LXL GV Fund

Residencies & citizenships Portugal Golden Visa
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So, just saw this: Golden Visa Fund for US Citizens Launched in Portugal - Newsweek and https://lxlventures.com/

Ignoring the details (which a cursory read indicates is the usual fluff), I’m intrigued by the statement that PT regulators approved it.

What (if any) impact might this have on the citizenship churn? Could the argument be made that “hey - one side of the government is full steam ahead, how can the other side be ‘no - wait’”

And is there anything in reputable PT news sources about this?

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who is meant by “PT regulators”? If they mean CMVM, all that means is that “hey ok it’s a legal, registered fund”. It’s about like saying the SEC has approved a new mutual fund and it’s duly registered. Meh.

Not that we haven’t seen left-hand-right-hand all over already of course. :slight_smile:

Frankly the only thing interesting about it that I see is that somehow they’re getting you access to NHR 2.0. However that’s something that Zeev has been working on for a while anyway. I’m surprised he’s able to package it like this, and am concerned that the packaging of NHR 2.0 benefits in this format is going to be just a shade too innovative for the government’s liking (“too easy”) and a new firestorm will get created.

sigh.

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Yes, that is the most interesting thing. If I follow, this fund is going to invest a portion of its assets in projects that are TSLRI eligible. But you have to be tax resident to be TSLRI, so for most GV holders it is not relevant. But down the road, if a GV holder decided to move to Portugal (this is where the “Escape from US” theme comes in), the operators of those TSLRI eligible projects have agreed to hire the GVer, or something, that allows TSLRI to apply.

The other interesting thing is that Zeev is talking about detailed US tax compliance, by which I think it might be that this fund is going to supply the information that would allow a QEF election. Is that not relatively unique?

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Yeah, that’s the bit that disturbs me. NHR 2.0 has provisions for those involved in startups. Zeev has been working on ways to get people into NHR2 based on that provision for a while now. (It’s something I paid attention to for a while; I ended up getting into NHR 1 anyway so I stopped caring but I’m tangentially aware.) I think there was definitely something to it. My concern is that, originally, it was going to involve people actually being at least a little bit involved in the startups, and the idea was to simply provide more of a structured way to do it. That’s at least sort of in line with the intent. The idea of just investing in a fund and getting NHR 2.0 out the back side seems like it violates the spirit of the thing, and that’s bad juju given the overall environment. But of course I know no more details than are provided on the web page. If I felt ambitious I’d call and ask, but it’d be pure curiousity.

I don’t know. The funds I deal with do it. However that is a small sample of the overall universe, and it might be that a lot of funds don’t, or do a crap job of it, and therefore this is relatively unique somehow.

When my funds were starting up, it was hard of course because at the time practically no one in PT even understood PFIC rules, much less what was necessary to allow for compliance. It made for some interesting discussions with the funds on my part, given my broad understanding of US taxes as a whole. By now, however, the necessary expertise simply cannot be that hard to find so there is zero excuse. It’s not rocket science, it’s a few bucks to an accountant and a lawyer to read through the books once a year and do a little math and write a one-page report. That’s it.

He might mean something more like “taking into consideration how US tax laws treat actions we take so that we are more tax-friendly”. I have this issue with my international wealth advisor - they don’t understand the US tax code, so they’ll happily trade out of a position at 11 months and 29 days, for example. But when you are behind the QEF wall, I’m not sure how much that matters. For the funds I am in, I don’t think it matters much but it’s not anything I’ve spent time on.

Frankly I suspect the real thing is optics. Zeev is wrapping the fund in American-investor-friendly language and structures. Nothing wrong with that, but it’s just optics.

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Hi All,

Since you are speaking of the devil and it was mentioned to me, I thought I’d pop-over and add my two cents.

First of all, I agree that the NHR 2.0 angle is the most unique thing about this fund. And yes, we do use the exact same mechanism that we use for D7 and D8 IFICIs, with the main difference being that for GV people, it’s an optionality for the future if and when they decide to come. For those who never intend to come, it’s unhelpful but my estimate is that at least 50%, certainly when it comes to Americans, would like to at least consider coming at some point and would not come without tax benefits. So it’s a big deal.

As for the comment on getting involved in the ecosystem being the spirit of the rules - completely agree and again, same rules - if a GV investor wants IFICI, they need to move to Portugal, take a board position and at least to some degree make a real contribution.

I will share that our first batch has already been approved by Startup Protugal and are just awaiting Finances sign-off, which they would most likely not do a second before the last minute but they have no legal authority to deny - so this works and the hard part is done.

Aside from IFICI, yes PFIC letters and QEF elections are an important part of U.S. compliance and yes, some funds do it okay and some don’t. It’s not just about the documents though. It’s also about distributing enough cash to cover the taxes on the notional income for those who made QEF elections, which is something funds rarely do.

Then, there is the cross-border support. We file taxes, in Portugal by a tax lawyer and in the U.S. by a CPA (now we have our own CPA on the ground in the States). Our CPA knows how to do PFICs and knows how cross-border works.

There are other compliance issues that are not investor sides - funds need to apply for exemptions. There are certain things that are allowed when marketing funds and certain things that are not. We are doing it properly with proper legal advice. Do other funds do it? Maybe. Maybe not.

