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How to invest in Golden Visa Funds

Welcome to our comprehensive guide on Golden Visa Funds in Portugal. As a trusted partner in facilitating Golden Visa applications, we at Pearls of Portugal aim to provide clear insights and answers to key questions for potential investors.

Frederik Pohl
Frederik Pohl, CEO

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Golden Visa funds in Portugal

The intention of the Golden Visa funds is the capitalization, innovation, and development of Portugal and the investments are established under Portuguese law. Because of this, funds need to have a maturity at the time of investment of at least five years and at least 60% of the value of the investments has to be made in commercial companies headquartered in Portugal. The fund also cannot cover assets in the real estate market. The investment in Golden Visa funds is managed by so-called investment fund management companies and are regulated by the Portuguese Capital Markets Board – CMVM, plus audited, and valued by independent and licensed companies providing additional security and transparency to the investor.

In order to qualify for a temporary residence permit, the investor must perform and maintain an investment activity for a minimum period of 5 years. The investment activities that may entitle the investor to a temporary residence permit are foreseen in the relevant law. The investment activity may be performed directly by the applicant or through a single shareholder limited liability company incorporated in Portugal (or in another EU Member State, as long as it has a permanent establishment in Portugal).

All funds are regulated by the Portuguese authorities (CMVM, the Bank of Portugal, the external Fund Manager, and the Tax Authorities). Regulated funds must ensure transparency, risk mitigation, and control, as well as regularly fully audited accounts. Some funds are backed by the Portuguese government through subsidies or financed by the IFD (Instituição Financeira de Desenvolvimento).

How can I evaluate an investment fund?

After defining the investment objective, the individual risk preference, and the investment period,  selecting a suitable investment product also requires the consideration of other important factors. For example, legal and tax law aspects must be observed in the case of funds with a foreign residence. It should also be clarified how high the costs of the assessment are.

Who Can Invest in Golden Visa Funds in Portugal?

To qualify for a Portugal Golden Visa Fund, the applicants must ensure a capital transfer of the amount of €500,000 for the acquisition of units of investment funds dedicated to the capitalization of companies, whose maturity, at the moment of investment is at least 5 years and at least 60% of the value of the investment has to be made in commercial companies headquartered in Portugal.

The potential investor also has to:

  • Be a non-EU/EEA citizen or a non-Swiss citizen
  • Be over 18 years old
  • Have a clean criminal record
  • Have sufficient legal funds to invest in
  • Have experience with financial instruments like company stock, government bonds, company bonds, funds, etc.
  • Submit proof of having enough funds
  • Show where the source of funds comes from

Can US citizens apply for Golden Visa funds?

In 2016 a resolution of the Assembly of the Republic in Portugal approved the agreement with the United States to reinforce tax compliance and implement the Foreign Account Tax Compliance Act (FATCA). With the entry into force of the US FATCA, all foreign financial entities are obliged to identify the accounts of their North American Clients (US Persons).

The act requires that foreign financial Institutions and other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on with holdable payments. The Act also contained legislation requiring U.S. persons to report their foreign financial accounts and foreign assets.

There are qualifying funds that will deal with the US government reporting requirements. Once the lawyers provide a report, US persons can then make their investments.

golden visa funds portugal
Golden Visa Investment Fund possibilities in Portugal

Benefits of the Portuguese Golden Visa Investment Fund

Investing in the Portuguese Golden Visa Fund offers several advantages, including income tax exemption for non-residents on fund dividends and capital gains. These funds are regulated by Portuguese authorities providing additional security and transparency to investors. By investing in Golden Visa Funds, you can benefit from:

