Portugal Golden Visa through purchasing shares of investment funds: a practical guide

An investment fund is a financial services company which attracts investors and increases capital. Portuguese funds collect investors' money and put it into selected assets: residential or commercial real estate, Portuguese companies, industrial facilities, or the European stock market.

After receiving a profit, the fund subtracts its commission and distributes the remaining portion of income among investors.

An investment fund structure typically includes a fund manager and an investment committee.

The fund manager is responsible for making day-to-day investment decisions, managing the portfolio, and ensuring the fund adheres to its investment strategy. The investment committee oversees the investment process and makes final decisions on large allocations.

The investment strategy of the fund is spelt out in the contract and constituent documents.

The fund can invest only within the framework of the chosen strategy. For example, if the fund was created for investment in residential real estate, the management company can not invest part of the investors' money in commercial real estate or business.

Compliance with the investment strategy is monitored by the Portuguese Securities Market Commission — CMVM, or Comissão do Mercado de Valores Mobil, — which regulates the activities of all funds in the country.

Useful acronyms for Portugal Golden Visa fund investors. Some of the Portuguese-specific acronyms which are used in the investment fund industry and can be helpful for Golden Visa applicants are as follows:

• QIF — Qualified Investment Fund;

• FCR — Fundo de Capital de Risco, or private equity fund;

• UP, or PU in English — Unidade de Participação, or participation unit, which is equivalent to a share in a fund;

• PU — Participation Unit in English,

• SCR — Sociedade de Capital de Risco, or venture capital fund;

• RG — Regulamento de Gestão, or management regulations, which means the document defining the fund’s operational principles;

• SEC — Securities and Exchange Commission.

Residency eligibility. Investors purchasing fund units in Portugal can qualify for the Golden Visa.

Fund investments under the Portugal Golden Visa can be a suitable option for applicants who do not intend to live permanently in Portugal or do not want to invest in business to get a residence permit.

The minimum investment in funds is €500,000. One needs to hold assets for at least five years, but the money is typically returned after 6 to 10 years.

Only about 50 out of 200 funds registered with the Commission for the Securities Market qualify for the Portugal Golden Visa program. This is due to specific requirements a fund must meet regarding capital distribution and share maturity.

To qualify for the Portugal Golden Visa program a fund should:

• be registered with the Portuguese Securities Commission;

• have at least 60% of the capital invested in Portuguese companies or real estate;

• issue shares with a maturity of at least 5 years.

Portugal Golden Visa investment fund options differ in the type of assets in the portfolio, the size of commissions and fees, the frequency of dividend payments — annually or at the end of the term, profitability, and investment model.

According to the type of assets in the portfolio, funds can be divided into several categories. Here are the most common investment fund categories:

• funds investing in real estate, both residential and commercial;

• funds investing in equities, like company shares and bonds;

• funds investing in commercial enterprises such as manufactories, IT startups, and wineries;

• mixed funds combining several types of assets.

Mixed funds are rare: about 10% are on the market. The rest are represented approximately equally.

According to the degree of diversification, funds can be divided into those investing in one or several sectors of the economy. A fund can invest only in one property, one company, or several at once, all in Portuguese properties or partly in European or American ones.

All funds offer a different combination of risk and return. Each of them may have its own advantages, such as annual dividends, high returns, or diversification. For example, venture capital funds that invest in early-stage companies offer a higher level of yield but feature higher risks. Such funds usually do not pay dividends, and the investment term is generally up to 10 years.

When choosing a fund, it is necessary to consider a set of criteria, including:

• investment strategy and portfolio;

• experience of the management company;

• team of the fund;

• commissions for asset management, subscription, and transfer of funds;

• exit strategy.

Investment yields of funds are impossible to predict as yields of previous years do not guarantee the same income in future. Target yields range from 3 to 10%, depending on the fund investment model.

Funds with high expected yields usually invest in more risky assets, for example startups, and therefore, feature a higher risk profile. Buying units in low-risk funds yields investors lower income.

The risk profile of Portuguese investment funds, which defines the potential for investors to lose their money, depends on several factors, including but not limited to the following:

• assets acquired by the fund;

• sector of the economy;

• experience of the fund manager;

• liquidity of assets;

• the current economic cycle.

The risk scale usually includes 5 levels of risk: very low, low, medium, high, and very high.

Most often, investment funds are organised legally by a limited liability company, LLC. This means one can invest in the fund only during its formation and withdraw the money without losing interest only after it is closed.

