What is an investment fund?
An investment fund is a financial services company whose mission is to attract investors and increase capital. The fund collects investors' money and puts it into selected assets: residential or commercial real estate, Portuguese companies, industrial facilities or the European stock market. After receiving a profit, the fund distributes it among investors minus its commission.
Some of the Portuguese-specific acronyms used in the investment fund industry:
- QIF — Qualified Investment Fund;
- FCR — “Fundo de Capital de Risco” – Private Equity Fund;
- UP — Unidade de Participação;
- PU — Participation Unit in English, is the equivalent of stocks or shares;
- SCR — Sociedade de Capital de Risco – Venture Capital Fund;
- RG — Regulamento de Gestão;
- SEC — Securities and Exchange Commission
The investment model 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, Comissão do Mercado de Valores Mobil), which regulates the activities of all funds in the country.
What funds are suitable for Portuguese Golden visa investment?
The Portugal Golden Visa can be obtained by investment in funds. This is the best way to get a residence permit card for applicants who do not intend to live permanently in Portugal or do not want to invest in real estate.
The minimum investment in funds is €500,000. One needs to invest for at least five years, but the money is often returned after 6 to 10 years.
The strategy of such funds is to minimise risk while conserving capital. Often they help with the process of obtaining a residence permit. Therefore, most often invest in real estate with the payment of minimum annual dividends. Most likely, such a fund will suit the applicant for a Golden Visa.
Only about fifty funds are suitable for golden visa applicants — of two hundred Portuguese investment funds registered with the Commission for the Securities Market.
Funds for participation in the residence permit program in Portugal are subject to additional requirements for the distribution of capital and the maturity of shares.
Requirements for funds for investment under the residence permit program in Portugal:
- Registration with the Portuguese Securities Commission.
- Investment of at least 60% of the capital in Portuguese companies or real estate.
- The maturity of shares is from 5 years.
Immigrant Invest selects only those funds that meet the investors’ wishes best — in terms of risk and return.
How investment funds differ from each other
Portugal Golden Visa Investment funds 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 (investment strategy), funds can be divided into those that invest in:
Mixed funds are rare: about 10% of such funds are on the market. The rest are represented approximately equally.
According to the degree of diversification, funds can be divided into those that invest in one object or several sectors of the economy. A fund can invest in only one property, one company, or several at once, all in Portuguese properties or partly in European or American ones.
When choosing a fund, it is necessary to take a set of criteria into account: investment portfolio, the experience of the management company and the team of the fund itself, commissions for management and subscription, and exit strategy.
These are the basic conditions along with the study of the investment memorandum, legal framework and licence, as well as commissions for the transfer of funds, which depend on the bank of the investor and the bank of the fund itself.
Head of the Portuguese office at Immigrant Invest
All funds offer a different combination of risk and return. Each of them may have its own advantages, e.g. annual dividends, high returns or diversification.
Venture capital funds that invest in early-stage companies are focused on maximising capital appreciation at the exit. They usually do not pay dividends, and the investment term is generally up to 10 years.
Investment yield of Portuguese funds
Investment yields in the funds range from 3 to 10%, depending on the fund investment model. This return is projected based on an annual asset management fee of 0.5 to 3% of the invested amount.
Investment yield and risk in Portuguese funds
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A fund invests in residential real estate and student dormitories. The money goes to shares in objects at various construction stages and loans for companies that are renovating objects.
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A fund invests in land, industrial facilities and retail. The objects are already in a long-term lease.
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A fund invests in clean technology and alternative energy companies. 45% of investments came from the state, and 55% from investors.
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A fund invests in stocks and bonds of European stock market companies and issues loans to Portuguese businesses. Part of the investment is in commercial real estate.
When can an investor withdraw the money?
Most often, investment funds are organised in the legal form of 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.
To be eligible for Portugal Golden Visa through an investment fund, an investor must keep money in the fund for at least 6 years before obtaining citizenship. If the investor withdraws his investments ahead of schedule, he may be deprived of his residence permit. If the investor has already received citizenship and does not want to wait for the fund to close, he can exit early if the fund conditions allow it.
The life span of investment funds is divided into three stages: a subscription, investment and divestment.
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 objects 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 starts from €50,000, but an applicant for a residence permit in Portugal must invest from €500,000.
The subscription can be free, or the commission is taken from the investment amount, and then the investor only transfers the required amount to the fund. But more often, funds take a one-time commission of up to 7.5% of the money invested.
2. Investments and asset management. For the next four years, the funds are actively investing investors' money, collecting a portfolio of assets as part of their investment model, which is spelt out in the contract. Some funds also pay dividends annually, while others will pay dividends 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: this money is taken from the investments or profits.
3. Divestment. After 6 years, the funds begin to sell assets to make a profit.
From profits, the funds are distributed in proportion to each investor's share and take capital gains into account after the sale of assets. This takes 1 to 4 years. Such a long period is needed to sell the asset as profitably as possible.
If there is a crisis on the market, low demand for real estate or not quite a good market situation, managers will wait for a more favourable moment for a sale. Flexible terms allow you not to sell assets at lower prices and maximise profits.
It may turn out that the investors' money will be "frozen" for a more extended period than is necessary to obtain Portugal citizenship. But you can always clarify this point in advance when choosing a fund and stop at the most suitable option for you.
Is it possible to withdraw money ahead of schedule?
To maintain a residence permit in Portugal and obtain citizenship, an investor can not withdraw investments earlier than after 6 years.
Most often, an early exit from the fund is possible if the investor himself finds a buyer for his share. However, shares of investment funds, especially those designed for golden visa recipients, are not very liquid. Some funds buy back shares from investors at discounted prices.
Who can benefit from investing in funds?
