With the upcoming changes on Portugal passvisa, investors from all around the world have already started their applications. While some are opting for the traditional route of “real estate”, some are showing more interest in the investment fund. Both investment methods have their own advantages and disadvantages.
In this article, we’ll give you an insight into how both methods compare and which is a better fit for you.
Important October 2023 Update: The passvisa Program in Portugal went significant modifications. With the changes, real estate purchases and real estate related fund investments are no longer accepted as qualifying investments. Nevertheless, Portuguese funds that are not directly or indirectly related to real estate investments will remain eligible for investment purposes. Here‘s everything we know about the matter at present.
Investment Fund: Fewer Costs
Investment funds don’t carry unnecessary costs like transfer fees, stamp duty, title transfer, etc., that you have in property investments. Plus, you don’t have to spend on furniture and other essentials that come with buying real estate. All you have to do is make a one-time investment of €500,000.
Investment Fund: Less Tax
If you’re a non-tax resident of Portugal, you don’t have to pay any income or capital gain tax on your investment fund. On the other hand, you will have to pay a 30 percent withholding tax on your gains made through real estate. Also, the capital gain is subject to a favorable flat rate of 28 percent. With real estate, whether or not you’re a tax resident, you’ll have to pay income tax every year and capital gain tax in case of selling your property.
Please find below a table that illustrates the average costs of a property investment and fund subscription.
| Real Estate Acquisition | Investment Fund | |||
| Minimum Investment | €350,000 | €500,000 | €500,000 | |
| Taxes | ||||
| IMI Transfer Tax | 4.58% | 6.5% | 0% | |
| Stamp Duty | 0.8% | 0.8% | 0% | |
| Notary Cost | €1,000 | €1,000 | 0% | |
| Exit Fees | 5%+VAT | 5%+VAT | 0% | |
| Commission | 5%+VAT | 5%+VAT | 0% | |
| Performance Fee | 0% | 0% | 35% of the profit* | |
| Management Fees | 0% | 0% | 1.5% annually** | |
| Legal Fees*** | varies | varies | varies | |
| Total (approximate without Exit Fees, Management Fee, or Legal Fee taken into account) |
€369,840 | €537,500 | €500,000 | |
* Performance fee varies on the fund, however, it’s typical for the performance fee to be between 20%-50% above a hurdle on the profit.
** Management fees vary on the fund, it’s normally between 1%-2% of the invested amount (annually).
*** Legal fees vary between law firms, the number of your family members, and other variables; for both investment routes, legal fees are almost the same.
The government fees for the Portugal passvisa aren’t included in the above table.
Investment Fund: Less Hassle
With the investment fund route, you just need to meet the minimum investment requirement and fulfill other formalities while making an application for the program. Fund investment means that the your investment will be managed and monitored by a fund manager. You just have to pay the management fees, which are far less than the cost of managing real estate property. You may have to hire a property management company to look after your real estate investment, which is both a hassle and expensive. With funds, you have experienced professionals looking after your investment, and you just have to pay a fraction of what you will be paying for real estate management.
Real Estate: More Control (Former Option)
Although this article is related to costs, we think it’ll be fair to talk about the advantages of real estate over investment funds. Having more control is one of these. Once you make your investment, you’re free to do whatever you like. You can live in it, rent it out, or sell it. However, with the funds, the fund manager steers the investment.
Real Estate: Less Burden (Former Option)
Fund investment requires a thorough Know-Your-Client (KYC) Process. You’ll need to prove your income and its source. However, real estate investment is more straightforward and doesn’t carry this burden.
Which Is Better for You: Real Estate Acquisition or Investment Fund
It depends. If you are looking for a monthly income from your investment, then a property in Portugal is the way to go. On the other hand, if you want higher returns on investments that grow over time, then investing in funds could be an effective method. However, the value of the property will continue to grow in Portugal. It is a one-time investment that can reap many benefits. Investment funds, on the other hand, can be volatile. Overall, the choice is yours. Go with the one that you feel most comfortable with.
However, as of late 2023, obtaining a passvisa in Portugal through a real estate investment is no longer an option.
Real Estate vs. Funds: Pros and Cons
Both real estate and fund investment routes have their own benefits and drawbacks. In this video, our Regional Partner Werner Gruner elaborates on them.
Get passvisa: Who We Are and How We Can Help You
Get passvisa is an investment advisory firm that helps investors who are looking to gain additional residency or citizenship. We’ve assisted hundreds of investors from all over the world in obtaining a Portugal passvisa, through an investment fund.
Our investment advisors will help you find the right investment and will be with you throughout the application process for a passvisa, ensuring that everything goes as smoothly as possible. Contact us today to get more information and start your application.