  • Low fees and taxes: Investment fund investments do not lead to large fees and taxes, such as the real estate option did.
  • Safe and secure investment: Regulated by CMVM, the funds adhere to specified rules, subjecting fund managers to routine audits conducted by third-party entities. Additionally, oversight is provided by the Bank of Portugal and an external Fund Management company. Auditing responsibilities fall under the purview of the Portuguese Tax Authority.
  • Tax-efficiency: While a flat 28% tax rate applies to all real estate rental income, venture capital funds offer tax efficiency. Dividends and capital gains distributed to investors may qualify for tax exemptions. In certain instances, there are provisions for withholding tax exemptions on fund-generated income, particularly for non-tax resident investors.
  • Diversification: It is feasible to allocate €500,000 across multiple funds, contingent on their minimum investment requirements. Portuguese regulations mandate a specified level of diversification for these funds. Restrictions are in place to limit the proportion any specific asset or investment can represent in the overall fund portfolio. This ensures investment diversification within the fund, mitigating risks for investors.
  • Potential earnings: The annual returns and potential capital gains can vary considerably, depending on the investment fund’s focus, and may surpass those of other investment funds associated with the Golden Visa program.
  • Exit the fund: Regulations guarantee investors the ability to resell their fund units to other investors, convert the units into real estate assets backed by the fund, or exit the fund at their discretion.
  • Management delegation: The investment fund is professionally overseen by specialists in each specific sector. Fund managers bear the responsibility of management and are incentivized to generate returns for investors to qualify for performance fees.
Disadvantages of the Golden Visa Investment Funds
  • Lack of control: The investment fund route necessitates placing trust in an external fund manager who makes investment decisions and guides the strategy. Some investors may be uncomfortable with this level of limited control.
  • Exit issues: While serving as an advantage, many investment funds typically include contractual provisions assuring participants that the fund will not be dissolved before a minimum number of years, allowing participants to fulfill the required time period for applying for permanent residency in Portugal. However, potential issues with reselling units or selling the portfolio may arise.
  • Sharing the earnings: The potential yield and eventual capital appreciation are distributed between the investors and the managers. The management and performance fees will differ from one fund to another.
  • Critical information: Participants are required to provide certain documents and essential information to the fund managers, which may include proof and source of income
golden visa funds portugal

What types of risk profiles exist?

A risk profile is vital for Golden Visa investors to align their appetite for risk with the corresponding risk profiles of each of the Golden Visa Funds. There is no legislation regarding the different investment risk profiles. However, the most common designations are:

  • Conservative or prudent (suitable funds route for Golden Visa): The least risky profile which typically has a lower return and lower upside potential. Focused on capital preservation rather than profits.
  • Balanced or moderate (suitable funds route for Golden Visa): Medium-risk. Most funds fall into this category as they try to balance medium returns via development projects and growth-business investments.
  • Bold or aggressive (not suitable funds route for Golden Visa): The riskiest profile with big breakout potential.

How can I invest in a Golden Visa fund in Portugal?

  • Decide on the investment plan;
  • Open a bank account in Portugal;
  • Sign the fund documents;
  • Three documents will be needed at this point:
    – Two bank documents: a) proof of the international transfer to the bank and b) proof of payment of the fund. Both documents will be supplied by the bank;
    – One fund document (proof of acquisition of a specific fund) issued by the fund manager;
  • With the three documents, your lawyer can continue the GV process.
  • Apply for the Golden Visa and keep the investment for 6 years.
Documents you need 
  • Declaration by the credit institution authorized or registered in the national territory with Banco de Portugal, attesting to the effective transfer of an amount equal to or greater than what is required;
  • Certificate proving ownership of the participation investment fund units, issued by the entity responsible for maintaining a registered updated version of the holders of participation units, under the terms of Portuguese legislation;
  • Declaration issued by the management company of the respective investment fund, attesting the viability of the capitalization plan, the maturity of at least five years, and application of at least 60% of the investment in commercial companies based in the national territory;
  • Certificate of commercial registration, if the investment is made through a company single shareholder.
What should I look for in an investment fund?

The preferred sources of information depend on the information needs and interests of the investor, as well as the type and amount of the investment. For an actively managed fund portfolio with equity funds, there is certainly a greater need for information than for a long-term savings plan with bond golden visa funds. Here are the following sources of information:

  • The value of the individual securities positions is shown on the account statement monthly, quarterly, or annually. For purchases and sales during the year, account movements should also be taken into consideration when calculating performance.
  • Fund performance charts can be accessed from fund databases. This requires entering the exact ISIN of the fund (see here an example of data on performance, risks, or costs of funds in recent years).
  • Fund companies’ fact sheets and product sheets show the value development of the golden visa funds, including further data on the portfolio structure, risk, and fund management, etc. These fact sheets are available on the websites of the fund companies. A list of all Austrian fund companies can be found here, and an overview of all foreign fund companies that are active in Austria is here.
  • For those particularly interested in a detailed portfolio structure of the fund, the semi-annual and annual reports are the most important source of information. The sales prospectuses and, above all, the simplified prospectuses are a very important and useful source of information before buying a fund. This is because information on costs (TER – Total Expense Ratio) and turnover (PTR – Portfolio Turnover Ratio) of the funds can be found here. 
golden visa funds portugal