Investors acquiring fund units to obtain a Portugal Golden Visa, must hold their investments for at least 5 years to maintain the status. If the Golden Visa holder withdraws their investments ahead of schedule, their residence permit will be renounced.

However, if the investor acquires Portuguese citizenship after 5 years of holding residency, they can return their money earlier, provided the fund conditions allow it.

Operational stages of investment funds

1. Subscription. During the first two years, the funds collect money from investors. If there is enough capital, the fund can immediately begin the selection of suitable properties and assets. This period is called the Subscription Period.

During the Subscription Period, investors must conclude an agreement and deposit money. After that, the fund closes the subscription and no longer accepts new investors.

The minimum investment depends on the fund and can start at as little as €1,000, but an applicant for a residence permit in Portugal must invest at least €500,000.

The subscription can be free or require a commission, which is taken from the investment sum and can amount to up to 7.5% of the money invested.

2. Investments and asset management. For the next four years, funds invest money, collecting a portfolio of assets as part of their investment model spelt out in the contract. Some funds pay dividends annually, while in others, investors receive their income only after closing.

Funds charge an annual asset management fee, ranging from 0.5 to 3% of the invested amount. But this does not entail additional costs: the fee is taken from the investments or profits.

3. Divestment. After 6 or more years, funds begin to sell assets to make a profit. This process takes 1 to 4 years. Such a long period is needed to sell assets as profitably as possible. After selling the assets, funds distribute profits proportionately to each investor’s share, taking into account capital gains received.

If there is a market correction or low demand for assets, managers typically wait for a more favourable moment for a sale to prevent losses and maximise profits. Thus, the investors' money may be "frozen" for a longer period than initially planned.

Minimum holding period. To maintain a residence permit in Portugal and obtain citizenship, an investor cannot withdraw investments earlier than after 6 years. As a rule, investment funds qualifying for a Portugal Golden Visa do not allow earlier exits to make sure the investment remains valid for a period required by the program conditions.

Withdrawing money ahead of schedule. An early exit from the fund is often possible if the investor resells their share to another investor. However, shares of investment funds, especially those designed for Golden Visa applicants, are not very liquid and it can take a while to find a buyer.

Some funds offer the opportunity to buy back shares from investors at discounted prices. This is usually possible once the holder completes the minimum investment period required by the Golden Visa program.

Exiting the fund upon maturity. By the set date, the fund manager sells fund assets and divides money and profits as per investors’ shares. The manager takes their commissions and transfers money to investors according to the fund’s internal procedures.

Those who already invest in financial instruments. Funds are often chosen by investors who understand the operation of financial markets and want to preserve capital: investing in funds helps to diversify income and risks.

Those who want to get a Portugal residence permit. Buying a property was the most popular way to get a residence permit in Portugal; this option was chosen by about 95% of foreign investors. However, obtaining a residence permit through real estate investment was prohibited in October 2023.

Buying units of investment funds is one of the remaining investment options, alongside business investments, supporting culture and scientific research.

Those who don’t want to invest in a Portuguese business. A foreign investor has two business options under the Golden Visa program:

1. Invest at least €500,000 in an existing Portuguese company and create at least 5 jobs.

2. Open a company in Portugal and create at least 10 jobs.

Maintaining a business abroad can be challenging and doesn’t suit everyone’s goals. Besides, the return on the invested money isn’t guaranteed as it hugely depends on the project’s success and profits.

Therefore, if an investor isn’t ready to engage in some entrepreneurial activity, wishes to receive a guaranteed passive income and returns the invested money in several years, they prefer fund units to business options.

Discover the benefits of the Portugal Golden Visa and a unique way to EU citizenship

Conditions for applicants. Investors must meet specific requirements to obtain a residence permit in Portugal. They relate to income, health, age, and biography. Compliance with the requirements of the Golden Visa program is confirmed with corresponding certificates and personal and financial documents.

An investor can take part in the residence permit program in Portugal if they:

• are over 18 years old;

• aren’t a citizen of Switzerland, one of the EU or EEA countries;

• have no criminal record;

• have no socially dangerous diseases like tuberculosis;

• have medical insurance with full coverage;

• have a legal income outside of Portugal.

When applying for a Golden Visa, the investor must provide a confirmation of a transfer of €500,000 to a bank account in Portugal. They must also provide an agreement with the fund specifying the amount of investment and the investment model of the fund.

The Portugal Golden Visa can be extended to the investor’s family, including the spouse, dependent children up to 26, and dependent parents.

