Golden visa and private equity in Portugal
Golden Visa Portugal through Property Investment
The Portugal Golden Visa program has established itself as the most well-liked scheme in Europe, drawing investors with its rewards and flexibility. Since its inception in 2012, the investor visa program has actively been pushed abroad, drawing more than a thousand primary applicants yearly. A family with dependent children can obtain a residency visa in Portugal with an investment of €500,000 (or €280,000 or €350,000 for the reduced option) in real estate. If the applicant stays in the nation for two weeks each two years, the golden visa may be renewed every two years.
Which investment companies can obtain a Portugal Golden Visa?
Following is a definition provided by the law of the Golden Visa investment money route:
Transfer of capital in the amount of 500 000 euros or more for the purchase of units of investment funds or venture capital funds intended for the capitalization of companies, capital injected under Portuguese law, whose maturity, at the time of the investment, is, at least, of five years, and, at least, 60% of the investments are realized in commercial companies with headquarters in the national territory.
Based on this, four prerequisites must be satisfied in order to be eligible for the capital transfer pathway for the Portuguese Golden Visa:
- The fund requires CMVM's approval and supervision (Portuguese Securities Market Commission).
- 60% of the fund's assets must be put into businesses with Portuguese headquarters.
- A minimum of €500,000 must be spent by the investor to purchase fund units.
- The investment must be maintained for the duration of the Golden Visa procedure, which takes at least five years, until citizenship or permanent residency is obtained (in reality, often 6-7 years).
The rising popularity of the investment fund option for the Golden Visa
When applying for the Golden Visa in Portugal, buying property is typically the favored investment strategy. But more investors are choosing the Portugal Golden Visa Investment Fund option as a new means of obtaining legal residency.
Some people may find ownership of a property appealing, especially if it can be used as a vacation home or a source of rental income. This approach may not work for everyone in reality because it can be challenging and time-consuming to identify and buy the ideal house.
For people intending to apply for Portugal's Golden Visa, venture capital funds (or FCR - Fundo de Capital de Risco) are seen as an acceptable investment. Investors can now apply successfully for the Portugal residence by investment program and have instant access to the program's benefits with a minimum investment of €500,000 in an FCR fund that qualifies for the Golden Visa.
The term "venture capital" may sound intimidating and complex, but it is merely a name for a class of investment funds that are overseen by professionals from the business world who want to fund start-ups or medium-sized companies with promising futures. Every fund has a distinct, clearly defined investing mission and may concentrate on industries like energy, business, technology, healthcare, or real estate.
Benefits of the Portugal Golden Visa investment fund
- Lower investment
With the investment fund option, you can become a Portuguese citizen with a €500,000 investment, as opposed to other investment avenues like capital transfer, which require an investment of €1.5 million.
- Low fees and taxes
Unlike real estate investments, investments in investment funds do not incur significant fees and taxes. It costs an average of 6% in IMI transfer tax, 0.8% in stamp duty, and 0.3% to 0.5% in annual municipal taxes to buy a home in Portugal. The investment fund route, in contrast, is tax-free.
- A safe and secure investment
The fund managers are routinely audited by outside parties because the funds are regulated and are required to abide by the standards established by the Portuguese Securities Market Commission (CMVM). The fund is governed by the Bank of Portugal, the external Fund Management business, and the CMVM in addition to being registered. The fund is additionally audited by the Portuguese Tax Authorities. The fund must adhere to Portuguese legal requirements, including tax regulations, due to the extensive and strict levels of control.
- Tax-efficiency
Even though there is a constant 28% tax on all real estate rental revenue, venture capital funds are a tax-efficient method of investing because dividends and capital gains paid to investors may not be subject to taxation. In some circumstances, especially if the investors are not local tax residents, it is possible to withhold tax from revenue generated by the fund.
- Diversification
The funds are governed by Portuguese law to ensure a certain degree of diversification. There are limits on what portion of the fund's overall portfolio may be made up of a given asset or investment. In addition to reducing risk for the participating investors, this enables diversification of investments within the fund.
- Potential earnings
Depending on the investment fund's objective, the annual returns and final capital gains may be much larger than those of other Golden Visa-related investment funds.
- Management delegation
Experts in each individual industry properly administer the investment fund Golden Visa. Owning a participation unit in an investment fund is more simpler than owning real estate, which can be a burden. The fund managers are given responsibility for management. This presents both an advantage and a disadvantage for investors who like to maintain control over their investments.
Disadvantages of the Portugal Golden Visa Investment Fund
- Lack of control
The investment fund option, while similarly advantageous in that the fund manager handles all the work, necessitates that the investor place their money in the hands of an outside fund manager who will make investment choices and direct strategy. This lack of control can annoy some investors.
- Exit issues
The majority of investment funds will contractually guarantee the participants that the fund won't be dissolved before a minimum number of years to ensure that the participant can reach the time period where he or she can apply for permanent citizenship in Portugal. There might be some difficulties with this:
- It is frequently difficult to sell a participation unit before a fund dissolves;
- extension periods are common, but participants have no control over how they are managed;
- if an investment fund's ultimate goal is to sell the portfolio at a target appreciation, there is no assurance as to what the market will be at the time of sale.
- Sharing the earnings
Each of the fund's managers shares in the prospective dividend and eventual capital growth. Different funds will charge different management and performance fees.
- KYC burden
Participants will be required to provide the fund's managers with certain documents and important information, including verification of income and the source of that income. Real estate transactions do not involve any Know-Your-Client (KYC) requirements.
Finally, for those looking to invest in this field, it is crucial to analyze and contrast the many Golden Visa Investing Funds in order to comprehend how they operate and select the one that may be most appropriate for your preferred investment approach and risk tolerance.
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