EU / US citizen looking for Interactive Broker ETF investment tips

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Americannederlander
Posts: 2
Joined: Tue Sep 10, 2019 11:46 pm

EU / US citizen looking for Interactive Broker ETF investment tips

Post by Americannederlander » Wed Oct 02, 2019 3:42 am

I’m a US citizen permanently residing in the NL. I’ve been neglecting investment outside of my 401K for a number of years due to complexity, but after finding this group, decided to take the plunge. I’ve just opened an interactive broker account but I am not an experienced investor. I want to use this account as a long term holding for investment outside of my pensions (whether from the US (401K) or otherwise). I’ve started the account with USD30K and am ready to make my first purchase

I’m interested in a few things.
1. I am 99% sure I cannot invest in any ETFs based in the EU - they must all be in American markets to avoid the heavy tax penalties mentioned in many of your posts. I’m curious if I’m correct here and if so if this community would recommend specific ETF groupings to look at for long term holding.
2. Are there some good resources you’d recommend to educate myself on IB, strategies for “setting and forgetting,” or other money management strategies including IB that would be useful for me considering I have source accounts both in the US and NL, but very soon will not be paid from a US account (switching employers).

Thanks for your help and support :)

TedSwippet
Posts: 2510
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by TedSwippet » Wed Oct 02, 2019 6:14 am

Welcome.
Americannederlander wrote:
Wed Oct 02, 2019 3:42 am
1. I am 99% sure I cannot invest in any ETFs based in the EU - they must all be in American markets to avoid the heavy tax penalties mentioned in many of your posts.
Unfortunately, that's right. The US's oppressive extraterritorial citizenship-based tax regime means that you cannot invest in the same way as your fellow countrymen. More in this section of the wiki:

Outline of Non-US domiciles - Bogleheads

To add insult to injury, IB is now reported to be no longer offering US domiciled ETFs to EU residents, thanks to the EU's PRIIPs regulations. More in this posting from last year:

American in the EU -- problems with IB acct - Bogleheads.org

Unless things have evolved positively since then, your options may be thin on the ground due to the tax headaches that arise out of US citizenship. If you are lucky enough to have a non-US citizen spouse then they can do the investing for the both of you without being restricted by nonsensical US tax rules.

Otherwise, to stay fully complaint with both Dutch and US tax laws, your choices might boil down to either trying to become registered with IB as a professional investor (or convincing them that you actually live in the US, even though you do not), or using a selection of passively managed individual stocks rather than index funds.

Passively managing individual stocks - Bogleheads

None of these is very appealing, I'm afraid.

AlohaJoe
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Location: Saigon, Vietnam

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by AlohaJoe » Wed Oct 02, 2019 9:27 am

TedSwippet wrote:
Wed Oct 02, 2019 6:14 am
Americannederlander wrote:
Wed Oct 02, 2019 3:42 am
1. I am 99% sure I cannot invest in any ETFs based in the EU - they must all be in American markets to avoid the heavy tax penalties mentioned in many of your posts.
Otherwise, to stay fully complaint with both Dutch and US tax laws, your choices might boil down to either trying to become registered with IB as a professional investor (or convincing them that you actually live in the US, even though you do not), or using a selection of passively managed individual stocks rather than index funds.
Along these lines...one day I stumbled across Interactive Brokers's affiliate: InteractiveAdvisors. Don't take any of this as a recommendation or anything because I've never looked deeply into it but the OP and other Americans caught in the PFIC/PRIIPs bear trap might investigate more and report back on how viable the offering is.

From what I can tell InteractiveAdvisors has 60+ "portfolios" that all do "direct indexing". That is, instead of owning an ETF or mutual fund you actually will own 500 stocks directly. But InteractiveAdvisors seems to all the work of buying & rebalancing & whatnot. For a management fee, of course. But some of the offerings seem to have fees as low as 0.08%.

elderwise
Posts: 202
Joined: Fri Jul 22, 2016 10:27 am

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by elderwise » Wed Oct 02, 2019 9:41 am

I assume your are NL/US?

How do you normally do your dutch taxes? US taxes on worldwide income, Dutch BSN taxes on worldwide asset / income if you are a dutch resident.Dutch also makes you pay on US assets even if you dont sell so if you have 300K in VTSAX you still have to pay some % correct?

For someone who is USC permanently in NL as a NL / USC is the tax filing not a nightmare? They do not recognize Roth IRA, Roth 401K or roth any flavor.They tax wealth also..

