Guide to Portugal Golden Visa Investment Funds for US citizens

The visa scheme is offered by the Portuguese government and functions as a pathway to residency and potential citizenship for non-EU/EEA/Swiss nationals who invest in qualifying investments in Portugal. It has changed a few times since it launched, with the most recent update seeing real estate investment removed as a qualifying investment.

Mais Habitação legislation

At the end of 2023, the Portuguese government passed its Mais Habitação legislation, which translates to More Housing in English. Its aim is to curb rising housing costs, protect tenants and create more affordable housing. Its scope is wide-ranging and it had an impact on many different areas of Portuguese life.

One of the impacted areas was the Golden Visa program. Before the law changed, applicants were able to invest in real estate, directly and indirectly. This was usually through the purchase of property or by investing in a real estate fund or company. It was also possible to transfer €1.5 million of capital to a Portuguese financial institution.

Since the Mais Habitação legislation passed, those two options no longer count as qualifying investments.

As part of the changes, applicants must choose one of the below qualifying investments instead:

• Investment funds/venture capital funds (minimum of €500,000).
• Investment in scientific research (minimum of €500,000).
• Creation of jobs (minimum of 10 or 5 new permanent jobs with a €500,000 corporate investment).
• Investment or donation in the arts or reconstruction of national cultural heritage with a donation of at least €250,000 (€200,000 when investing in low populated areas or areas with low GDP).
• Incorporation of a commercial company in the national territory or reinforcement of a company’s share capital (this company must have its head office in Portugal). A minimum investment of €500,000 is required for both, as well as creating or maintaining 10 jobs (including 5 permanent jobs).

This guide focuses on the investment fund option.

A New Investment Landscape

With the removal of direct or indirect real estate investment as a qualifying investment, investing a minimum of €500,000 in investment funds or venture capital has become the new cornerstone of the program. It’s now the simplest option for most people. There’s also the potential for a return on investment in the future, which isn’t the case for the other options.

The investment fund option also aligns with the goals of the Portuguese government to channel foreign investment into productive sectors of the economy. This is mutually beneficial for both parties.

The rest of the investment options have their merits, but they’re likely to need more initial or ongoing work and research. Investing in a fund means you don’t have to manage the money after you’ve made the investment and you can let the fund manager take care of that. If you’re not planning to move to Portugal straight away then the hands-off approach of investing in a fund makes sense.

For those with a more philanthropic mindset, the donation option might appeal and require less capital at first, but it’s also unlikely to yield a financial return in the future.

Breakdown of Funds

There’s a range of funds available to invest in and applicants can invest in more than one. They all must meet eligibility criteria (more on that below). Some of the options include:

Venture capital (VC) funds. These come with high risks but also the potential for high growth and strong returns in future. These funds might invest in startups or high-growth tech companies, fintech or innovation. If the fund does make money it’s likely to only pay out at the end of the term, not with regular distributions.

Private equity (PE) funds. These funds are generally less risky than venture capital, but they do still carry a level of risk. However, they focus on investing in established businesses that generally already have good cash flow and profitability, so the risk level is lower than for venture capital funds. You might also get paid regular dividends with these.

Infrastructure/sustainable funds. There’s a range of funds that invest in green investments and projects that build or improve infrastructure. If you have a preference in where you invest your money and want to see it used on something that could have long-term benefits, this could be the choice for you.

Hospitality/tourism funds. While real estate investment is now prohibited under this scheme, hospitality and tourism investment is still allowed. These funds can’t invest directly or indirectly in real estate, but they can invest in companies that operate hotels or serviced apartments. The industry is strong in Portugal and a generally reliable source of revenue. You might also get perks such as complimentary hotel stays at one of the properties owned by the fund.

Why a Fund is the Right Choice

There’s a range of benefits to investing in a fund. These include:

Hands-off, passive investment. Once you’ve chosen your funds and invested your capital, you’re free to focus on other things. Dedicated fund managers take care of everything else for you so you don’t have to make regular decisions or keep on top of your investment.

Diversification of assets. Funds generally have built-in diversification because they’re investing in more than one company or project. You can reduce your risk further by investing in a range of different funds across different sectors. This means you’ll be more insulated if certain sectors of the market are lagging or one of the businesses in the fund isn’t doing so well.

Potential for capital gains and dividends. Past returns are no guarantee of future gains. However, you can look for funds that have performed well in the past and see if there is potential for that industry or sector. The added benefit of funds that perform well is the opportunity for capital gains and dividends.

No property management responsibilities. When the Golden Visa scheme first launched, property was the investment of choice for most applicants. Compared to the investment fund option, that came with a lot more work, less diversification and less certainty. While it’s likely a lot of applicants bought property they could use themselves, that investment is still at the mercy of wider market forces. Investing in a fund means there’s no need to look for tenants, maintenance, property management and be across rental laws. When the time comes to sell your investment, it’s much easier with a fund than if you’re trying to sell a property.

Tax advantages for non-residents. Golden Visa holders are usually considered non-tax residents of Portugal if they spend fewer than 183 days there each year. This means their foreign-sourced income (and often the fund’s income/gains) might not be subject to Portuguese tax, so they’ll only be taxed in the US and will avoid double taxation. Compared to property, you won’t have to worry about paying stamp duty or local property taxes either.

This guide is a general overview, so you would still need to speak to a tax expert about your individual circumstances.

Eligibility & Requirements

This investment fund route is likely to be the easiest option for US citizens hoping to apply for a Golden Visa in Portugal, but there are still some qualifying rules that the investment needs to meet. These are:

• You have to invest at least €500,000. This can be across multiple funds. Many funds will have a minimum amount required to invest as well, so that’s something to be aware of.
• Funds must be registered and regulated by the Comissão do Mercado de Valores Mobiliários (CMVM), which is the Portuguese Securities Market Commission.
• Funds can’t invest directly or indirectly in real estate.
• The fund must have a maturity of at least 5 years at the moment of investment. This is also the minimum timeframe you’ll need to wait until you can apply for permanent residency or citizenship.
• At least 60% of the fund’s investment portfolio must be in commercial companies with their head office in Portugal.

Other factors for US citizens to consider

As a US citizen, you’re required to report any worldwide income even if you’re a resident in another country. When choosing which funds to invest in, you’ll need to be aware of the following things:

• PFIC status. Most Portuguese investment funds are classified as Passive Foreign Investment Companies (PFICs) by the Internal Revenue Service (IRS). You’ll have to make sure you fulfil the mandatory reporting requirements back home. You should select a fund that will provide the required documents to fulfil your PFIC requirements.
• FATCA. Portuguese banks and funds are required to report accounts held by US investors under the Foreign Account Tax Compliance Act (FATCA).
• Portuguese tax status. Golden Visa holders are usually non-tax residents of Portugal if they spend less than 183 days there. This means their foreign-sourced income (and often the fund’s income/gains) may not be subject to Portuguese tax. US tax rules will still apply.

You should always speak to an expert who understands the intricacies of the Golden Visa program before making any decisions.

Summary

Since the changes to Portugal’s Golden Visa scheme in 2023, real estate investment is no longer allowed. Investing in a qualifying fund has become the new cornerstone of the scheme. It’s the easiest option for US citizens and provides the opportunity for potential returns on that investment. Some investment funds are designed for US citizens, made to streamline reporting requirements back in the US, so they could be right for your needs.