Currently, U.S. Nationals represent about 20% of Portugal´s Golden Visa applications, being the first country in this ranking having recently surpassed Chinese investors that since the start of the program in 2012 have been for many years the main leading force in the investments.
The advantages of Portugal for U.S. investors span from its high quality of life, safety, welcoming environment with friendly people, an affordable cost of living, cheaper on average by around 40% compared with the USA, a high proficiency of the local population in written and spoken English and a politically stable country with a growing economy.
Investment in Portugal´s Golden Visa using funds from U.S. retirement accounts, is a recent but increasingly popular strategy among U.S. investors seeking residency in Portugal. They mainly use 401(k) or Individual Retirement Accounts (IRA).
This allows investors avoiding early withdrawal taxes or fees but must be carefully planned and designed to avoid the IRS to classify the transactions as prohibited and subject to penalties. This is a somewhat complex and not standard process and therefore, investors should consult tax advisors in both U.S. and Portugal to carefully assess the impact before proceeding with any investment.
One of the most popular instruments, the Self-Directed IRA (SDIRA) allows access to alternative assets, including private equity funds in Portugal. In the traditional 401(k), contributions are made through payroll withholding and the taxation is deferred until the beginning of withdrawals are made by the employee. However, this type of retirement option has usually a set of limited investment options.
To match with the access to Portugal Golden Visa, investors need to roll over their retirement funds into a Self-Directed IRA (SDIRA) for accessing alternative investments like Portuguese Private Equity Funds.
Another option to consider is to roll part into a Roth IRA, where qualified distributions can be done on a tax-free basis.
Certain Portuguese funds allow direct investment from an IRA, providing good tax optimization for the investor. Funds choice for U.S. investors should also contemplate the fund management´s company concern with SEC regulations, as well as FATCA and PFIC frameworks.
The traditional way is to create a U.S. LLC to administer the money and a Portuguese equivalent of a LLC but currently some Portuguese fund management companies are creating the necessary processes to have a direct investment from the SDIRA.
One interesting point is that Portuguese private equity funds distributions or capital gains by U.S. investors are completely tax exempt from the Portuguese IRS side.
Another critical point is the Portuguese fund management company to be able to provide the necessary documentation for the IRA custodial entity, allowing the investment in the Portuguese fund to be deemed eligible for direct IRA investments.
The Blue Portugal is a leading immigration company in Portugal and has an enviable track-record and reputation in serving our customers.
Our strength is finding the appropriate solution according to your need and providing detailed analysis on the different investment options for you to make an informed decision.
If you have any questions, please do not hesitate to contact us.
