Non-US citizen with SSN living abroad, where to invest?

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jinsramen
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Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Thu Aug 02, 2018 4:06 pm

Dear All,

Complete novice to investing. Which institution (Vanguard, Fidelity, Schwab, etc.) should/could I use for long-term investment?

Details:
- non US citizen
- EU citizen
- SSN holder
- living and working in the UAE (no income tax)
- bank mostly in the US
- visit US couple times a year for weeks/months at a time

What are my options? Just opened a Fidelity account (as Vanguard has no physical branches), they told me that other than mutual funds I can buy anything and they can't advise me on my tax situation. I would appreciate any insight. Thanks a lot!

Cheers

invst65
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by invst65 » Thu Aug 02, 2018 5:01 pm

Welcome to Fidelity.

I doubt anyone is going to give you any specific advice about where to invest without more information.

There is a possibility I will be residing overseas during my retirement years (already started) so I was interested in the statement that Fidelity said you could invest in anything but Mutual Funds.

jinsramen
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Thu Aug 02, 2018 5:03 pm

My question is not about "do 80% this, 20% that". Rather, should I do it with Fidelity or Vanguard?

Also, the mutual stuff part was because of the nationality, not the residentship as far as I can tell.

TedSwippet
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by TedSwippet » Thu Aug 02, 2018 5:59 pm

Welcome.

I assume below that you are not a US resident for tax purposes -- that is, you do not pass the IRS's 'substantial presence test' even when visiting for "months at a time" and do not hold a US green card. If these conditions do not hold, please update your post to reflect this.
jinsramen wrote:
Thu Aug 02, 2018 4:06 pm
What are my options? Just opened a Fidelity account (as Vanguard has no physical branches), they told me that other than mutual funds I can buy anything and they can't advise me on my tax situation. I would appreciate any insight.
Lots of detail in these wiki pages:
Non-US investor's guide to navigating US tax traps - Bogleheads
Nonresident alien's ETF domicile decision table - Bogleheads
Nonresident alien taxation - Bogleheads
Nonresident alien with no US tax treaty & Irish ETFs - Bogleheads

The tl;dr for you is: Avoid US domiciled funds and ETFs in the same way that you would avoid the plague, and buy EU domiciled ones instead. Typically, you want to hold Vanguard's Ireland domiciled ETFs such as VWRD, traded on the London stock exchange and a couple of other EU exchanges.

If you opened an account with Fidelity US it is extremely unlikely that they offer these Ireland domiciled ETFs, in which case you need a different broker. Interactive Brokers, perhaps.

jinsramen
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Thu Aug 02, 2018 6:06 pm

Thanks a lot, I am indeed not a US resident for tax purposes. I will definitely start reading through those links, much appreciated.

In the meantime, would you mind briefly explaining why I need to avoid US domiciled funds and ETFs (tl;dr style)? I am asking as your response would probably open up a treasure trove for me simply by getting to know the main facts and concepts. I read the Intelligent Investor (was a bit dense and verbose at times), now I am going through the Bogleheads book (less dense and verbose). Although my math background is quite strong, I have problem comprehending the legal/tax aspects, mainly because they do not make sense, they just are (or at least that is my impression).

Thanks again for all the help!

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galeno
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by galeno » Thu Aug 02, 2018 6:31 pm

The main reason is the USA's horrible inheritance taxes for non-USA domicled persons.

And if your country does not have an investment treaty with the USA the 30% tax on interest and dividend income is bad news.

The Wikis TedSwippet posted are EXCELLENT.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

jinsramen
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Thu Aug 02, 2018 6:38 pm

Thanks a lot, I already started reading them. However, one thing that they do not address is brokerage firm, which I am trying to figure out as step 0.

I understand that I do not want to go with Vanguard or Fidelity because they are US based (domiciled?). Any suggestions which should I go with instead? Google seems to be telling me IG, Interactive Investor, Barclay's, any suggestions?

Finally, there is one crucial thing I am completely unsure about. I am buying financial products (stocks, bonds, index funds, etc.) through a broker (Vanguard, IG, etc), so far so good. They charge a fee which I want to minimize, still get it. What happens to my assets if I decide to switch brokerage firms? Can I simply move over my assets? Does it cost me? What happens if the firm goes belly up? Do I lose my investments, or are they mine and I do not care if my brokerage firm goes bankrupt?

