Portugal’s Golden Visa program is not only one of the most popular residency by investment schemes in Europe, but also across the world. It offers several benefits that make it attractive for anyone looking Portuguese residency and, ultimately, citizenship. When applying for the program, you have several investment options, each with its own advantages and disadvantages.

In this post, we’ll look at one of the options – the Golden Visa Investment Fund – in more detail.

What is Portugal’s Golden Visa? 

Launched in 2012, Portugal’s Golden Visa program, also known as the residence permit for investment activity, aims to attract foreign investment into the country. In terms of the scheme, you can obtain a Portuguese residence permit in exchange for an investment into the country.

Benefits of Portugal’s Golden Visa 

Apart from giving you the ability to obtain residency in Portugal, the program has several other benefits, including:

·      Living and working. When you obtain a golden visa, you’ll be allowed to live and work in Portugal without any restrictions, and you’ll be able to start your own business. In turn, this gives you access to Portugal’s full range of public services.

·      Travel. Once you obtain your residence visa, you’ll be able to travel without any restrictions across the entire Schengen area. In other words, you can travel throughout Europe without needing an additional visa. Also, once you obtain citizenship and a passport, you can travel visa-free to 188 countries around the world.

·      Family reunification. When you apply for the Golden Visa, you can also extend your application to your family members. These family members include your spouse, your children aged under 18, any children under the age if 6 who are full-time students and not married, and your parents if they’re older than 65.

·      Citizenship. Once you’ve obtained your residence permit, you can apply for citizenship after 5 years. However, to qualify for citizenship, you shouldn’t have any outstanding tax payments, you should have a clean criminal record, and you should pass a Portuguese language test.

·      Tax benefits. When you spend less than 183 days per year in Portugal in terms of your residency visa, you won’t need to pay any taxes. If you exceed 183 in the country, you’ll become a tax resident and be liable for tax. Fortunately, you can also receive certain tax exemptions for your first 10 years of residence if you do choose to become a tax resident.

What is the Portugal Golden Visa Investment Fund?

When you want to apply for the Golden Visa program, you have several investment options, from real estate to donations, starting a company, and more. You also have the option to invest in an investment fund. This option was introduced in 2017 and allows you to obtain a residency permit in return for an investment of at least €500,000 in an approved investment fund.

To qualify, you need to be a non-EU/EEA and non-Swiss citizen, and you need to have a clear criminal record. You also need to maintain your investment for a minimum period of five years. Keep in mind, however, that apart from these requirements, the particular fund you’d like to invest in and its investment managers might have other requirements. For instance, you might need to provide the source of your funds or proof that you have sufficient funds available.

Advantages of the Golden Visa Investment Fund 

Now that we’ve looked at what the Portuguese Golden Visa program and the investment fund option are let’s look at some of the advantages of using the investment fund option to obtain a residency visa. 

Low Investment Thresholds

Compared to other investment options where you can invest capital to qualify for the Golden Visa program, the investment fund option has a lower investment threshold. For instance, when you choose to make a capital transfer, you’ll need to invest a minimum of €1,500,000. In contrast, when using the investment fund option, you only need to invest €500,000.

While real estate investment requires lower amounts in terms of the program, it’s important to remember that real estate investments often have far lower liquidity than investing in an investment fund. As such, the investment fund might be the perfect option if you require liquidity as part of your financial planning.     

Diversification 

Diversification is a perfect tool to reduce your risk and possibly increase your returns. This is simply because, when you invest in a range of assets, bad performance and value reductions of one assets is hedged by the performance of the other assets. As such, you should always aim to diversify your portfolio when you invest.

Fortunately, the Portuguese government mandates that the investment funds you can invest in when applying for a Golden Visa maintain a certain level of diversification. This means that there is a certain percentage that assets should make up the portfolio. In other words, by law, these investment funds allow you to limit your risks.

Security 

Portuguese investment funds are regulated by the Portuguese Securities Market Commission, the Bank of Portugal, and the management company of the particular fund. In addition, the Portuguese Tax Authorities can also audit the fund. Ultimately, these measures ensure that the fund complies with legislation and gives you peace of mind knowing that your money is safe.

Tax Benefits 

When you use the investment option to qualify for the Golden Visa program, you might be able to obtain significant tax benefits. For example, you might qualify for an exemption of withholding tax on your income from the investment, especially if you’re not a tax resident. In contrast, when you buy a property and rent it out, you’ll pay 28% tax on all your rental income.

It's important to remember, though, that the tax benefits you’ll be entitled to depends on the tax structure of the fund and your tax status in Portugal.  

Low Fees and Taxes 

Compared to real estate investments, the investment fund option has far lower fees and taxes. For example, when you purchase a property in Portugal, you’ll pay transfer tax of about 6% and stamp duty of 0.8%. In addition, while owning the property, you’ll also be liable for municipal taxes, which amounts to about 0.3 to 0.5% every year. Conversely, when investing in an investment fund, you won’t pay any of these taxes and funds typically have low annual management fees. We’ll deal with these fees in more detail later.

Potential Returns

Depending on the specific fund you invest in, you could earn higher returns compared to the other investment options available in the Golden Visa program.

Professional Management 

When investing in an investment fund, your investment will be managed by a team of fund managers. As such, you don’t have to choose what to invest in or manage your investment. In other words, it’s far more passive compared to, for instance, starting a company or renting out a property.

Disadvantages of the Golden Visa Investment Fund 

Despite the advantages mentioned above, there are, however, some disadvantages you should be aware of before investing in an investment fund. These include:

·      Less control. Because an investment fund is managed by a fund manager, you’ll have less control over your investments. Depending on your goals, requirements, and risk-appetite, this might not be the best option for you.

·      Exit. To make sure that you maintain your investment for the required period in terms of the Golden Visa program, most investment funds contractually ensure that the fund won’t be dissolved before a number of years have elapsed. As a result, it could be difficult to sell your share in the fund before this time has passed.

·      Fees. While investment funds carry lower taxes and fees compared to some of the other investment options, there are still fees that you’ll need to pay. As a result, you’ll reduce your return on investment.

·      KYC. Before you invest in an investment fund, you’ll first need to comply with KYC regulations. As such, you’ll need to provide documents and information to the fund manager.

Fees and Costs 

As mentioned earlier, investment funds have lower taxes and fees than many of the other investment options. For example, when you buy a property, you’ll pay:

·      IMI Transfer tax of between 4.58% and 6.5% of the value of the property, depending on the property.

·      Stamp duty off 0.8% of the value of the property.

·      Notary costs of €1,000.

Likewise, when you sell the property, you’ll also be liable for exit fees and a commission of 5% plus VAT. In addition, there could also be some legal fees during the buying and selling stages.  

In contrast, when investing in an investment fund, there are none of these taxes. However, you’ll pay management fees of about 1.5% every year and when exiting the investment, you’ll likely pay a performance fee of about 35% of the profit you’ve made.

Conclusion 

Hopefully, this post helped illustrate the Portugal Golden Visa Investment Fund in more detail so that you can consider it as an investment option when you want to apply for a Golden Visa. To learn more about the program or similar programs around the world, get in touch with us today.