Expenses on obtaining residency through fund units purchase. Along with the purchase of investment fund units, applicants bear additional expenses. Here is the list of additional costs paid by investors obtaining a Portugal Golden Visa through purchasing investment fund units:

• subscription fee — up to 7.5%;

• annual fund commission on profits — 0.5 to 3%;

• tax on investment income — 14% for Portuguese tax residents, 0% for non-residents;

• application fee — €605 per family member;

• residence permit card fee — €6,045 per family member;

• health insurance — €400+ per family member.

Investment in fund units is a feasible option for US citizens seeking Portugal Golden Visa. However, investors must follow several specific regulations to adhere to the US legislation.

Income taxes for US citizens. US legislation taxes all American citizens on their global income, irrespective of their tax residency. The US and Portugal have a double taxation agreement stating that Americans must pay taxes on their income in all cases.

In Portugal, the tax is paid only when the US tax rate is lower than that of Portugal. In such a case, the investor pays the difference to the Portuguese authorities.

Choosing a Portuguese bank to open an account. The IRS, the revenue service for the US federal government, requires foreign financial entities, such as banks and funds, to report to the US on assets held by their American customers.

Thus, to comply with US law when applying for a Portugal Golden Visa, an applicant from the US must open an account in a bank that submits reports to the IRS.

Passive Foreign Investment Company rules. US citizens investing in foreign corporations, which are classified as PFIC, must adhere to strict rules and reporting procedures.

A foreign company is classified as a PFIC if it satisfies one of the following criteria:

• income test — at least 75% of its gross income is passive, such as dividends, interest, royalties, or capital gains; or

• asset test — at least 50% of its assets are held for the production of passive income.

Most of Portugal investment funds for Golden Visa are considered PFIC, so applicants acquiring Portuguese residency must file a Form 8621. The form is submitted annually, reports the investor’s income, and calculates any applicable taxes under the PFIC rules. The form is filed even if no income was received.

The fund collects money from investors and signs an agreement with them as with a Limited Partner. This means that the investor only risks the amount of his investment and is not liable for the fund’s obligations.

Since funds primarily invest in assets such as real estate, land, or commercial companies, risks are associated only with a decrease in value when sold. But even in this case, funds have 1 to 3 years to sell off assets, so they are not forced to take a loss during the falling market.

1. Greater diversification of assets. The applicant’s money is invested in various assets simultaneously. This reduces risks of losses and helps maximise profits.

2. Professional management of investments. The applicant does not need to search for investment projects, deal with contractors, or get involved in fund operations. The investor can generally forget about investments until the time the fund closes.

3. Return of investment. Investors can return their money in 6—10 years. In comparison, the return of business investments cannot be guaranteed as it depends on the company’s profits and success.

4. Tax optimisation. Dividends and capital gains aren’t taxed if the investor has a Portugal Golden Visa and is not a Portuguese tax resident.

5. Safety. Funds are registered with the Securities Market Commission, CMVM. Their activities are also regulated by the country’s Central Bank and the fund’s management company. The tax service also carries out regular audits. This allows investors to be completely confident in compliance with all legal norms and adhering to the chosen investment strategy.

Banele, 34

Furniture factory owner

Portugal Golden Visa for purchasing investment fund units

Banele owns a furniture factory. His company buys fittings in Germany and Italy. In 2020, there were problems with supplies due to the pandemic; customers left, and production was idle.

The investor wanted to obtain a status allowing him to visit European countries without visas. He hoped to get EU citizenship for himself and his family so the children would grow up cosmopolitan.

We helped Banele and his family get a residence permit in Portugal. For investment, he chose the Blue Crow fund with an annual yield of 5% and the possibility of an early exit.

Learn a case

1. Portuguese investment funds pool capital to invest in assets like real estate, businesses, or stocks. These funds are regulated by the Portuguese Securities Market Commission, CMVM, ensuring compliance with investment strategies and legal norms.

2. Investing in Portuguese funds offers diversification, professional management, and the potential for tax optimisation, as non-residents are not taxed on dividends or capital gains.

3. Foreign investors purchasing units of Portuguese investment funds can qualify for the Portugal Golden Visa. To obtain the status, they must invest at least €500,000 and hold assets for 5 or more years. Approximately 50 out of 200 Portuguese funds meet Golden Visa requirements.

4. Investors and their families gain the right to live, work, and study in Portugal and can apply for citizenship after five years of residency.

5. US investors must adhere to IRS reporting requirements for Passive Foreign Investment Companies and annually submit a Form 8621 indicating their income generated from the fund.