Death warmed up: How Portugal’s Golden Visa programme was resuscitated
Text: Chris Graeme
The way that Portugal communicated the end of its famous Golden Visa and Non-Habitual Resident programmes in 2023 has widely been condemned as a disaster – a disaster for government revenues, a calamity for investors, and a train crash for Portuguese financial, property and legal services businesses.
In February that year, at a press conference to unveil a well-meaning but ambiguous and badly thought out programme to relieve Portugal’s chronic affordable urban housing shortage ‘More Housing’, the government dropped the bombshell.
Through its Prime Minister, António Costa, Finance Minister, Fernando Medina, and Housing Minister, Marina Gonçalves, the government ‘troika’ announced very publicly that it was scrapping the Non-Habitual Residents (NHR) and Authorisation for Residency from Investment (ARI) schemes because they had “achieved their objectives” and were “no longer necessary”.
The phones of law offices rang red hot as worried investors, who had already begun the residency process, wondered if their applications were valid (The termination was to begin the day of the announcement); a very real concern since thousands of applications were already effectively at a standstill because of the extinction of the Portuguese frontiers and borders agency SEF, which was being morphed or absorbed into other entities.
Worse, it sent out the wrong message that Portugal was no longer open for business. Investors, both from Europe and the rest of the world — since 2012 they had raised over €7Bn in revenues, and provided thousands of direct and indirect jobs in the financial, legal and property services markets, not to mention money earned from indirect taxes for the economy — looking to move to Portugal to retire, or start up a business, and who would invariably need a property in which to live, learnt that the programmes were shutting down.
Regret and shame
The damage and confusing messaging had an almost immediate impact among international developers and investors at one of Europe’s largest property trade fairs, Expo Real held in Munich, Germany in October.
Delegates who poured into the venue were offered copies of the Financial Times. On the front page the headline growled ‘Portugal to scrap fiscal injustice of tax breaks for wealthy foreigners’.
The Portuguese developers manning stands at the event showcasing their high-quality luxury residential housing developments, instead of receiving praise, interest and business leads from potential investors, were grilled with uncomfortable questions from these investors who were incredulous and concerned. The Portuguese were left with egg on their faces.
It all stared when António Costa, who now temporarily heads a Socialist caretaker government in Portugal until March 10 when elections will be held nationwide, told CNN Portugal: “To maintain this measure in the future would prolong a fiscal injustice and would continue to inflate the housing market in a skewed way”.
This was clearly a political measure aimed at pleasing left-wing supporters, disgruntled tenants associations, and ultimately the EU since Costa’s name was widely touted as a possibility to lead a European Commission that generally dislikes such investment schemes.
Under the NHR scheme, the tax breaks for relocaters who become tax resident in Portugal for over 183 days per year, include a special tax rate of 20% on employment revenues from high value-added activities which covers professors, doctors, and architects, among others.
Another benefit is a flat rate of 10% tax on pensions from a foreign source that had already caused consternation from two Northern European countries, Sweden and Finland over lost spending and tax income revenues, and led to official complaints as retirees began leaving these countries to retire in Portugal’s sunny Algarve.
The investors at the Munich trade fair, newspaper in hand, had read the article which called the programmes “controversial” accused them of “stoking a housing crisis by driving up property prices” — an accusation that under closer examination was not entirely true since retirees looking to relocate would almost certainly buy a house in which to live regardless of the €500 property investment path that had been contained in the Golden Visa programme or the tax sweeteners offered by the NHR scheme, and certainly at a higher value bracket than the Portuguese middle and lower middle classes could afford.
The President of the Portuguese Association of Real Estate Developers and Investors (APPII), Hugo Santos Ferrera, who happened to be at the German property fair as a visitor, told a Portuguese property magazine, Magazine Imobiliário: “Some of the Portuguese real estate professionals at the fair found it regrettable and were ashamed as they walked into the first day of the fair.
“Unfortunately for Portugal the event coincided with the announcement that the government would end the Non-Habitual Resident tax scheme that appeared in the newspaper that was distributed free-of-charge at the entrance. The article ended up by being completely damaging to the reputation and image of our country”.
Previous articles from the same highly respected international business title had already hammered home the message for the Golden Visa and NHR programmes: “Sun sets on Portugal’s Golden Visa scheme” in October 2021 and again in January 2020 when the headlines screamed “Portugal set to curb tax breaks for wealthy foreigners”.
The opening paragraph in the latter spelling out that Portugal planned to end tax exemptions for “some foreign residents” and overhaul its Golden Visa scheme in changes that are “likely to diminish the country’s appeal to wealthy international pensioners and big-earning celebrities”.
Portugal back-tracks – partially
Then, after a chorus of dismay, disapproval and in an attempt to shut the stable door before any more investor ´horses’ bolted, Portugal partly back-tracked on its February 2023 announcement.
By June 2023, it was apparent that the government had hastily repackaged its fiscal and investment benefits into an array of other investment visas that had hitherto existed but were not common knowledge beyond the realms of Portugal’s legal firms.
Although the popular real estate route ranging from €250,000 to €500,000 was closed, the government now sought to retain a number of routes for foreigners seeking the Golden Visa, while also emphasising its D. Class investment visas aimed at digital nomads, startup and tech entrepreneurs, venture capital, culture and heritage investments, and scientific research investors, and any foreign investors who create at least five or more jobs in Portugal.
However, investments through capital transfer of €1.5 million, largely because it was unpopular, was no longer on the table.
So, what’s left?
So, it was timely that Portugal Pathways, an international relocation consultancy and advisory firm, which offers a range of advice on wealth and tax benefits, investment options, luxury real estate guidance, relocation support, and bespoke concierge solutions, decided to explore how to access Portugal and the EU through what is left of Portugal’s Golden Visa scheme and the new ‘Cultural Production Golden Visa’ opportunities.