I am asking because at one point I was thinking of moving there (not dutch national ) but on a long term work relocation..and the taxes etc make it seem hard.They do recognize 401K (BSN I mean).

Roth IRA is to be mentioned in BOX 3 i think on your dutch return.

They do have a treaty though,

Topic Author
Americannederlander
Posts: 2
Joined: Tue Sep 10, 2019 11:46 pm

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by Americannederlander » Mon Oct 14, 2019 9:43 am

Thanks all for the advice.

This is really, really unfortunate for us as US citizens.

I've taken my deposit out of IB and now I'm considering just using the cash to pay down my mortgage on my NL home as it seems overly complicated to do anything else with it. I have a non-US partner, but we're unmarried at the moment, so I'm not sure I have a good outlet for my investments until we are.

sellidor
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Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by sellidor » Mon Oct 28, 2019 8:37 am

I'm in a very similar situation as OP (American living in France), and I'm stunned at how investing is basically impossible for me.

I got rejected by Vanguard, Ameritrade and Schwab, so I registered with IB. But IB won't allow me to invest in US funds or ETFs, so it seems just as useless as the other brokers.

I really have no clue what to do with my savings, which are just sitting in a basic savings account. I'm seriously contemplating renouncing US citizenship so that I can at least invest in a European fund.

typical.investor
Posts: 1258
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Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by typical.investor » Mon Oct 28, 2019 9:29 am

sellidor wrote:
Mon Oct 28, 2019 8:37 am
I'm in a very similar situation as OP (American living in France), and I'm stunned at how investing is basically impossible for me.

I got rejected by Vanguard, Ameritrade and Schwab, so I registered with IB. But IB won't allow me to invest in US funds or ETFs, so it seems just as useless as the other brokers.

I really have no clue what to do with my savings, which are just sitting in a basic savings account. I'm seriously contemplating renouncing US citizenship so that I can at least invest in a European fund.
Ouch.

If I were in your shoes, I would either 1) set up an LLC and use it for investing. Brokers accept it because it's a US entity. https://www.incfile.com/blog/post/setti ... investing/

It's not without costs or hassles though.

Or 2) You might try getting a US address. Perhaps in South Dakota. Then you might try opening a brokerage account with that. You might need a US phone number. You might need to use a VPN (but probably not).

Then, you have to use transferwise or something like that to transfer money. Not sure if they go directly to a brokerage account or not.

Or 3) get a Morningstar subscription and do individual stocks. M* can help you stay closer to sector allocation.

Of those, 3 is probably easiest. No you won't get index returns, but it's better than saving in Euros. Is that even meeting inflation.

I'm older and have been investing for years, so #1 would be worth it for me. #2 is middle ground. I would think an offbrand broker might be more lenient about accepting someplace that might me a mailing service. Technically you are a US resident for tax purposes and legally your domicile is the US if you intend to return there permanently and consider France temporary, so legally you could be considered a US resident but it's a slightly grey area.

Maybe 4) direct indexing would be best. But I am not sure of what's available. It's like #3 but much more systematic and like indexing and you pay someone to do it. Or maybe any firms in Europe that offer it wouldn't take you as an American because they don't want to do the reporting.

Not to be political, but perhaps call a representative.

sellidor
Posts: 5
Joined: Mon Oct 28, 2019 8:23 am

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by sellidor » Mon Oct 28, 2019 10:49 am

Thanks for the detailed response. It's very hard to find info/advice about this, which is strange because I can't be the only one stuck in this situation.

1) seems pretty overwhelming for a newcomer like me, and 2) seems a bit shady since I have no US address and don't intend to return.
typical.investor wrote:
Mon Oct 28, 2019 9:29 am
Of those, 3 is probably easiest. No you won't get index returns, but it's better than saving in Euros. Is that even meeting inflation.
It's definitely not! 3) is interesting--but how would I go about picking the stocks? I'm completely inexperienced, which is why I wanted to plop my cash in an index fund.

4) is something I'm looking into. A poster above suggested Interactive Advisors for that, so I'll check it out.

Pippen_001
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Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by Pippen_001 » Mon Oct 28, 2019 10:54 am

Also check this link: https://www.forbes.com/sites/greatspecu ... a2dc70695d

Might be applicable for you & OP

TedSwippet
Posts: 2510
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Location: UK

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by TedSwippet » Mon Oct 28, 2019 12:24 pm

Pippen_001 wrote:
Mon Oct 28, 2019 10:54 am
Also check this link: https://www.forbes.com/sites/greatspecu ... a2dc70695d ... Might be applicable for you & OP
This article nicely encapsulates a description of a lot of the US tax misery that nonresident aliens investing into the US can face.

