Offering Diligence

Liquidity terms vary widely across offerings. For closed-end funds and real estate development projects, liquidity timelines are largely set at the end of a years-long investment period. For open-end funds, liquidity is typically on demand, subject to redemption fees and gates.

Review how the offer defines redemption rights, valuation timing, and exit procedures.  

For practical market examples, view our Fund Redemption Terms video.

Most Golden Visa funds qualify as Passive Foreign Investment Companies (PFICs) for U.S. tax purposes. Funds holding other offshore funds or ETFs in their portfolios may create additional lower-tier PFIC exposure for U.S investors, which compounds reporting complexity and tax liability.

Our PFIC Help service was built to assist U.S. taxpayers in gaining clarity into their tax positions resulting from an offshore investment.

Early U.S. investors in offshore funds or firms could inadvertently meet the definition of a U.S. Shareholder in a Controlled Foreign Corporation (CFC). There is no grace period for CFC status; if at any moment the threshold is hit, CFC reporting and income inclusions apply. 

Hitting that threshold is dangerously easy to do in the early raise stage of a fund, or if the fund is oriented to enrolling Americans. In my professional experience, funds are not monitoring this properly and fail to take proactive steps to prevent this.

If an investment also defines the U.S investor as a U.S. Shareholder in a CFC, and it could easily happen without the investor's knowledge, the investor's U.S. tax landscape shifts. CFC tax filings require data and calculations that offshore entities do not readily provide. Failure to file Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, risks a $10,000 penalty per CFC per year. 

Some CFCs own assets that also meet the definition of a CFC. In those cases, risks and penalties could grow exponentially.

Our PFIC Help service was built to assist U.S. taxpayers in gaining clarity into their tax positions - including U.S. Shareholder in a CFC status - resulting from an active or prospective offshore investment.

We also detail the problem in our article on Out-of-Controlled Foreign Corporations. 

Using U.S. retirement capital for a Golden Visa investment almost always triggers a prohibited transaction under Internal Revenue Code section 4975. This distributes the IRA, makes the balance immediately taxable, and can result in penalties.

We urge extreme caution. We have recorded a video which explains further.

Funds accepting American investors must meet U.S. securities and investment-advisory registration standards. Non-compliance can expose funds to enforcement action or operational disruption, both of which can affect investors.

U.S. investors who hold interests in a fund that does not have a valid exemption from registration with the SEC have rescission rights under U.S. law, subject to statutes of limitations.

Confirm how fund participation units are held and documented. Some Fund Managers offer custody services, while others require investors to maintain their own accounts. Consider FATCA and FBAR reporting obligations when evaluating custody options.

Do not rely on an offshore promoter or foreign fund manager for U.S. tax advice.

Golden Visa investments are denominated in euro. Exchange rate movement and banking transfer procedures can affect contribution and redemption values as well as U.S. tax bills.

IRC § 988 outlines the taxes due on gains resulting from currency exchange rates. 

We invite you to read our piece on how a strengthening euro can drive up U.S. tax bills on phantom income.

Working with an FX specialist could save an investor hundreds or thousands in fees and exchange spread. We're happy to make introductions.

Capital deployment affects the timing of visa applications and renewals. Delays in investment documentation can postpone eligibility or renewal filings.

Conversely, delays in processes or changes in program rules or nationality laws can prolong the investment timeline. 

Our piece on the practical implications of Portugal's extended nationality timeline highlights key risks.

Review how the fund communicates financial information and whether participants have rights relating to distributions, dissolution, or liquidation, and whether Golden Visa share class participants have meeting and voting rights.

Our Fund Redemption Terms Video is a practical exploration of these rights, based on anonymized fund regulations.

Understand relationships among the fund manager, sponsor, and portfolio companies. Clear disclosure of related-party transactions supports accountability.

Also understand if the immigration lawyer or service that you work with abroad has a relationship with the fund managers or real estate developers whose offerings they have recommended. It is common for commissions to be paid by issuers to anyone who brings them an investor, and it cannot be assumed that anyone in the distribution chain has the investors’ best interests in mind.