New nationality rules threaten investment via “golden” visas

The uncertainty generated by the new rules for immigrant entry and obtaining nationality is causing concern among holders of golden visas and investment funds, who had used this mechanism as a source of capital to inject into the Portuguese economy. Some anticipate a ‘very significant drop’ in investment through this channel, leading to the ‘irrelevance’ of golden visas and reputational damage to the country with this zigzagging. This Friday, the government’s proposals will be discussed in Parliament.

After the government’s announcement following a Council of Ministers meeting, there has been no shortage of requests for clarification from investors via golden visas.

‘We have received several requests for clarification from potential investors, especially in light of recent legislative changes and the uncertainty generated by changes in the political landscape and the positions of the competent authorities,’ says Luís Gutman. ‘They are seeking to better understand which routes are currently still eligible for the golden visa, as well as the practical impact of the new rules on their investment plans,’ says the CEO of OW Ventures, a venture capital firm that launched last November with the Terralis Fund, focused on technologies for sustainability, with the aim of investing €20 million over eight years, with part of that capital coming from golden visa investors.

This concern has also reached AGPC Investments. ‘Since the new potential changes were announced, essentially related to nationality law, we have felt an immediate impact on requests for clarification and the need for new investors to know what the future rules will be,’ admits Catarina Almeida Garrett. With immediate results. “Some new processes have naturally been put on hold until the final scenario is clear. Other clients have already expressed their willingness to continue the process. I believe that the main challenge in this case is for investors to know what they can count on in the medium and long term and for the State to fulfil its part,” says the co-founder of AGPC.

This uncertainty could deter potential investors and even have an impact on the country’s reputation. ‘The successive legislative changes introduced in recent years always have consequences for the stability and predictability that investors and highly skilled people seek when they decide to consider Portugal as a country to live in and a destination for their investments,’ begins Lurdes Gramaxo.

‘Portugal’s reputation as a country that keeps its commitments is too valuable an asset and must be preserved,’ warns the president of Investors Portugal. “The mere possibility that the new legislation may have retroactive effects has raised the greatest concern among current holders of golden visas and/or highly qualified professionals, especially in relation to the extension of the period from five to ten years [to obtain nationality], representing a huge reputational risk with dire consequences for the country’s image,” says the president of the association, which represents 300 business angels and 26 venture capital companies with a total of more than €6 billion in assets under management.

Regarding the possible retroactive application of the law, Lurdes Gramaxo also states: ‘The Government should avoid retroactive application of the law, which would lead to a loss of investor confidence, just as it should not change the term from five to ten years in the particular case of golden visas.’

If it does so, she warns, “this measure should be accompanied by a guarantee of a swift and simplified process for obtaining temporary residence permits. If this is not taken into account, the changes now proposed could lead to the end of investment attraction through golden visas,” she anticipates.

And she is not the only one to express this concern. “The most problematic change that could harm these investors is to start counting the period of residence from the date the card is issued, rather than from the date the application is submitted. If this measure goes ahead, the State is burdening and harming investors with its own slowness and failure to meet all the deadlines it is legally obliged to meet,” says Catarina Almeida Garrett.

‘The law requires investors to make the investment before submitting their application, i.e. the application for a residence permit for investment. They comply fully with this, in the expectation that the State will also comply with what the law establishes. That is the assumption,’ adds the co-founder of AGPC.

“Applications should be reviewed within 90 days, but currently they are taking more than two years. To address this inefficiency, the government had rightly decided that the residency period would begin from the date of application submission. By revoking this measure, the message being sent is that of a state that asks investors to invest around half a million euros in the country, wait more than two years for their application to be reviewed, and only after the residence permit has been issued can they be considered Portuguese residents,” he explains. ‘This approach raises doubts about the predictability and attractiveness of the system, compromising the trust that should exist between the State and those who decide to invest in it,’ he summarises.

Vasco Pereira Coutinho, from Lince Capital, a venture capital firm that has ‘some funds eligible for gold visas,’ also warns of the potential impact of the uncertainty created.

‘We view with some concern the constant changes to the gold visa regime, which we continue to believe is a very important programme for attracting foreign investment to the country,’ he says. ‘Stability and clarity are fundamental for medium and long-term investment plans and for putting Portugal on the map as a safe and reliable investment solution,’ continues the CEO of Lince Capital. ‘There is enormous potential wasted by not channelling investment from these programmes into areas that are important for the country; these would be interesting changes to make,’ he says.

Lurdes Gramaxo also raises another concern. ‘Golden visa investors don’t just bring investment, they are, in most cases, very well connected people with a valuable network of contacts who promote our country internationally,’ recalls the president of Investors Portugal.

