Second citizenship

Portugal residence permit by purchase of investment fund shares

Investments in closed-end funds are one of 8 ways to get a residence permit in Portugal. In a few months, the investor will become the owner of a “golden visa”. It will allow the applicant’s entire family to live and work in the European Union, and after 5 years to apply for citizenship.

What are the conditions and advantages of investing in funds and how to choose a fund? Victor Esik, the head of the Portuguese office, answers those questions.

How to get a residence permit in Portugal by investment in funds

€500,000+
investment sum
6 to 10 years
investing period
3 to 10%
yield per year

A residence permit in Portugal 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 permanently live 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 more often the money is returned after 6 to 10 years. 

Step-by-step procedure for obtaining Portuguese residency by  investment in fund units

1
1 day
Register a taxpayer number in Portugal
2
Up to 4 weeks
Open an account in a Portuguese bank
3
3 weeks
Pay for the purchase of units in an investment fund
4
2 months
Register in Portugal
5
4 to 7 months
Submit an application and biometrics at the Migration Service in Portugal
6
1 day
Get a residence permit card

It takes three months to obtain a residence permit in Portugal 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, 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.

What is an investment fund? 

Investment fund is a financial services company whose mission is to attract investors and increase capital. The fund collects investors' money and puts it in 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.

The investment model of the fund is spelled 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 investment under the Portuguese residence permit program

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:

  1. Registration with the Portuguese Securities Commission.
  2. Investment of at least 60% of the capital in Portuguese companies or real estate.
  3. The maturity of shares is from 5 years.

Many funds are created specifically for Portugal golden visa applicants. The investment amount starts from €350,000, and the money can be withdrawn after 5-7 years or ahead of schedule. The strategy of such funds is to minimize 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.

5-7 years
 term for withdrawing money from the fund for applicants under the residence permit program

Immigrant Invest selects only those funds that meet the investors’ wishes best — in terms of risk and return.

How funds differ from each other

Investment funds suitable for applicants for a Portuguese residence permit differ from each other 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:

Residential real estate
residential buildings in Lisbon and resort towns
Commercial real estate:
hotels, shopping and office centers
Commercial enterprises in Portugal
manufactories, IT start-ups or wineries
Several types of assets at once
the fund can invest 50% in industrial facilities, 25% in agricultural land, 25% in commercial premises

Mixed funds are rare: there are about 10% of such funds 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, several or different sectors of the economy. A fund can invest in only one property or 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, e.g. annual dividends, high returns or diversification.

Venture capital funds that invest in early stage companies are focused on maximizing capital appreciation at the exit. They usually do not pay dividends and the investment term is usually up to 10 years.

When choosing a fund, it is necessary to take a set of criteria into account: investment portfolio, experience of the management company and the team of the fund itself, commissions for management and subscription, exit strategy. These are the basic conditions along with the study of the investment memorandum, legal framework and license, as well as commissions for the transfer of funds, which depend on the bank of the investor and the bank of the fund itself.

Victor Esik, the head of the Portuguese office of Immigrant Invest
Victor Esik
Head of the Portuguese office at Immigrant Invest

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.

Up to 10%
annual yield of investment funds in Portugal

Investment yield and risk in Portuguese funds

Fund investing in residential real estate
A fund invests in residential real estate and student dormitories. The money goes to shares in objects at various stages of construction and to loans for companies that are renovating objects.
Fund investing in commercial real estate
A fund invests in land, industrial facilities and retail. The objects are already in long-term lease.
Green energy fund
A fund invests in clean technology and alternative energy companies. 45% of investments came from the state, 55% from investors.
Fund investing in business and commercial real estate
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 organized in the legal form of a limited liability company, LLC. This means that one can invest in the fund only during the period of its formation, and can withdraw the money without losing interest only after it is closed.

To be eligible for a residence permit in Portugal, an investor must keep money in the fund for at least 6 years which is before obtaining citizenship. If the investor withdraws his investments ahead of the 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.

2 years
subscription stage 

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, 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 spelled out in the contract. Some funds also pay dividends annually, while others will pay dividends only after closing.

