The use of Portuguese AIFs: a rising trend among investors

The landscape for Portuguese alternative investment funds (AIFs; in Portuguese, organismos de investimento alternativo, or OIAs) has recently undergone significant changes, with a new regulatory framework being approved, new vehicles being made available to investors, and the applicable tax regime being amended or implemented. The reforms are aimed at simplifying processes and aligning Portugal’s regulations with those of other EU countries.

In recent years, Portuguese private subscription AIFs have become increasingly popular, particularly among qualified investors (including asset managers such as private equity players, real estate developers, family offices, immigration-linked businesses such as Golden Visa funds, and others). The trend is expected to last for the foreseeable future.

This article provides a tax and regulatory structuring overview, summarising the available AIF vehicles, respective tax regimes, and other key structuring features that investors should consider when investing in Portugal.

Portuguese legislation and regulations for undertakings for collective investments (UCIs; organismos de investimento coletivo) are aligned with EU directives, offering a flexible, competitive, and reliable legal framework.

The current Asset Management Regime (Regime da Gestão de Ativos, or RGA) that entered into force in May 2023, as approved by Decree-Law 27/2023 of April 28, revamped the framework for governing UCIs in Portugal. The RGA was subsequently regulated by Regulation 7/2023 of the Portuguese Securities Markets Commission (Comissão do Mercados de Valores Mobiliários, or CMVM).

The RGA consolidated existing laws on venture capital–private equity (VC–PE) funds and other UCIs. It also eliminated ‘gold plating’ in the transposition of EU directives, making the Portuguese legal framework more competitive and aligned with EU law and international standards.

The main regulatory structuring considerations are summarised below.

Under the RGA, UCIs are classified into:

• Undertakings for collective investment in tradable securities (UCITS; organismo de investimento coletivo em valores mobiliários) – as defined in the UCITS Directive; or

• AIFs – as defined in the Alternative Investment Fund Managers Directive (AIFMD).

Depending on their investment strategy, AIFs are further categorised into one of the following subtypes:

• Real estate AIFs (OIA imobiliário);

• VC–PE AIFs (OIA de capital de risco);

• Loan AIFs (OIA de créditos); and

• Other AIFs (Outros OIA).

Depending on the UCI type and the AIF subtype, as well as other conditions expounded on below, UCIs are subject to regulatory requirements regarding, among others, investment restrictions, assets composition, and leverage.

AIFs can be structured as open-ended or closed-ended. However, due to the typical illiquidity of alternative asset classes, AIFs are generally closed-ended.

Open-ended AIFs permit subscriptions and redemptions of units/shares within specified timeframes, allowing investors to redeem their investments more easily and making them a more liquid investment option.

As for closed-ended AIFs, additional subscriptions are possible only through capital increases, which require approval by shareholders or unitholders. Although full redemptions are not possible, exit strategies can be defined, such as setting the duration of the AIF or using a secondary market, and partial redemptions may be possible in certain cases.

AIFs can be marketed through a private placement or a public offer. If the AIF is closed-ended and a public offer is made, a public offer prospectus in accordance with the Prospectus Regulation may be necessary, along with other requirements.

Virtually all AIFs are created or marketed by private placement, where no additional requirements apply.

AIFs can be structured in a contractual form or a corporate form.

AIFs in a contractual form – called ‘investment funds’ – do not have legal personality but represent a segregated pool of assets and liabilities considered to have insolvency, financial, and tax ‘autonomy’. Their capital is represented by participation units.

AIFs in a corporate form – known as collective investment companies (sociedades de investimento colectivo, or SICs) – take the form of a public company limited by shares (sociedade anónima), thereby having separate legal personality. Their capital is represented by shares.

SICs can be externally managed or self-managed. Externally managed AIF SICs must appoint, and be managed by, an authorised or registered AIF manager (AIFM), who must be established in Portugal or operate through the AIFMD management passport. In turn, self-managed AIF SICs can be managed by their board of directors.

The legal and regulatory requirements for self versus externally managed AIF SICs vary significantly, as self-managed AIF SICs are also regulated as registered or authorised AIFMs.

The rules for forming AIFs vary depending on their legal form structure, entry and exit nature, and the placement regime.

Since the RGA entered into force, only a few UCIs continue to require prior authorisation. Now, most AIFs only need to send a communication to the CMVM in advance, significantly speeding up the formation process.

SICs can be formed by incorporating a new company or by converting an existing one, which may or may not already have assets and liabilities.

‘Conversions’ have been repeatedly understood to be tax neutral by the Portuguese tax authorities (with regard to income and real estate transfer tax).