Thanks a lot for all the help!

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galeno
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by galeno » Thu Aug 02, 2018 6:58 pm

Use Interactive Brokers (IB).

Better than Schwab, Fidelity, and Vanguard because IB will let you buy Ireland domicled ETFs off the London Stock Exchange (LSE).
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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galeno
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by galeno » Thu Aug 02, 2018 7:01 pm

E.g. our non-USA domicled CONSERVATIVE retirement portfolio: 40% VWRD + 20% VDCP + 20% VDTY + 15% ITPS + 5% CASH.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

jinsramen
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Thu Aug 02, 2018 7:14 pm

Does portfolio size matter? Which broker would you pick for $10k/year portfolio, and which for $100k/year? Why? Thanks!

TedSwippet
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by TedSwippet » Fri Aug 03, 2018 3:11 am

jinsramen wrote:
Thu Aug 02, 2018 6:06 pm
In the meantime, would you mind briefly explaining why I need to avoid US domiciled funds and ETFs (tl;dr style)?
As outlined by galeno upthread. If you follow the flowchart in the wiki guide to US tax traps for your current circumstances, you should arrive at this explanation of things.

Your choice of broker is not actually "step 0" at all. You first need to identify the funds or ETFs that are appropriate for your circumstances (which in your case are never US domiciled ones, only non-US domiciled ones). Only then can you select from the list of brokers that offers them. Be aware that even a cash holding of above $60k in a US domiciled broker is at risk from US estate taxes. Ideally you would want a non-US broker.

As for US tax laws making no sense... indeed they do not. Any attempt on your part to apply logic to them will result in frustration, I'm afraid. Your best approach is to assume that if you think you have made sense of them, you have probably missed something vital somewhere!

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galeno
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by galeno » Fri Aug 03, 2018 11:27 am

"Ideally you would want a non-US broker."

Any suggestions? We use Interactive Brokers which is a USA domiciled broker. It does everything we need it to which is basically to give us access to the cheap Ireland domicled ETFs.

I'd love to find a NON-USA domicled broker which is not outrageously expensive.

I've heard of people mentioning Saxo Bank. Would that be a good non-USA broker for us? Are there others?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

TedSwippet
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by TedSwippet » Fri Aug 03, 2018 1:51 pm

galeno wrote:
Fri Aug 03, 2018 11:27 am
"Ideally you would want a non-US broker." ... Any suggestions?
Sorry but no, not really. I'm not in your situation. The UK has a decent set of tax treaties with the US, both income and estate, so for me the problem doesn't really arise.

I believe Interactive Brokers has a UK division, and if you can somehow arrange for your account to be housed there rather than in the US part that should I suppose give you some added protection. Otherwise, it should not be too tricky to make sure that you never hold more than $60k in cash in a broker account. And even where you do exceed that on rebalancing, buying or selling, it should be for a limited period only, as little as a few minutes and at worst perhaps overnight.

Beyond this, a few folk have reported some success with Saxo, but again since this isn't a problem I experience directly I haven't investigated closely. The US really does go out of its way to make life difficult tax-wise for NRAs, doesn't it?

Always passive
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by Always passive » Fri Aug 03, 2018 2:00 pm

invst65 wrote:
Thu Aug 02, 2018 5:01 pm
Welcome to Fidelity.

I doubt anyone is going to give you any specific advice about where to invest without more information.

There is a possibility I will be residing overseas during my retirement years (already started) so I was interested in the statement that Fidelity said you could invest in anything but Mutual Funds.
I live overseas (US citizen) and have had a Fidelity account in the US for 25 years (opened it when I lived in LA). Indeed, you can invest in anything apart from MFs (I invest in ETFs). No advise, but why would you want it? Just follow Bogleheads and you are way ahead.

invst65
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by invst65 » Fri Aug 03, 2018 2:12 pm

Always passive wrote:
Fri Aug 03, 2018 2:00 pm
invst65 wrote:
Thu Aug 02, 2018 5:01 pm
Welcome to Fidelity.

I doubt anyone is going to give you any specific advice about where to invest without more information.