However, members Americannederlander and sellidor are not nonresident aliens. Both are US citizens not resident in the US. And unfortunately for them, and uniquely among developed countries, the US aggressively taxes its citizens no matter where they live on (or off) the planet.

finrod_2002
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Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by finrod_2002 » Mon Oct 28, 2019 3:16 pm

To add insult to injury, IB is now reported to be no longer offering US domiciled ETFs to EU residents, thanks to the EU's PRIIPs regulations. More in this posting from last year:
There is actually a way to circumvent the PRIIPS rules and buy American ETFs anyway (sort of a loophole)

You can for example buy call options and exercise them or wait till expiration. Because they are physical settled (at least for Vanguard total stock market - VTI and total international -VXUS), you get hold of the underlying so the ETF. This is allowed and some Dutch people are using this already ( including me).

See here for more details:

https://www.financieelonafhankelijkblo ... tf-kopen/ in dutch

and here

https://www.bogleheads.org/forum/viewt ... ?t=273074

TedSwippet
Posts: 2510
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by TedSwippet » Mon Oct 28, 2019 4:36 pm

finrod_2002 wrote:
Mon Oct 28, 2019 3:16 pm
There is actually a way to circumvent the PRIIPS rules and buy American ETFs anyway (sort of a loophole) ...
Ah yes, thanks for the reminder about this. I have added a reference to your earlier detailed post on this as a note to the wiki page for US citizens living in the UK:

Vanguard US domiciled ETFs that are HMRC reporting funds - Bogleheads

Something similar should perhaps also go into this page:

Taxation as a US person living abroad - Bogleheads

At present though, this page does not mention PRIIPs at all, so that probably needs explaining before adding details of how to work around it. Added to my TODO list.

typical.investor
Posts: 1258
Joined: Mon Jun 11, 2018 3:17 am

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by typical.investor » Mon Oct 28, 2019 11:21 pm

finrod_2002 wrote:
Mon Oct 28, 2019 3:16 pm
To add insult to injury, IB is now reported to be no longer offering US domiciled ETFs to EU residents, thanks to the EU's PRIIPs regulations. More in this posting from last year:
There is actually a way to circumvent the PRIIPS rules and buy American ETFs anyway (sort of a loophole)

You can for example buy call options and exercise them or wait till expiration. Because they are physical settled (at least for Vanguard total stock market - VTI and total international -VXUS), you get hold of the underlying so the ETF. This is allowed and some Dutch people are using this already ( including me).

See here for more details:

https://www.financieelonafhankelijkblo ... tf-kopen/ in dutch

and here

https://www.bogleheads.org/forum/viewt ... ?t=273074
This might be the best way then!

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

Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by sean.mcgrath » Thu Nov 07, 2019 4:09 am

AlohaJoe wrote:
Wed Oct 02, 2019 9:27 am
Along these lines...one day I stumbled across Interactive Brokers's affiliate: InteractiveAdvisors. Don't take any of this as a recommendation or anything because I've never looked deeply into it but the OP and other Americans caught in the PFIC/PRIIPs bear trap might investigate more and report back on how viable the offering is.
Hi Joe, thanks for the tip. Unfortunately, I had a look at the site and in the FAQ it has: "Who can open accounts?
Currently only US residents can open Interactive Advisors accounts."

https://interactiveadvisors.com/faq

vsquid
Posts: 7
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Re: EU / US citizen looking for Interactive Broker ETF investment tips

Post by vsquid » Thu Nov 07, 2019 5:56 am

typical.investor wrote:
Mon Oct 28, 2019 9:29 am
If I were in your shoes, I would either 1) set up an LLC and use it for investing. Brokers accept it because it's a US entity. https://www.incfile.com/blog/post/setti ... investing/
Actually this wouldn't work. The US-based LLC would need to file for taxes in NL as corporate income is taxed where the revenue is generated, not where the company is registered. As OP would be the only one conducting any business as the company, the company would be liable for NL taxes even if it doesn't have any other physical presence in the NL. however what might work is a Dutch investing company which would then be able to buy European ETFs and even US ETFs if you can get it classified as a professional investor.

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