In mid-February it organised a webinar with a panel of cross-border financial investment and tax experts and regulated fund managers who provided valuable insight into the benefits of the Golden Visa programme, eligibility requirements, investment options and their potential risk and reward profiles, and the main benefits of dual-residency.
The panel also debated and discussed some of the options available to investors and affluent expats already in Portugal, how to diversify investments, and understand the regulatory frameworks of a growing investment marketplace.
The expert panel featured David Vacani, Chairman of the Federation of European Independent Financial Advisors (FEIFA) and Founder of Beacon Global Wealth Management. David has over 25 years of experience in cross-border financial planning and structuring expertise.
Joining David was Nuno Santos, Partner at CMS Law in Lisbon. Nuno has over 15 years of experience providing tax legal advice as well as significant expertise in Golden Visa applications and structuring financial transactions.
It also featured Stephan Morais, a Harvard MBA graduate, Co-Founder and managing Partner of Indico Capital Partners with over 20+ years of experience within the investment industry, raising nearly US$3Bn. He has extensive knowledge and experience in Golden Visa compliant investment funds. He has also worked across dozens of countries including supporting 6 unicorns in Portugal reach the US market and is an international speaker of note.
Paul Stannard, Chairman of VIF Fund, the World Nano Foundation and Portugal Pathways, and keynote speaker at Davos, introduced the regulated options and funds approved for the Golden Visa. There are two types under the Golden Visa: Residency for Investment and Residency from Donations which is more in terms of culture production such as filmmaking. He also touched on was the D2 Entrepreneurs Visa which this publication will cover at a later date.
David pointed out “everything had changed and quickly in recent months” with a “remarkable” interest in different types of funds investments. The investment funds industry had evolved in Portugal and elsewhere in Europe in recent years as a “significant flows” of people have come, are coming, or looking to move to Portugal.
Nuno Santos emphasised that the recent changes to the Golden Visa gave more relevance to the need to ensure that the fund managers that investors and advisories are working with “knows what they are doing”.
Investing in funds — the clear option
In the past the private equity funds that were Golden Visa driven mostly focused on real estate. The fund managers that are more successful in raising capital are the ones who have been “in the game” for longer, and were effectively doing private equity investment in the past and not that much property investment”, he said.
“Now that the real estate option is no longer possible, funds are now clearly the option they are choosing,” Nuno Santos explained, adding that the other possible investment avenues were not as popular and were unsuccessfully competing with the funds avenue.
Stephan Morais, whose Indico Capital Partners has been taking Golden Visa investments for five years, said that until recently the majority of Golden Visa clients had tended to go for the real estate option, particularly the more conservative ones, but that was now “off the table”.
“The type of investors we’ve had over the past five years tend to be sophisticated investors who understand private equity and venture capital, which is what we do; we invest in tech startups that go global from Portugal to the world, normally becoming American, including some that went on to become unicorns”.
Morais explains that investors, including ones that invest in the Golden Visa are more comfortable knowing that we are not just Golden Visa funds.
“Sometimes the Golden Visa only funds have certain clauses and characteristics that would not be accepted by certain professional investors, and I think professional investors that invest under the same terms as institutional investors and family offices have a better chance of having a good return, so smart investors have been going for funds that have institutional investors on their books, and not only Golden Visa investors,” said Stephan Morais.
Investing in top drawer Portuguese funds
The Indico Capital Partners founder says that venture capital is an investment class that tends to concentrate returns in the top funds. “I always say it is better to invest in the top Portuguese funds than in a top 10 London fund because with the latter there will be another nine funds on top of it that get to cherry pick all the deals,” he explained.
Morais says funds are a very concentrated assets class in the sense that typically the best performing funds tend to continue to be so, and attract the best entrepreneurs, and so get the best returns and raise more money and have successful exits, meaning companies that grow and go on to do well.
He stresses that investors should choose a fund that has other institutional investors, particularly international ones, and advises investors to “do their homework” and research to see how well known the fund managers are, and make sure they are not only local to Portugal.
Morais also points out that investing in a fund is also a way to give back to the country since it doesn’t cause any real estate market issues (such as housing bubbles and speculation, demand-led property inflation, or through gentrification), which is why it was killed by the government.
On the other hand, through the investments’ capacity to innovate, startups benefitting from such fund investments have a capacity to provide highly skilled and better paid jobs, and so investors who want residency feel they are contributing towards the Portuguese economy in a positive way.
The Cultural and Artistic Production Visa
A more affordable option at €250,000 or €200,00 (for projects located in low-density areas) is the Cultural and Artistic Production Visa which are residency by investment led visas, and which non-EU citizens can apply for by investing in approved artistic or cultural projects.
David Vacani says this visa is divided between two categories: the donation for cultural heritage preservation, or the investment in an artistic production such as film making.
“Even though this investment route is the most cost-effective option, the reality is that investors have mostly been going for the fund investments.
Vacani says that the fact that returns are non-existent or difficult to estimate (Unlike the fund or VC investment options)” makes it less popular, adding that the fact that the Portuguese State has to “intervene twice” both at application process level and applications to entities deciding the eligibility of the heritage or cultural investment — “we haven’t had very good experiences with the Portuguese State being very proactive” — creates uncertainty for this option. “We haven’t had a single investor opting for this route”, he admits.
On the other hand, he concludes, people have been opting increasingly for the funds route, which even though they require a higher investment of €500,000 or over, is an investment in regulated vehicles and managed by professional and regulated entities that have a relevant track record in equity management.
Last, another factor clients often mention is that funds investment implies diversification of risk as funds and VCs tend to invest in different projects and is therefore less risky and offers a better potential for returns.