What kind of Golden Visa funds exist in Portugal?

a) Funds specifically designed for Golden Visa Investors 

These funds are exclusively designed for Golden Visa investors. They usually offer the option of having a matching length or option of earlier withdrawal and accept €500K investments. These golden visa funds are often focused on preserving the investors’ capital and paying some type of yearly dividend. 

b) Traditional Venture Capital Funds 

These funds are normally invested in early to mid-stage tech companies with forecasted global growth. Sometimes there are higher minimum investments than the €500K threshold, with a fixed fund length of 10+ years. There is a higher risk but also higher potential rewards. The goal is to maximize the capital gains at the exit, with no yearly dividend payments. 

c)  Traditional Private Equity Funds 

These funds are typically invested in more traditional markets or financial entities, sometimes with a focus on yearly dividends. There can be a higher minimum investment than the €500K threshold, with the fund length going up to 10+ years, with often a medium to high risk expecting rewards accordingly.

Golden Visa Funds in Portugal: Fees and Costs

The traditional fee structure of funds is called “Two and Twenty” (2/20), which consists of a 2% management fee and a 20% performance fee.

The management fee is a fixed fee charged on the total assets under management (AUM) of the fund and is ostensibly leveraged to maintain the fund’s operating costs.

The performance fee, on the other hand, is charged on the profits made by the fund and is used to reward fund managers and dealers, with bonuses for outperforming the market.

A fixed management fee of 2% ensures that the fund can survive an economic downturn if the fund is negatively exposed to pro-cyclical assets, while the 20% performance rate ensures that the fund always has the incentive to deliver absolute returns and is not merely relative to the investment.

The commonly postulated justification for the Two and Twenty fee structure is that it strikes a delicate balance between safeguarding the financial sustainability of the fund management company and, at the same time, creating incentives for fund managers to provide solid absolute returns.

If fund managers are able to generate extraordinary profits as a result, then paying performance fees to investment managers can be a price worth paying.

Alternative Fee Structures

While the rate cut makes traditional funds more attractive to investors, sophisticated fee structures that link compensation closer to performance, offer an alternative mechanism for improving investor terms.

For example, many funds employ a ‘high watermark’ to ensure that fund managers are not overpaid in performance fees as a result of depreciation followed by a compensatory appreciation in the net asset value (NAV) of the fund. Without a high watermark, fund managers would earn performance fees twice over the same general increase in asset value – what is known as “double-dipping” – which is considered by many investors to be an unfair situation.

This is usually combined with a complex accounting mechanism called ‘equalization’, which ensures that all investors maintain the same NAV per share. In other words, equalization relativizes the high watermark for each investor, preventing new investors from taking advantage of paying performance fees due to a high pre-investment watermark.

In addition, an increasing number of funds use obstacles to ensure that fund managers are not rewarded for performance that does not exceed what could have been achieved through a passive investment strategy. The obstacle can be charged at a fixed rate or linked to an appropriate market index and is used to discount the performance fee so that fund managers are rewarded only for superior market performance.

While for ‘soft obstacles’, performance fees are charged on the entire funds’ return (given the minimum fee is exceeded) for ‘difficult obstacles’, fund managers only earn fees on returns that exceed the reference rate.

The Importance of an Informed Decision

Within the ever-evolving realm of investment, the significance of informed decision-making cannot be overstated. Investors should prioritize thoughtful deliberation when choosing an appropriate fund for their investment. It is crucial to meticulously examine legal documentation and evaluate the expertise of fund managers.

If you are thinking of investing in Golden Visa Funds in Portugal but are unsure where to begin, we highly recommend you select a partner who will navigate you through the complexities of Golden Visa Funds.

Offering expertise, transparency, and a personalized approach to meet individual investment goals, the Pearls of Portugal team’s commitment is to empower investors with comprehensive information for your Golden Visa journey. Feel free to contact us and start your Golden Visa application today!

Frederik Pohl
Frederik Pohl, CEO
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