The investment profile is much closer to what Americans are used to invest in. I cannot go to a lot of detail here because the fund manager will tell me off, but 40% is US equities - this I can say. The U.S. part is advised by a US regulated CFP who is ex Meryl Lynch who lives in Portugal. The tech part is advised by an ex-BCG and VC person. This is not just your typical Portuguese fund managers. These are people who live cross-border and deeply understand Americans.

And maybe finally, no dodgy stuff. Hospitality that’s actually real estate is dodgy. Kick-backs are dodgy. Investments by SDIRA are very very clearly prohibited transactions that can and will lead to insane penalties.

So yeah, I pretty passionately believe that we created a unicorn here, but there is room for anyone and very happy to hear that people are happy with their funds!!

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I don’t see why distributing cash is necessary for PFIC compliance.

It’s maybe nice to have, but I’m glad e.g. IMGA doesn’t - that would make my taxes even more complex!

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There are two different issues here.

PFIC compliance is basically issuing a formatted letter specifying the yearly profit.

Investors have two options - tax at the end of the fund at the highest possible rate or QEF election on the first year.

Those making a QEF election can benefit from the lower and appropriate tax rate for cap gains and dividends BUT they need to pay every year whether the fund distributes or not. That’s what the PFIC letter is for.

This could create a cashflow issue - funds locked but tax payable. If you have the cash, great, but if you only planned to invest 500K, you need at least small distribution to cover the taxes and that is what we plan to do. It’s unnatural for a closed fund mentality because it hurts returns but most people I talk to do not want a cashflow issue.

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Exactly. Typical for a US pass-through structure.

And then, if you flip to being tax-resident in PT, how does that work? Are you taxed on the distribution or the putative income?

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All right. I feel better about that. NHR2 was meant to not be a such a gimme as NHR1 was, and for good reason. (I am a beneficiary of NHR1, but I understand what a relative gimme it is now, even if it wasn’t when first introduced.) If people gotta have skin in the game and actually participate to get it, great. I’m not sure how you’re managing that in the context of a fund, but I’ll take your word for it - I’m sure it’s possible, there’s no doubt constructs available from sili-valley VC world for collective investment (say, an individual is named by the fund as their board rep to a company the fund has invested in; you can prove participation through board meeting minutes etc - how you show appropriate risk bearing is a conversation).

I have seen here many people who are unhappy with the taxation-without-distribution aspect. Interesting that you’ve worked around that.

You’ve done a lot for the community over the years, Zeev. I wasn’t too sure what to think when I saw this. I’m glad to see this is another attempt to contribute in a fashion constructive to both investors and Portugal’s needs.

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@jb4422 first of all, thank you for your kind words.

I believe that this is going to be my biggest project ever, at least until now. The fund made the news 2 days ago and we are flooded with leads. Because the fund invests 25% in early stage tech, it could well have the largest allocation for this purpose from all VC funds and I have been discussing this with some of the ecosystem builders here - if it goes well, our fund alone can close what is a horrendous first ticket gap that has been dogging the Portuguese startup scene for years. There is late stage money in Portugal, but early stage is a huge problem and IFICI could end up being almost coincidentally one of the best tax schemes in the world. It could have been simpler, but still.

I’m not doing this for charity. There is obviously profit for me and my colleagues, but I believe that this resonates with people because it’s a win-win-win for everybody.

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Do many funds actually generate capital gains and not distribute the proceeds? I would have thought the default was to distribute.

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I think this is a very smart niche to fill. I remember in 2021 I asked a fund manager I was talking to “if the requirement is 60% in Portugal, is there a fund that is 40% just S&P 500 which is what I am investing in anyway, then the opportunity cost is only on the remaining 60%” and he just stared at me and said “I think our investors are more sophisticated than wanting passive investments like S&P 500”.

If this were available in 2021 when the fund requirement was only 350k, if I could have had 140k in US stocks and only 210k in other assets I would have jumped at that opportunity! As it is, we ended up going for the 280k hotel investment which has horrendous return (but at least limited downside).

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This is bang on correct.

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Ditto. Exactly.

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Exactly. We file tax returns for approximately 500 Americans in Portugal. S&P 500 and relevant equivalent is what the vast majority want. My personal money is in S&P 500 more than any other asset class.

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There are a LOT of funds in Portugal so I really can’t say for sure, but I would bet that very few would be distributing. Funds, particularly closed funds, have a DNA of keeping the money to boost returns. This makes perfect sense in general. It just creates this problem for Americans who made QEF elections and it’s not something so trivial to think of.

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I can’t believe they still have a job lmao

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Fair point. I’m in another fund, and yeah it prefers late stage, and they’ve said for a while now they’ve had a rough time finding anything worth at a reasonable valuation (which has presented other problems). Early stage, you have to be willing to gamble, basically, and take your 1:10 odds - which is something a lot of investors just aren’t going to be comfortable with, esp in the GV space. You also need access to talent that knows how to work with such companies, which I’m guessing is in short supply in Portugal.

It probably wouldn’t even take all that much to plug that gap and get a wheel going to jumpstart that section of the economy - what, $20-30mm? Guessing average ticket size is what, 50-100k due to lower labor costs? But 4 years ago, $20-30mm was a pretty damn aspirational number for the total size of a fund, much less an amount you could commit to lottery tickets. BlueCrow Growth 1 is at > 150mm now (a frightening level of growth in 5 years if you ask me but that’s a separate topic), I’m sure there’s a couple others at size so getting that scale is clearly doable now.

Anyway. Curious stuff.