US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

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occambogle
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US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

U.S. citizen expat currently living in a non-EU country with an Interactive Brokers brokerage account and Roth IRA account. As a non-US resident I'm restricted from buying any US mutual funds, but that's OK because as a non-EU resident I'm not affected by PRIIPS/KID issues, so I still have access to the whole range of US ETFs and have built up a US ETF portfolio in both those accounts. As the account is with the US arm of IBKR, there are no FBAR or FATCA issues etc.
If I were to move to the EU in the future, I'm worried that I'd suddenly get locked out from buying US ETFs - I realise I'd be able to keep what I have now but my understanding is I wouldn't be able to buy new US ETFs, or rebalance etc.... correct?
Have any other US expats been in the same situation? Especially with Interactive Brokers, but also generally? How did you handle it and what did your brokerage do?
I don't have a viable permanent US address I can use or family member there etc so I guess I'd be tempted to "forget" to update my address and keep my IBKR account address as the non-EU country, but wondering what others have done in a similar situation...
Last edited by occambogle on Thu Sep 17, 2020 1:20 pm, edited 1 time in total.
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galeno
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

As a USA expat why don't you use USA Schwab or USA Fidelity and KISS (keep it simple)?

If we could hold VT (USA Vanguard) and pay the L1/L2 dicidend withholding taxes of VWRD (Ireland Vanguard) we would. (33% taxes vs 11% taxes).
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occambogle
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

galeno wrote: Thu Sep 17, 2020 11:41 am As a USA expat why don't you use USA Schwab or USA Fidelity and KISS (keep it simple)?
Because they both told me they would not open an account for me based on the country I'm resident in. IB was the only one of many brokerages I approached that were willing to....
And in any case my understanding is they would also be subject to the same PRIIPS rules for EU residents, so there would be the same problem of purchasing US ETFs.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

The want a USA address? Just give them one. You are a US citizen after all.

We recently got a notice from Panama that as Costa Ricans we need to have a Panamanian address in order that we keep our PERSONAL bank accounts that we've had for almost 40 years.

So we gave them our SIL's sister's address in Panama City. Now we're OK.
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occambogle
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

galeno wrote: Thu Sep 17, 2020 12:25 pm The want a USA address? Just give them one. You are a US citizen after all.
As I mentioned in the original post, I do not have a US address or family there, and have never lived in the US. But this is getting off-topic....
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

I personally know 2 USA expats that haven't lived in the USA since 1980. One uses Schwab. The other uses Fidelity.

Is it really that difficult or costly to give them a USA address? To be able to buy and hold USA domiciled assets bought on USA bourses?

Maybe Ted Swippet or Tylenol Jones can give us his opinion on this?
occambogle wrote: Thu Sep 17, 2020 12:31 pm
galeno wrote: Thu Sep 17, 2020 12:25 pm The want a USA address? Just give them one. You are a US citizen after all.
As I mentioned in the original post, I do not have a US address or family there, and have never lived in the US. But this is getting off-topic....
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occambogle
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

galeno wrote: Thu Sep 17, 2020 12:46 pm I personally know 2 USA expats that haven't lived in the USA since 1980. One uses Schwab. The other uses Fidelity.
I don't doubt that. But the point I think you aren't getting is that it's not just "US vs Foreign" residence that determines if a US brokerage will take you... even US brokerages that are generally considered expat-friendly such as Schwab use a list of specific countries they will or won't accept customers from. Mine is one they don't and I know this because I contacted them and they explicitly told me they don't accept accounts from people residing in the country I live in.
galeno wrote: Thu Sep 17, 2020 12:46 pm Is it really that difficult or costly to give them a USA address? To be able to buy and hold USA domiciled assets bought on USA bourses?
I'm sorry but I don't want to argue this point further. I don't want to lie and give them a fake US address because if at some point they determine I'm a non-resident (which isn't that hard to do these days) and freeze my account, then the likely outcome is they'd liquidate my assets which would likely prove very problematic as well as causing tax issues. This has happened to a number of expats before. So let's just say I'm fully aware that this option exists, I just don't view it as practical or something I want to do for now.