4 years
takes investing

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

3. Divestment. After 6 years, the funds begin to sell assets to make a profit.

6 years
minimum period to return the investment 

From profits, the funds are distributed in proportion to the share of each investor and taking into account capital gains 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 favorable moment for the sale. Flexible terms allow you not to sell assets at lower prices and maximize profits.

It may turn out that the investors’ money will be “frozen” for a longer period than is necessary to obtain Portuguese citizenship. But you can always clarify this point in advance at the stage of choosing a fund and stop at the most suitable option for you.

Is it possible to withdraw money ahead of schedule?

In order 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 and easiest 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 of restoration. Most often, investors buy real estate worth €500,000. 

The property requires maintenance costs, e.g. the cost of utility bills is from €100 per month. When buying, a buyer will have to pay taxes from 6 to 8% of the value of the object, and then annually pay a tax of 0.3 to 0.8%.

In conditions of closed borders, real estate has to be bought remotely. Not every investor is ready to buy an object that he 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 the fund's operation is provided by a management company.

Costs when buying new real estate or investing in a fund 

ExpensesPurchase of real estate, built less than 30 years agoPurchase of shares in an investment fund
Investment sum€500,000 €500,000 
Taxes and fees6 to 8% is the tax on transfer of property rights;

0.8% is stamp duty;

0.3 to 0.8% annual property tax;

14.5to 48% is the tax when renting out real estate
Up to 7.5% is a commission when investing in a fund;

0.5 to 3% is an annual fund commission from profits;

0% is the tax on investment income for tax non-residents of Portugal and 14% for tax residents
Program expenses and fees€400+ is a medical insurance;

€533 is an application fee;

€5,340 is a fee for a residence permit card
€400+ is a medical insurance;

€533 is an application fee;

€5,340 is a fee for a residence permit card
Other expenses€1,200+ per year are utility bills;

home renovation and fu ishing costs
— 
Expenses during the first year€550,000+ Up to €540,000 

Requirements for an investor 

To obtain a residence permit in Portugal, investors need to meet certain requirements. They relate to income, health, age and biography. Compliance with the requirements is confirmed by certificates, personal and financial documents when applying. 

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

  • is over 18 years old;
  • isn’t a citizen of Switzerland, one of the EU countries or the EEA;
  • has no criminal record;
  • has no socially dangerous diseases like tuberculosis;
  • has a medical insurance with full coverage;
  • has 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;
  • an agreement with the fund, which specifies the amount of investment and the investment model of the fund.

Advantages of obtaining a residence permit in Portugal 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.

Investments are managed by professionals: an applicant does not need to search for a property, obtain approval for the purchase, complete a transaction, file tax returns, spend money on maintenance of housing or look for tenants. You can generally forget about investments until the time the fund closes.

The potential return is higher than with investments in other assets that are suitable for obtaining a residence permit in Portugal.

Tax optimization. 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 management company of the fund. Regular audits are also carried out by the tax service. 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. When buying real estate for the same amount, they are 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.

Individual cost calculation of the residence permit in Portugal

Reduced entry threshold. Investing in an investment fund is cheaper than other options for obtaining a golden visa to Portugal, e.g. a direct transfer of capital from 1 million euros.

€500,000 is a small amount compared to other residence permit programs in Europe. For example, one needs to invest at least €500,000 in real estate or at least 1 million euros in an investment fund to get a residence permit in Spain.

A residence permit in Portugal for purchasing shares of an investment fund

Ilya 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 that would allow him to visit European countries without visas. In the future, he hoped to obtain EU citizenship for himself and his family, so that the children would grow up to be cosmopolitans. We helped Ilya 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 early exit.

Study the case

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 obligations of the fund.

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 take into account 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 Due Diligence of each fund. We assessed the risks, strategy, investment objects, available reporting, 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, as well as 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 to choose a specific fund for investment. The final investment decision is yours to make.

Schedule a meeting

Let’s discuss the details

Schedule a meeting at one of the offices or online. A lawyer will analyze the situation, calculate the cost and help you find a solution based on your goals.

Svetlana Gorchakova

Head of the Sales Department

Prefer messengers?

Svetlana Gorchakova

Head of the Sales Department

Portugal residence permit by purchase of investment fund shares

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