For many Americans, the idea of unlocking retirement assets to invest in Portugal’s Golden Visa program seems appealing. The problem is that what looks simple on the surface can create very serious U.S. tax issues, many of which aren’t about Portugal at all, but about U.S. retirement plan rules.

Before you take a step in this direction, it is important to understand how the rules work, how problems are discovered, and what the consequences can be.

The Risk: Prohibited Transactions

U.S. retirement accounts like IRAs, 401(k)s, and self-directed retirement plans come with a strict set of rules designed to prevent abuse. One of the most important restrictions is the “prohibited transaction.” A simple analogy makes this clear. Your retirement account is allowed to invest in real estate, for example, to grow its value, such as buying a rental property and collecting rent so long as all the income stays in the account. But you are not allowed to buy yourself a house with your IRA, live in it, and call it an “investment property.” In that case your retirement account is giving you a personal benefit while it is still tax-advantaged, and in effect you have taken a distribution without paying the tax due on it.

Golden Visa investments can raise the same kind of issue. Even though the money goes into a legitimate investment fund, the residency rights that come with it may be considered by U.S. regulators to be a personal benefit to you as the investor. That is exactly the kind of benefit the prohibited transaction rules are designed to prevent.

Some argue that the investment’s purpose is financial, and any residency right is incidental. But because the personal benefit arises by reason of the plan’s investment and cannot realistically be undone, regulators could still view it as self-dealing. Additionally, as is often the case in a common law system, we will only know for certain how regulators treat residency visas when a case reaches the courts or when specific rulings or regulations are issued. Until then, investors are pushing boundaries, taking risks, and waiting to see where the line will be drawn. There is no authoritative signal yet, which means investors must make their own risk assessments with the guidance of trusted advisors.

How These Issues Are Discovered

Investors may be wondering how regulators will notice. In reality, these transactions are highly visible. Self-directed retirement accounts file annual reports that disclose their investments. Portuguese banks and funds themselves are also required to report U.S. investors under the Foreign Account Tax Compliance Act (FATCA), which means that account details and investment activity are automatically shared with U.S. authorities each year. If a taxpayer is examined, retirement accounts are a common focus area, and even before that point many U.S. custodians will refuse to process foreign fund investments, which forces investors into workarounds that only increase scrutiny.

From a Portuguese perspective, these issues may not be problematic. Retirement funds are considered a pristine class of assets. The source of funds can almost always be traced directly to employment income, and the money has usually been held in the custody of a major financial institution for its entire life. For banks and regulators in Portugal, that makes retirement money clean, well-documented, and very low risk. It is precisely for this reason that a Portuguese lawyer or banker may not raise the issue at all. In the Portuguese system, there is nothing suspicious about retirement money, and no prohibition on using it for Golden Visa investments. The danger lies entirely under U.S. tax law, which is outside their scope.

The Penalties and Timeline

The penalties for getting this wrong are significant. If regulators determine that a prohibited transaction has occurred, the entire IRA is treated as having been distributed on January 1 of the year in which the investment was made. That means the full value of the account is subject to ordinary income tax, with an additional ten percent penalty if the investor is under age 59 ½.

U.S. law also imposes an excise tax on the amount involved in a prohibited transaction, in the case of a Golden Visa investment, about USD$600k. The first-tier excise is 15% per year until corrected, and if the transaction cannot be corrected the law adds an additional 100% tax. Residency visa investments may fall into this category of non-correctable prohibitions, which means that the excise tax burden can reach 115% of the invested amount. On a USD$600k prohibited transaction, the excise tax alone may exceed the investment amount (in parallel of the income tax and early-distribution penalties discussed above). The combined effect can be severe, in this case exceeding $900,000. The problem may not surface until years later, with many of these cases only making it to court 3-5 years after the transaction occurs.

Likelihood and Industry Response

The strategy of using SDIRA assets only appeared last year; early adopters only recently filed returns and will now move through the exam cycle. That means regulators are likely to begin testing these transactions in practice. As scrutiny increases, the risk that these investments will be challenged may grow.

Golden Visa funds themselves have started to react. Some now require American investors to obtain written proof that they have consulted a U.S. tax advisor, and to sign certifications acknowledging that they understand the risks. This certification helps to protect the fund, but it is also an indicator to investors that those funds work regularly with American clients, are aware of the unique considerations of American clients, and are making it a priority that their American clients get independent advice. American investors have to be more careful than many other international investors, as U.S. tax applies outside of the U.S. in ways that investors from other countries may not have to navigate.

The Broader Compliance Picture

Golden Visa investments also carry other compliance and reporting obligations that investors often miss. The Passive Foreign Investment Company regime, including the Qualified Electing Fund election, is poorly understood, and the rules for excise distributions are confusing even for seasoned tax preparers. For non-IRA investors (and for any assets held after an IRA is disqualified) PFIC rules loom large. A timely QEF election can convert what might otherwise be high-rate, ordinary “excess distributions” into capital gain treatment; skipping QEF can push effective rates into the high thirties or forties. Small differences in tax reporting strategy can translate into dramatically different outcomes.

If you are attracted to a fund, the conservative path is to use taxable money. If retirement assets are your only source, consider taking a taxable distribution first. Always obtain U.S. tax advice from qualified tax attorneys or CPAs in writing before you subscribe.

The Bottom Line

Using retirement funds to make a Golden Visa investment may sound like a smart way to unlock capital, but the risks are substantial. A single misstep can turn a tax-free retirement account into an immediate taxable event, compounded by excise taxes on the investment itself, and result in serious financial consequences. At the same time, Golden Visa reporting obligations are complex enough that even investors who do not use retirement money face real risks of noncompliance if they do not have the right guidance.

Smart investors start by inventorying their account types, assuming detectability through FATCA, and getting U.S. advice before funding. Careful planning and informed guidance are essential to make sure these investments are managed correctly.

Areia Global is a U.S. tax law firm headquartered in Miami with a partner office in Lisbon. The firm focuses on helping Americans navigate cross-border tax issues, including the unique challenges of investing in Portugal. Their Golden Visa compliance program is designed to ensure that investors and their advisors understand the tax impact, reporting obligations, and compliance rules involved, and to provide the certifications that some funds now require as proof of tax consultation. More information is available at: https://www.areiaglobal.com/golden-visa-us-tax-compliance

By: Sasha Young da Silva, Managing Partner, Areia Global