There is a possibility I will be residing overseas during my retirement years (already started) so I was interested in the statement that Fidelity said you could invest in anything but Mutual Funds.
I live overseas (US citizen) and have had a Fidelity account in the US for 25 years (opened it when I lived in LA). Indeed, you can invest in anything apart from MFs (I invest in ETFs). No advise, but why would you want it? Just follow Bogleheads and you are way ahead.
Want what - to invest in MFs? I mostly invest in ETFs also but I wasn't aware that this was a Bogleheads principle.

I do have some MFs at Vanguard and I'm pretty sure they have the same policy. I will probably have to convert them into ETF equivalents if I do establish residency overseas. Right now I'm thinking it will only be a part-time thing so hopefully it won't matter.

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galeno
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by galeno » Fri Aug 03, 2018 2:42 pm

We are non-USA domiciled Bogleheads. Our portfolio is very Boglehead.

ETFs and MFs are essentially the same. Real Bogleheads do indeed use ETFs. In fact I PREFER the ETF structure over the MF structure.

For most of us non-USA domiciled USD Bogleheads the easiest for us is to buy and sell Ireland domicled ETFs on the LSE.

Regarding our IB account. We NEVER have more than $60K in IB's MMF (CASH).
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

jinsramen
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Fri Aug 03, 2018 2:45 pm

I understand that where the ETF is domiciled matters. Does the location of the broker matter (UK, NL, US, etc.)? Should this be a factor when selecting a broker?

TedSwippet
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by TedSwippet » Fri Aug 03, 2018 3:17 pm

Always passive wrote:
Fri Aug 03, 2018 2:00 pm
I live overseas (US citizen) and have had a Fidelity account in the US for 25 years (opened it when I lived in LA). Indeed, you can invest in anything apart from MFs (I invest in ETFs). No advise, but why would you want it? Just follow Bogleheads and you are way ahead.
Just to be clear though, you are a US citizen living in a country with (relatively poor) US income tax treaty. The OP is a non-US citizen living in a country with no US tax treaties at all. Your respective US tax situations are completely different.

The aim here for the OP will be to follow the usual principles offered on this site, but without falling into any of the vile US tax traps that as a US citizen you do not have to contend with (you actually have your own set of entirely different vile US tax traps to work around!)

TedSwippet
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by TedSwippet » Fri Aug 03, 2018 3:32 pm

jinsramen wrote:
Fri Aug 03, 2018 2:45 pm
I understand that where the ETF is domiciled matters. Does the location of the broker matter (UK, NL, US, etc.)? Should this be a factor when selecting a broker?
This is where you get to encounter one of those utterly inexplicable and more or less random bits of US estate tax law we already talked about.

For non-resident aliens, a cash deposit in a US bank is not 'US situs property' for the purposes of the US estate tax. You could hold $10mm in a US bank without issue. However, a cash deposit in a US broker is 'US situs property' for the US estate tax, so any cash holding above $60k is at risk from 40% US estate taxes if you have the poor judgement to die while holding it.

So yes, the location of the broker could matter. In practice, if you stay below $60k in cash and do not hold US stocks or US domiciled ETFs -- at least, not beyond $60k in total -- you should be okay. For ultimate safety you want to avoid not only US domiciled ETFs but also US brokers. However, that last bit is sometimes either impractical or maybe just prohibitively expensive. In that case, provided you are careful a US broker can be a viable option. I don't know of any other country that applies estate or inheritance taxes to the holdings of non-residents.

The other alternative is to use a personal holding company or corporation to hold any US assets for you. That will insulate you from US estate taxes too, but can entail a bunch of other complications, not least extra and unwanted costs.

jinsramen
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by jinsramen » Fri Aug 03, 2018 3:42 pm

Got it, I really appreciate all your help! Three more questions if you do not mind.

1) Do I want to avoid US stocks (individual, not in ETFs) even when banking with non-US brokers?
2) You are talking about estate laws, that are applicable when I die. What about regular taxes? Do I pay those? If so, where? Broker location, asset location, my location, country of citizenship, all of the above...?
3) Any recommendations for non-US brokers? Not necessarily one, since you do not know my particular situation (neither do I at this point...), but a list so that I can figure out which is the best for me.

Once again, thanks so much, this community is indeed awesome.

