1,000,000 Euro capital transfer, the minimum investment required for the investment fund is rather low.
The acquisition of subscription units in a Portuguese fund is simple and fast. Particularly when the process is compared to some of the other investment options like urban rehabilitation real estate investment, set up of Portuguese companies, or generation of jobs in Portugal.
It is sufficient to provide a document issued by the fund management to the SEF and apply for the Golden Visa. In each available fund, there is an authorized fund management company, which implements the fund strategy in assessing, closing, and managing the investments made by the fund. In other words, you can enjoy the passenger seat, while the car is driven by a professional. No tenants, termites, or unpaid rents to deal with.
Subscription in a Portuguese fund has little additional costs, compared to some other investment options.
Buying real estate in Portugal involves a number of costs. These include the Municipality Property Transfer Tax (IMT), stamp duty, notary fees, and legal fees. Additionally, there is a Municipal Property Tax (IMI), which needs to be paid on an annual basis.
As for the funds, there will be no IMT or IMI taxes, nor any stamp duty. You will also be looking at relatively lower notary fees and legal fees. Some funds have an upfront subscription fee. Almost all funds have a yearly management fee. The annual management fees typically range between 1%-2%. Overall, this means the initial subscription to a fund saves you %7-%8 on top of investment amount.
Depending on the risk appetite, the investment strategy, and the investment type, the funds may generate a handsome return. These returns may realize on an annual basis and/or at the maturity date of the fund.
The annual target return for investment funds differ between funds. However, it would not be unusual for the projected returns to range between 3% to 10% depending on the fund. Some funds choose to distribute annual dividends, while some choose to accumulate and distribute the earnings at the exit. Most funds, however, do both.
In most cases, if the fund manages to make a positive earning at maturity, the fund management will have a performance fee. This makes sure that the incentives of the fund management is aligned with that of the investors / subscribers.
The investment fund option was always in existence. However, the minimum investment amount was lowered from 500,000 Euro to 350,000 Euro in 2018. With that, more and more qualifying funds started appearing on the market, as of 2019.
The real challenge is assessing and analyzing the available funds. It is particularly important to make a thorough due diligence of the fund managers, their products, investment strategies, and track records. It is highly recommended to work with a professional advisory firm in doing so.
Portugal’s Golden Visa program is strongly associated with residency by property investment. However, there are other available types of investments that are just as attractive, if not more. These investment methods include:
If the investment is made in a low density area in Portugal, some of the above requirements are lowered by 20%, including the minimum investment amounts in the real estate options.
To learn more about the program and other investment options in addition to the investment funds, you can check out our article on Portugal’s Golden Visa.
In February 2020, the State Budget Law was approved. One of the topics stated in the law referred to changing the rules of the Golden Visa regime. In light of the law, the Portuguese Government is authorized to change the Golden Visa program in regards to the following aspects:
The Portuguese Government has not used its legal right to make the above changes yet, thus the above changes are not currently in force. There are mixed statements being made by authorities in regards to the timeframe of implementing these changes. It is probable that the changes will take place on the Portugal Golden Visa Program in 2021.