Are you considering applying for the Portuguese Golden Visa in 2022?
If the answer’s yes, you’ve probably thought about investing in real estate. After all, getting into Portugal’s real estate market is probably the most well-known route to access the Portuguese Golden Visa and all the awesome benefits that come with it.
But there’s another pathway to the Portuguese Golden Visa, which we believe beats real estate in many important ways – investing in Portuguese venture capital or private equity funds.
Portugal’s government introduced the investment funds Golden Visa option in 2018, in a bid to divert foreign investment away from the oversaturated property market and into creating jobs for the population.
At that time, Portugal’s major hotspots – Lisbon, Porto, and the Algarve – were jam-packed with Golden Visa investors pouring money into property and increasing the prices to a level where locals could no longer afford to buy a house.
The Portuguese Golden Visa investment funds route is designed to attract investment into areas such as technology, sustainability, start-ups, or agricultural land.
To encourage more Golden Visa investors to select the funds route, the Portuguese government has made it highly appealing.
Let’s dive in and find out why.
6 Compelling Ways That Portuguese Golden Visa Funds Are Better Than Real Estate
1. Lower overall cost of investment
Contrary to popular belief, Portugal is not a low tax country, especially when it comes to property. The buying process is accompanied by a number of hefty taxes, which significantly raise the overall cost of your investment.
The main one is IMT, or transfer tax, a chunky 7.5% of the property value. On a property that meets the minimum Portuguese Golden Visa threshold of €500,000, that’s an extra €37,500 to factor in right at the beginning.
Add to that various notary fees, stamp duty, and legal fees (the latter are typically higher for Golden Visa property investment compared to funds, reflecting the added complexity of the process), and your overall cost of Portuguese Golden Visa investment starts to mount up significantly.
During the lifetime of the property, you’ll also have to pay the annual 0.5% IMI (municipality fee), income tax on any rental income (even if you’re not a Portugal tax resident), along with 28% in capital gains tax when you finally sell your property.
What’s more, property requires maintenance. If you don’t live in Portugal, you’ll need to hire a management company to look after your investment and make sure it has reliable tenants or holiday guests generating good ROI for you.
2. Lower taxes on entry, duration and exit
The Portuguese government has deliberately made investment funds a tax efficient vehicle, to encourage more investors to pick that route for their Portuguese Golden Visa.
You won’t have to pay any tax upon subscribing to the fund. During the lifetime of the fund, Portugal won’t tax your investor profits if you’re not a tax resident. If you decide to live full time in Portugal, then tax on your profits will be just 10%.
This favorable tax situation continues when you exit the fund. At that point, non-tax residents won’t be liable for any Portuguese capital gains tax. On the other hand, Portugal tax residents will pay a special rate of 10% (in contrast, capital gains tax on property sales is 28%).
3. Faster, more predictable Portuguese Golden Visa timeline
Those five years to become eligible for a Portuguese passport already feel long enough. You don’t want anything else to slow down your journey to EU citizenship. That journey only begins when you receive your Portuguese Golden Visa residency permit from SEF (Portugal’s immigration department).
But reaching that point is prone to delays. It’s essential to have your investment in place before submitting the Golden Visa application. With the real estate route, that means having the deed in hand. With the funds route, the fund issues a document to prove that the investment has been made to the required minimum threshold.
The trouble with real estate is you can’t get that deed until you’ve found the right property. That’s the main delay. It doesn’t make sense to rush a real estate investment process, especially in a foreign country where you’re not used to the nuances.
In contrast, your fund investment can be ready to go within a couple of weeks. All you need to do is set up your NIF (tax number) and Portuguese bank account, transfer your capital, then wait 1 to 2 weeks for the fund to conduct the required anti-money laundering checks. Once that’s done, you can submit your Portuguese Golden Visa application.
4. There’s less of a hassle factor with funds
Taking care of your real estate investment can be hard work.
If you don’t plan to live in your Golden Visa property yourself, then you’ll want to find long-term tenants or short-term holiday guests to ensure your investment generates a decent income during your path to citizenship. If you live outside Portugal, it’s essential to find a reliable management company to do this for you.
Conducting maintenance and repairs is another issue to deal with, especially tricky if you’re handling it from afar. Like many countries, Portugal’s tradespeople vary in quality and you’ll invariably encounter problems from time to time.
In contrast, once you put your investment into a fund, your money will be in the hands of professional fund managers, who are incentivized to make their fund perform as well as possible. Portuguese Golden Visa funds investment is the true “set and forget” pathway to EU citizenship.
5. Funds can be safer than real estate
Portuguese investment funds must meet rigorous criteria before they become eligible for Golden Visa investment. That includes tight regulation by the Portuguese Markets and Securities Authority (CMVM), plus regular independent audits.
As long as you choose funds with professional and experienced fund managers, you’ll typically be in safe hands. Of course, any investment can decrease in value, so we recommend you seek advice from a qualified financial advisor before investing in funds.
In contrast, the real estate market in Portugal is far less closely regulated, so it’s important to proceed with caution when choosing a property to invest in. We always recommend working with experienced lawyers and well-known real estate firms.
6. No location restrictions
The Portuguese Golden Visa program has come under the spotlight recently because of significant changes for 2022. Many of those changes have affected the real estate route.
In particular, the popular hotspots of Lisbon, Porto, and the Algarve are no longer eligible for Golden Visa residential real estate investment. The Portuguese government aims to redirect foreign investment in real estate to lower density areas of the country – leaving potential Golden Visa real estate investors with some major location restrictions.
In contrast, once you’ve invested in a fund, your Golden Visa residency permit will allow you to live anywhere in Portugal whenever you want. You can buy a property, rent something if that’s what you prefer, or live in a hotel indefinitely – and you can do all of that right in the heart of Lisbon, Porto, or the prime areas of the Algarve (or anywhere else, such as Madeira).
Portuguese Golden Visa fund investment is a perfect option if you may want to live in Portugal in the future, but haven’t yet decided where.