AIFs can be subscribed to by professional and non-professional investors. AIFs must specify whether they are targeted at one or both categories. If an AIF is aimed solely at professional investors (including those who request to be treated as such) or requires a minimum investment, certain regulatory requirements do not apply.

No minimum net asset value or investor dispersion requirements apply, meaning AIFs can be held by a single investor (with pooling occurring at an upstream level).

AIFs may create different sub-funds, ensuring investors are exposed to a segregated pool of assets and liabilities only.

All AIFs generally need to appoint:

• A management company, except when they are self-managed AIF SICs;

• A depositary, except when they are targeted only at professional investors and are solely managed by a sub-threshold registered AIF manager; and

• An auditor.

UCIs formed under Portuguese law generally benefit from a more favourable tax regime that varies depending on the type of UCI and its asset and investment policy, as outlined in their respective constituting documents. Below, the key features of this regime for each investment vehicle are highlighted and a summary table is provided.

Although generally subject to corporate income tax (CIT), UCITS are exempt on certain income flows, as qualified under personal income tax (PIT) rules, such as:

• Capital income; e.g., dividends, interest, royalties, and other passive income;

• Rents; and

• Capital gains.

However, this exemption does not apply if the source or paying entity is resident or domiciled in a blacklisted jurisdiction under Portuguese law (Blacklisted Entities) (see Ministerial Order 150/2004 of February 13, as amended, in Portuguese). Expenses related to exempt income are not tax deductible. In principle, UCITS are eligible for treaty benefits, being able to obtain a tax residency certificate.

UCITS are subject to stamp duty (SD) on their net asset value at a rate of 1.25 basis points, assessed quarterly. This rate is reduced to 0.25 basis points if the UCITS invests solely in deposits and money market instruments.

Resident investors are generally subject to the standard tax regime. Non-resident investors are typically tax exempt for distributions from UCITS and gains from redeeming or disposing of UCITS shares or units. However, this exemption does not apply if the payee:

• Is a Blacklisted Entity;

• Is a ‘jumbo account’ with undisclosed beneficiaries; or

• Is an entity more than 25% owned by Portuguese entities, unless it is located in the European Economic Area and the jurisdiction where it is located has administrative cooperation in the field of taxation under similar terms to those within the EU and a double tax treaty with an exchange of information clause.

CIT

Same as for UCITS.

SD

The AIF is subject to SD over its net asset value at a rate of 1.25 basis points, assessed quarterly.

Resident investors are generally subject to the standard tax regime. Non-resident investors are typically subject to a 10% flat rate of PIT/CIT on distributions by the AIF and on gains from redeeming or disposing of the respective shares or units, with this income qualifying as real estate income for treaty purposes. The reduced tax rate is subject to the same exceptions as UCITS (i.e., Blacklisted Entities, jumbo accounts, and indirectly held entities).

CIT

VC–PE AIFs and loan AIFs are subject to, but generally exempt from, CIT, meaning they are generally not considered as treaty eligible.

SD

Same as for real estate AIFs.

Resident investors are generally subject to a 10% flat PIT rate (individuals) or the standard CIT regime (corporates), with a 10% withholding tax applying on account of the final tax due in the latter case. Non-resident investors are generally exempt from tax on distributions by the AIF and gains from redeeming or disposing of the respective shares or units; however, a 10% rate may apply if the fund is considered a ‘land-rich entity’. This exemption does not apply to Blacklisted Entities or to entities more than 25% owned by Portuguese tax resident entities, either directly or indirectly.

CIT

Same as for UCITS.

SD

Same as for real estate AIFs.

Other AIFs primarily investing in securities

Income that resident investors make from these AIFs should generally be subject to standard PIT/CIT rates.

Conversely, the authors consider that foreign investors should benefit from an exemption comparable to that for UCITS, as follows.

While describing the applicable regime to foreign investors, tax lawmakers refer to “security UCIs”, which, though inconsistent with the current regulatory framework, was a category previously established in regulatory law, encompassing UCITS and “securities AIFs”; i.e., primarily investing in securities.

Changes in status that complicate cross-references among fields of law are common. Most consider that a ‘dynamic interpretation’ should be embraced, focusing on assessing whether there is a link between ‘old’ and ‘new’ concepts, rather than taking a purely formalistic perspective.

In accordance, considering that former securities AIFs, though no longer explicitly regulated, can be traced to/placed in the current other AIFs category, the tax regime set forth for the former “security AIFs” should continue to apply to “other AIFs” primarily investing in securities.

Remaining 'other AIFs'

The standard CIT/PIT regime should apply to investors in remaining “other AIFs”.

The tax incentive system for research and business development (sistema de incentivos fiscais em investigação e desenvolvimento empresarial, or SIFIDE) aims to incentivise investment in R&D.