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 do not want to buy property. Buying a property is the most popular way to get a residence permit in Portugal. This option is chosen by about 95% of foreign investors. But obtaining a residence permit through real estate investment is not suitable for everyone.
Although the minimum amount to purchase real estate is €280,000, this is an option for buildings older than 30 years in areas of low population density and with the commitment to restoration. Most often, investors buy real estate worth €500,000.
The property requires maintenance costs, e.g., utility bills are from €100 per month. When buying, a buyer will have to pay taxes from 6 to 8% of the object's value and then annually pay a tax of 0.4%.
In conditions of closed borders, real estate has to be bought remotely. Not every investor is ready to buy an object they saw only in photos and videos.
The costs of investing in funds are lower than when buying real estate. There are no taxes on the profits of investors who buy fund units under the residence permit program in Portugal and do not become tax residents of the country. Annual costs only include the commission of the fund on the profit.
An investor who chooses a fund does not need to spend time searching for tenants and arranging real estate as a management company provides the fund's operation.
Costs when buying new real estate or investing in a fund
| Expenses | Purchase of real estate, built less than 30 years ago | Purchase of shares in an investment fund |
| Investment sum | €500,000 | €500,000 |
| Taxes and fees | 6 to 8% — a tax on the transfer of property rights 0.8% — stamp duty 0.4% of the cadastral property value — an annual property tax is 14.5 to 48% is the tax when renting out real estate | Up to 7.5% — a commission when investing in a fund 0.5 to 3% — an annual fund commission from profits 0% — a tax on investment income for tax non-residents of Portugal and 14% for tax residents |
| Program expenses and fees | €400+ — medical insurance €533 — an application fee; €5,340 — a fee for a residence permit card | €400+ — medical insurance €533 — an application fee; €5,340 — a fee for a residence permit card |
| Other expenses | €1,200+ per year — utility bills Home renovation and furnishing costs | — |
| Expenses during the first year | €550,000+ | Up to €540,000 |
Requirements for an investor
Investors need to meet specific requirements to obtain a residence permit in Portugal. They relate to income, health, age and biography. When applying, compliance with the requirements is confirmed by 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 countries or the EEA;
- 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 submitting documents to the Serviço de Estrangeiros e Fronteiras (SEF), the investor will need a confirmation of a transfer of €500,000 to a bank account in Portugal. Also, they will provide an agreement with the fund, which specifies the amount of investment and the investment model of the fund.
Portugal Golden Visa by investment fund: a step-by-step procedure procedure
It takes three months to obtain a Portugal Golden Visa by investment in funds. The applicant receives a taxpayer number, opens a bank account and buys shares of the fund. Then collects documents for a residence permit and submit an application and biometrics. The investor’s application is processed within 1—2 months.
At each stage, the investor is accompanied by Immigrant Invest lawyers. They accompany the applicant in Portugal, help to choose a fund, make a list of documents, fill out forms and certify copies.
Advantages of obtaining a Portugal Golden Visa through funds
There are several advantages to obtaining a residence permit in Portugal by investing in funds that are not available with other options.
Greater diversification than buying one or more individual real estate properties.
Professionals manage investments: an applicant does not need to search for a property, obtain approval for the purchase, complete a transaction, file tax returns, spend money on housing maintenance or look for tenants. You can generally forget about investments until the time the fund closes.
The potential return is higher than investments in other assets suitable for obtaining a residence permit in Portugal.
Tax optimisation. Dividends and capital gains do not need to pay taxes if the investor receives a residence permit in Portugal by investment and is not a tax resident of the country.
Safety. The funds are registered with the Securities Market Commission (CMVM). Their activities are also regulated by the Central Bank of the country 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.
Less overall costs, including taxes and expenses, than when investing in real estate. For example, the total costs, considering the one-time subscription costs, when investing in funds from €500,000, will not exceed €540,000. Buying real estate for the same amount is likely to exceed €550,000. To this amount, you still need to add the payment for the services of lawyers, as well as the cost of repairs and home improvement.
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. In the future, he hoped to get EU citizenship for himself and his family so that the children would grow up to be cosmopolitans.
We helped Banele and his family to 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.
Risks of investing in Portuguese funds
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, the risks are associated only with a decrease in value when sold. But even in this case, the funds have 1 to 3 years during which they sell off assets so as not to be forced to take a loss during a falling market.
How to choose a fund for investment
To choose an investment fund, you need to consider many factors: investment conditions, profitability, return on investment, commissions and experience of the management company.
We have done this work for you and carried out the Due Diligence of each fund. We assessed the risks, strategy, investment objects, available reporting, and the experience of fund managers and past results and met with fund teams. As a result, 15 funds were selected that meet the requirements for applying for a golden visa and provide an optimal ratio of risk and return.
We provide clients with all the information about the selected funds, visually compare the main conditions and help them choose a specific investment fund. The final investment decision is yours to make.
Frequently Asked Questions
It depends on the investment option. There are eight of them. The expansive one is a culture investment and costs $250,0000. Investors can buy a property for €280,000 and apply for a Portugal Golden Visa. Business options are also available under the golden visa route.
€280,000 for purchasing real estate built more than 30 years ago or located in designated restoration areas. The object needs to be situated in a sparsely populated area; its price may start at €280,000.
It’s one of the options in Portugal’s golden visa program. You can invest in one or different funds and get a Portugal residence permit.
Yes. You may invest in as many funds as you want. As long as the total amount you invest is at least €500,000, you qualify to apply for Portugal Golden Visa. Legal fees will increase the more funds you use.
A passive foreign investment company — PFIC, is a non-US entity that either earns 75% or more of its gross income from non-business operational activities. Or if at least 50% of its assets are held for generating passive income.
