Investment funds for the Golden Visa in Portugal

An investment of € 350,000 in investment funds or venture capital funds is one out of the eight qualified types of investment provided for a Golden Visa application.  An investment fund is a type of collective investment under which all fund participants invest money together into stocks or other capital investments .

 

The intention of the funds is the capitalization, innovation and development of Portugal and investments are established under the Portuguese law. Therefor 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 investments funds  are managed by so called investment fund management companies and are regulated by the Portuguese Capital Markets Board - CMVM. The funds are also managed, audited, and valued by independent and licensed companies providing additional security and transparency to the investor.

 

How can I make the investment? What is the process?

  • The Golden Visa candidate decides about the investment plan;
  • The Golden Visa candidate opens a bank account in Portugal;
  • The Golden Visa  candidate signs the fund documents;
  • Three documents will be needed from 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 document of the fund (proof of acquisition of a specific fund) issues by the fund manager
  • With the three documents your lawyer can follow the GV process.
  • The candidate applies for the Golden Visa  and keeps the investment for 6 years.

What are the Pros and Cons for investment funds?

What are the benefits / advantages from investment funds?

 

  • Investing in funds is relatively easy although applicants should invest enough time to find the right solution for them. Not all funds are the same.
  • Currently the investment funds are free from taxes in terms of acquisition and annual returns.
  • Regulation ensure that investors can always resell their fund units to other investors, convert the units into real estate assets supported by the fund, or simply exit the fund.
  • By choosing a good investment management team in charge of a fund, the opportunities of the market otherwise inaccessible to the overseas investor are more easily captured.

 

What are the cons / disadvantage of investment funds?

 

  • There are no or low guaranteed returns
  • You have to stay with the funds for a minimum time regardless of the Golden Visa application. Often these minimum terms are around 7-10 years.
  • The minimum investment is  €350k while investing in real estates the minimum amount starts from €280k.
  • You do not pay taxes but pay many fees:
    • management fee up to 3%
    • Upfront fee up to 5%
    • Performance fee up to 1%
    • or other fees like custodian fee / agent fee that range up to 1%
  • Co-investment solutions are not available/applicable for Golden Visa funds.

How can I evaluate an investment fund?

After defining the investment objective, the individual risk preference and the investment period, the selection of the 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 foreign domicile. It should also be clarified how high the costs of the assessment are.

 

The triangle of successful fund selection is thus:

  • performance
  • Risk and
  • Costs.

 

What information should be considered to characterize the Investor?

  • Age;
  • Qualifications;
  • Greater or lesser risk aversion;
  • Availability for short, medium or long term commitment;
  • Knowledge about financial products. 

What types of risk profile exist?

 

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);
  • Balanced or moderate (suitable funds route for Golden Visa);
  • Bold or aggressive (not suitable funds route for Golden Visa).

Where should I review the funds?

Which sources of information are preferred depends very much 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 funds. There are basically 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 account when calculating the performance.
  • Fund performance charts can be accessed from fund databases. This requires entering the exact ISIN of the fund (see for example: www.e-funddata.com with data on performance, risks or costs of funds in recent years).
  • Fund companies' fact sheets and product sheets show the value development of the 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, an overview of all foreign fund companies that are active in Austria here.
  • For those investors who are 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.

 

  • News about investment funds are available via specialized online information platforms (e.g. www.e-fundnews.com) and print media.

Can US citizens apply for investment funds

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

 

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

For this purpose, US Persons are considered to be American citizens or residents of the USA.

 

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. 

 

 

 

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