[US/AT] Investing as a dual citizen despite PFIC & PRIIPs

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WowWhatALifeUSAT
Posts: 1
Joined: Wed Apr 10, 2019 4:25 pm

[US/AT] Investing as a dual citizen despite PFIC & PRIIPs

Post by WowWhatALifeUSAT » Wed Apr 10, 2019 4:28 pm

Hey guys, any fellow U.S. citizens here that are dual nationals/reside in Europe (EU/EEA)? I have some questions about investing. I have done research in multiple places and have still not really found a reasonable solution (Bogleheads - surprised that I couldn't find a solution here), Reddit, multiple blogs/sites, Google, etc.).Here's a description of the crucial parts of my situation.

I'm a dual Austrian & US citizen and currently, I live in Austria. I'm 19 years old and I have an amount in the rather lower 5 digits to invest. I would like to make a long-term investment (10-35 years, for my later life) into ETFs with a rather simple portfolio along the lines of what is described in most FIRE forums (Bogleheads, Reddit, some websites/blogs,etc.). Finding a direct bank that will take me despite FATCA is a bit of a hurdle, but it's doable nonetheless. Here's the real problem though:

Because of the American PFIC laws, I can only invest in US-domiciled stocks. At the same time, as an EEA/EU resident, I can only invest in PRIIPs-compliant funds. So my question is: Are there ETFs that could combine to be a reasonable portfolio, that have their domicile in the USA, but at the same time are PRIIPs compliant (for an Austrian)?

About alternatives, here are the ones I've figured out so far. I'm trying to avoid all of these, as they're all really bad.

- Give up my US citizenship. By far the easiest, objectively. But I won't do it, personally.
- Only invest in individual stocks/bonds, as these are not covered by PRIIPs regulations. Not what I have in mind as a long-term strategy, especially with my lack of time and small amounts to save.
- Create a mailing address in America, open an American account with an American broker (with my American residence, mailing address), transfer all my money there forever (i.e. also change exchange all of my money from Euros to Dollars) and act like a normal US citizen without ever living there. As seen here: viewtopic.php?f=10&t=253872 But this is far from what I want, due to currency exchange, a huge hassle in setting the whole thing up, etc. Plus at the moment I don't think I'll be in the USA long term. (Nonetheless, I don't wanna lose that option by giving up my citizenship.)

Let me just add that I'll be moving to London soon for about three years, but I won't need the money then. Other than that, I have no clue where I'll be moving in the future. All options are open, including the US, and it's also quite possible that I'll be living in the EU longer-term too. I can explain more for others who are in the same boat if needed. If you guys want, I'll provide sources for the things I'm commenting about.

Thanks for all your help, dearest Bogleheads. I hope I find a solution to a problem that must be pretty common yet I haven't actually seen solved.

finrod_2002
Posts: 28
Joined: Fri Feb 15, 2019 6:04 am

Re: [US/AT] Investing as a dual citizen despite PFIC & PRIIPs

Post by finrod_2002 » Sat Apr 13, 2019 12:52 am

What you could do is avoid the PRIPS/MiFid rules by buying the ETFs via options. That way you can for example buy vanguard total market and vanguard total international ex-us ETFs.

You can for example buy a call option or sell a put option. Do it always the day before option expiration to reduce costs. With a call you always get the underlying because you decide whether to exercise or not. With a put sell the counterparty could decide not to exercise it. In that case you don't get the ETFs but you earn the option premium, which is not too bad. And you can retry the next month when there is another options expiration day.

Be careful though that with 1 option you buy 100 ETF shares at a time and that is the minimum. So if you don't want to get negative balances you should always have enough money in your brokerage account to pay 100 shares.

Also you have to check that the options your buying are physically settled and not with money otherwise you don't get the ETF shares. For VTI, VXUS and VT I've only seen physically settled options so far.

I explained also how I do this in greater detail here:

viewtopic.php?t=273074#p4386305

QuantOfAsia
Posts: 44
Joined: Sun Apr 14, 2019 7:57 pm
Location: Hong Kong

Re: [US/AT] Investing as a dual citizen despite PFIC & PRIIPs

Post by QuantOfAsia » Sun Apr 14, 2019 8:58 pm

Dear WowWhatALifeUSAT,

While being an American (taxable on our worldwide income and subject to PFIC rules) and an EU resident (PRIIPs rules) seems complicated, if I were you I would try and look for the simplest compliant solution. According to the IRS's own old statistics, there were over 1,400 form 2555 forms sent from Austria alone in 2011: https://www.irs.gov/statistics/soi-tax- ... tax-credit

I'm not an expert on PRIIPs rules, but it looks like it's a rule meant to protect the retail investor by putting the burden on product providers, not to prevent you from going abroad and buying the best product for you. Naturally, if you file US taxes, US funds would be a better fit for you, and even if you buy non-US stocks, it would be easier for you if you used a broker like Schwab or IBKR that issued you a 1099 every year.

If you are so inclined, it is not difficult to put together a diversified portfolio of 20-100 individual stocks from around the world and cut out the complicating layers of rules and fees that funds are subject to, or you could find a way to simply buy US funds and comply with local tax rules where you are resident (I'm lucky that I live somewhere with no local tax on investments). The options approach seems needlessly complex, unless you happen to enjoy trading options.

sean.mcgrath
Posts: 143
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: [US/AT] Investing as a dual citizen despite PFIC & PRIIPs

Post by sean.mcgrath » Thu Nov 07, 2019 5:40 am

Hi USAT,

Yes, it is a pain and there is no perfect solution.

If have gone down the PFIC route because I wanted to buy a Euro denominated bond fund. It is a pain, but in the end doable. However, I have the advantage ( :? ) that the Netherlands has high tax rates on assets. Since Austria doesn't have capital gains taxes, I suspect it would be fairly punitive for you.

I suspect the mailing address in the US is the best option for you. I don't see why you need to keep the money there "forever." I transfer funds back and forth easily, at very low cost. I also don't see an issue with currency exchange fees if you are planning on leaving the funds for a few decades. For the ETFs themselves, it doesn't matter what currency they are based in -- only exchange fees matter.

I like finrod's option, but am not sure how doable it is for a US citizen. I've never tried it, so more a vague worry.

cheers,
Sean

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