To obtain a Residence Permit for Investment Activity (ARI, commonly known as a golden visa), applicants must invest between €250,000 and €500,000, for example, in research activities, investment funds or the creation of a commercial entity.

Last year, 2,084 residence permits and 1,903 family reunification permits were granted, totalling 4,987, according to data from AIMA, provided by the Ministry of the Presidency. ECO questioned the Government about pending applications, but has not yet received a response.

So, what will change in the law?

The Government has submitted three proposals to the Assembly of the Republic concerning the entry of foreign nationals into Portugal. One amends the Nationality Law, increasing the minimum residence periods. Another changes the Foreigners Law, revising visas for job seekers and the rules on family reunification. And the third provides for the creation of a border police force.

‘The proposed laws do not directly alter the golden visa regime,’ emphasises Raquel Brito, senior associate at Abreu Advogados. ‘The investment residence permit regime is not directly affected by these proposed laws, with eligible investments and the respective procedure and legal requirements remaining unchanged,’ confirms André Rei, senior associate at PARES.

‘However, they introduce changes that have an impact on holders or applicants for the Residence Permit for Investment Activity (ARI) scheme,’ emphasises the Abreu Advogados associate. Similarly, André Rei stresses that, considering that the attractiveness of the programme in question ‘was directly related to the possibility of obtaining Portuguese nationality after five years,’ the change in the rules ‘inevitably affects’ investors.

Let us consider, then, what changes to the legislation may have an impact on so-called golden visas. On the one hand, the Government advocates increasing the minimum residence period for access to nationality by naturalisation from the current five years to ten years (or seven years in the case of citizens from countries where Portuguese is the official language). ‘This change applies directly to gold visa holders, since they are, by definition, third-country nationals and benefit from a residence permit,’ explains the aforementioned senior associate at Abreu Advogados.

On the other hand, the proposal submitted by the Government to Parliament clarifies that the period of legal residence for the purposes of calculating this minimum period begins with the actual issuance of the residence card and not, as is currently the case, from the date of submission of the residence application. ‘This change is particularly relevant for gold visa holders, given that there is a significant interval — in some cases up to four years — between the time of investment and the time of issuance of the residence card,’ points out Raquel Brito.

And André Rei adds: ‘This means that applicants for golden visas will have to wait around 15 years [ten years of residence, plus the approximately four years it takes to obtain a residence permit] before they can apply for Portuguese nationality (which currently takes more than three years to complete).’

This senior associate at PARES also notes that, during this decade and a half, these citizens will have to maintain their investments and renew their residence permits every two years, ‘at a much higher cost compared to traditional residence permits, with no certainty that they will not be affected again by future legal changes.’

Nevertheless, Luís Montenegro’s administration has determined that holders of golden visas (along with highly qualified professionals and beneficiaries of the European Union’s blue card) will be exempt from the new restrictions being prepared in relation to family reunification.

‘This exclusion highlights the government’s intention to maintain the attractiveness of this programme in attracting qualified foreign investment,’ says Rita Correia Nunes, an associate in the immigration and nationality department at PAXLEGAL.

In these cases, it will be possible to apply for family reunification with family members ‘who have legally entered the country and are currently residing here,’ cohabiting with and dependent on the applicant. In contrast, in other cases, it is established that only citizens with a valid residence permit who have been residing in Portugal for at least two years are entitled to apply for family reunification. And these family members must be outside the national territory (except minors).

When do these changes come into effect?

The bills in question were submitted to Parliament at the end of June, where they will now have to make their way through the legislative process. A discussion (and vote on the general principles) is scheduled for this Friday, after which the bills are expected to move on to the specialised committees.

In this context, the Government — without an absolute majority to support it in the Assembly of the Republic — will have to engage in dialogue with the other parties, and criticism is already being heard from both the right (Chega, for example, believes that the Government needs to go further on some points) and the left (particularly with regard to parliamentary regrouping).

This Thursday, after an ‘inconclusive’ meeting between the Socialists and the Executive, the PS Secretary-General, José Luís Carneiro, explained that he has proposals to ‘improve’ the measures put on the table by the Government, and challenged Luís Montenegro to clarify with whom to discuss these matters.

Furthermore, the Minister of the Presidency, António Leitão Amaro, explained that the intention is to apply these changes only to cases that are presented after these laws come into force (after making their way through Parliament, they will still have to get the ‘green light’ from the President of the Republic and only then will they go to the Diário da República). But there is one exception: in the case of nationality concessions, the new rules will apply to cases initiated on 19 June this year.