TedSwippet
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by TedSwippet » Fri Aug 03, 2018 5:26 pm

jinsramen wrote:
Fri Aug 03, 2018 3:42 pm
1) Do I want to avoid US stocks (individual, not in ETFs) even when banking with non-US brokers?
In theory, yes. US stocks are 'US situs' for the US estate tax. US domiciled ETFs are 'US situs' because they are US stocks, even if they don't themselves hold anything inside them except non-US stocks.

It is a bit of an open question on whether or not a non-US broker would fully and properly apply the US estate tax. The process for a US broker is that they cannot release assets to the estate until the IRS has confirmed that they have received a non-resident estate tax return, which is where the US estate tax would be payable. However... non-US brokers are sometimes not under the same IRS regulatory jackboot as US ones, and to be honest I doubt that most of them really understand the way US estate tax operates anyway (does anybody?!), so it is possible that a non-US broker might not fully adhere to the US regulations here, leaving you an escape route.

Not at all something I would be happy to rely on personally, though. But it's a possibility. Better would be if you are planning to own more than $60k of US stocks directly, to do that through an intermediate holding company.
jinsramen wrote:
Fri Aug 03, 2018 3:42 pm
2) You are talking about estate laws, that are applicable when I die. What about regular taxes? Do I pay those? If so, where? Broker location, asset location, my location, country of citizenship, all of the above...?
Generally you pay income taxes based on the asset location and on your own location. The broker location should not be too much of a factor (except for the US estate tax nonsense on cash above $60k, already discussed), and only the US and the one-party state of Eritrea tax on citizenship, so you can broadly ignore those two.

Now, for you the UAE has no income tax, so that just leaves US taxes for non-resident aliens for you to worry about. Without a US tax treaty -- and the UAE does not have one -- the standard US tax rates for non-resident aliens are, briefly, 0% on capital gains, 0% on bank interest, and 30% on stock dividends.

This is where using Ireland domiciled ETFs comes in handy for you. These gain you a 15% rate on dividends from US stocks held by the ETF, courtesy of the US/Ireland tax treaty. Also, no potential for US tax on dividends from non-US stocks held by the ETF (in contrast, if you held a US domiciled ETF you would pay 30% tax on the entire dividend). Big win for Ireland domiciled ETFs there, then.
jinsramen wrote:
Fri Aug 03, 2018 3:42 pm
3) Any recommendations for non-US brokers? Not necessarily one, since you do not know my particular situation (neither do I at this point...), but a list so that I can figure out which is the best for me.
As already mentioned upthread to galeno, not really since I do not have this particular problem. Interactive Brokers seems pretty popular if you can work round or live with the fact that they are US-based. Other than that, maybe ask around for folk in a similar position to your own to see what they do.

In practice, all you really need is a broker that gives you access to the London Stock Exchange and/or perhaps Euronext, since they are the major exchanges where these Vanguard Ireland domiciled ETFs are traded. As well as Vanguard, you should also look at iShares' Ireland domiciled ETFs such as SWDA. You can find plenty of discussions on iShares EU ETFs elsewhere on this site.

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galeno
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by galeno » Fri Aug 03, 2018 7:14 pm

I love TedSwippet. Anyway.

My favorite Ireland domicled ETFs are from Vanguard. We use three and are watching one.

Second favorite Ireland domicled ETFs are from Ishares. We use one and are watching two.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

danroll
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Re: Non-US citizen with SSN living abroad, where to invest?

Post by danroll » Fri Aug 10, 2018 2:49 am

3) Any recommendations for non-US brokers? Not necessarily one, since you do not know my particular situation (neither do I at this point...), but a list so that I can figure out which is the best for me.
Hello there!

My first post! Glad I found this by reading Bogle's and Tyler's book!

I live in the UAE and I use swissquote as a broker. I know not very cheap, but they do provide access to LSE and varios ETFs domiciled throught the world.

I like their app and they do have an office in Dubai, not that you'll ever need to go there but if you need to talk to someone it's easier then Interactive brokers. Also no need to initially deposit 10k usd required by Interactive Brokers.

My simple portfolio:

Bonds:
IGIL
planning to add IAAA

Equities
VWRD
VUSD

Cheers!

[/quote]

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