One eligible investment under this regime is in UCIs that subscribe to equity or quasi-equity instruments in “R&D companies” (defined by law as those investing at least 7.5% of their turnover in R&D), allowing them to undertake eligible R&D investments.

This investment allows for a 32.5% tax credit at investor level, subject to certain conditions being met, including the following:

• The R&D company cannot use the funds to also benefit from the SIFIDE;

• There is a minimum investment period of 10 years in the UCI units or shares;

• The UCI must invest 85% of the proceeds within three years; and

• The R&D company must make an eligible investment within three years.

UCIs investing under pre-2024 rules can benefit from a more favourable regime, with up to an 82.5% tax credit and less restrictive conditions. For example, R&D companies can also benefit from SIFIDE under these older rules.

Although the SIFIDE regime does not require a particular kind of UCI to be used, the nature of the underlying investments typically results in SIFIDE funds being VC-PE AIFs.

Leasing support AIFs (organismos de investimento coletivo de apoio ao arrendamento) are required to, under the respective investment policy, lease at least 5% of their properties at affordable rents, in accordance with specific legal regimes.

In this case, respective investors benefit from a partial tax exemption on distributions and gains, depending on the percentage of eligible assets held by the AIF, as follows.

Eligible assets	Exemption
5–10%	2.5%
10–15%	5%​
15–25%	7.5%
Over 25%	10%

Additionally, leasing support AIFs holding over 25% in eligible assets benefit from a 25% reduction in the quarterly SD applied to their net asset value, resulting in a rate of 0.94 basis points (instead of the standard rate of 1.25 basis points).

Other relevant “affordable rent leases” real estate AIFs are those that, regardless of being a leasing support AIF, effectively allocate 75% or more of their assets to “affordable leasing”, as defined by Law 56/2023 of October 6 (as amended) under the so-called More Housing Programme (Mais Habitação). In this case, individual resident investors benefit from a 10% PIT rate on respective distributions and gains.

Real estate AIFs focused on forestry investments (fundos de investimento imobiliário em recursos florestais) must invest at least 75% of their assets in certified forest-resource development projects.

No SD is due from a forestry-investment real estate AIF when it acquires an eligible rural property (typically 80 basis points over the higher of the purchase price and the registered tax value). Also, subscribing in kind for shares or units in these AIFs via a contribution of real estate properties to the AIF does not trigger capital gains tax, with the investor retaining the same tax basis in the shares or units as it had in the property.

In all other cases, forestry-investment real estate AIFs are generally subject to the same regime as that for PE–VC AIFs and loan AIFs (see above).

Economy-fostering securities investment companies (sociedades de investimento mobiliário para fomento da economia, or SIMFEs), as defined in Decree-Law 77/2017 of June 30 (as amended), are classified as “other AIFs” in corporate form. Their shares must be traded on a regulated market or a multilateral trading system. Also, at least 50% of their assets must consist of:

• Securities issued by SMEs or mid-caps;

• Units or shares in UCIs that invest at least 50% in SMEs or mid-caps, as evidenced by their constituting documents; or

• Credits due from companies in which the SIMFE holds an equity interest.

SIMFEs and their investors generally benefit from the same regime as that for VC–PE and loan AIFs.

The following table summarises the tax regime applicable to Portuguese UCIs.

Portuguese funds tax regime overview (November 2024)

			Fund		Investors
			CIT	SD (quarterly net assets under management)	Non-resident	PIT*	CIT
UCITS	Standard		0%	1.25 basis points (bps)	0%	28%	Standard rates (25% withholding tax, or WHT)
	Deposits and money market instruments		0%	0.25bps	0%	28%	Standard rates (25% WHT)
AIFs	Venture capital	Standard	0%	1.25bps	0%	10%	Standard rates (10% WHT)
		SIFIDE	0%	1.25bps	0%	10%	Same + 32.5% deduction
	Loans		0%	1.25bps	0%	10%	Standard rates (10% WHT)
	Real estate	Standard	0%	1.25bps	10%	28%	Standard rates
		Forest	0%	1.25bps	0%	10%	Standard rates
		Affordable lease	0%	0.94–1.25bps	9–10%	10–25%, 2–28%	90–100% standard rates
	Other	Standard	0%	1.25bps	25%	28%	Standard rates
		Securities	0%	1.25bps	0%	28%	Standard rates (25% WHT)
		SIMFE	0%	1.25bps	0%	10%	Standard rates (10% WHT)
* Long-term gains derived with respect to open-ended UCIs avail of a reduction, as follows: (i) 10% for assets held between two and five years, (ii) 20% for assets held between five and eight years, and (iii) 30% for assets held for eight years or more