IB on the other hand, is quite happy to have me as a customer knowing full well where I live, and offer me the full range of US-domiciled ETFs so I'm very happy with them... the only issue is PRIIPs rules if I were to be come an EU resident.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by vu8 »

3 solutions
1 stay clear from the EU,move to Asia or Singapore or Oceania
2 keep your old South American address and stay as is
3 get an us address
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galeno
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

I agree. For OUR situation.
1. Stay in Central America or move to South America if necessary (Nicaragua, Costa Rica, and Panama become unlivable nightmares).
2. Avoid Europe and North America (beware of large future tax increases)
3. Look into Asia and Singapore (do they like / accept Costa Rican citizens?)
vu8 wrote: Thu Sep 17, 2020 1:33 pm 3 solutions
1 stay clear from the EU,move to Asia or Singapore or Oceania
2 keep your old South American address and stay as is
3 get an us address
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occambogle
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

vu8 wrote: Thu Sep 17, 2020 1:33 pm 3 solutions
1 stay clear from the EU,move to Asia or Singapore or Oceania
2 keep your old South American address and stay as is
3 get an us address
Yes I think those are the main options, but I would be interested if anyone has had experience recently. There's also I believe a 4th option, to get classified as a professional investor (MiFID Categorisation) thus exempting you from the EU regulations and enabling access to US ETFs without a KID.... but that is also complicated and involves various requirements including significant assets and/or frequent trading and/or professional expertise, which I wouldn't be able to satisfy so I just mention it for other people who might fit that.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by TedSwippet »

vu8 wrote: Thu Sep 17, 2020 1:33 pm 3 solutions
1 stay clear from the EU,move to Asia or Singapore or Oceania
2 keep your old South American address and stay as is
3 get an us address
A few other options also spring to mind. Maybe ...

4. See if Schwab US or another US broker not adhering to or covered by PRIIPs rules will offer an account once you have moved out of wherever you are now and into the unnamed EU country, even using an address in that country. It's possible that they might.
5. Keep existing US domiciled ETFs, but do all new investing inside the pension scheme of the unnamed EU country. The viability (or not) of this depends on the US tax treaty terms (if any). There should be no PFIC issues in non-US pensions that are covered by treaty.
6. Keep existing US domiciled ETFs, and do new investing using individual stocks. Can have higher trading costs, but again avoids PFIC.
7. Suck up the PFIC tax issue. Not section 1291 obviously, but using Mark-to-Market might even use up otherwise unusable US foreign tax credits (not sure on that one).
8. Use options to work round PRIIPs and so gain access to US domiciled ETFs in an EU broker.
9. Renounce US citizenship. The nuclear option.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

Just to be clear, I don't face this problem now... just doing my research as it's a strong possibility in the coming year/years....
TedSwippet wrote: Thu Sep 17, 2020 2:43 pm 4. See if Schwab US or another US broker not adhering to or covered by PRIIPs rules will offer an account once you have moved out of wherever you are now and into the unnamed EU country, even using an address in that country. It's possible that they might.
Find it hard to believe there are US brokers that (a) accept non-residents and (b) are not adhering to PRIIPs for EU residents.. but I guess it's conceivable. Seems a "no" for Schwab though... even you commented on that :sharebeer
TedSwippet wrote: Thu Sep 17, 2020 2:43 pm 5. Keep existing US domiciled ETFs, but do all new investing inside the pension scheme of the unnamed EU country. The viability (or not) of this depends on the US tax treaty terms (if any). There should be no PFIC issues in non-US pensions that are covered by treaty.
Hadn't considered that, thanks, but I suspect may not be practical for me.
TedSwippet wrote: Thu Sep 17, 2020 2:43 pm 6. Keep existing US domiciled ETFs, and do new investing using individual stocks. Can have higher trading costs, but again avoids PFIC.
That's a good option. I only invest in ETFs now and prefer them, but for new investing it's a viable option.
TedSwippet wrote: Thu Sep 17, 2020 2:43 pm 7. Suck up the PFIC tax issue. Not section 1291 obviously, but using Mark-to-Market might even use up otherwise unusable US foreign tax credits (not sure on that one).
I've steered well away from PFIC so haven't looked into the details, but doesn't sound fun.
TedSwippet wrote: Thu Sep 17, 2020 2:43 pm 8. Use options to work round PRIIPs and so gain access to US domiciled ETFs in an EU broker.
I've read about that option briefly but not understanding options well I also haven't considered. Sounds like something that would require a bit too much involvement for me.
TedSwippet wrote: Thu Sep 17, 2020 2:43 pm 9. Renounce US citizenship. The nuclear option.
Ha... so tempting, as I'm dual citizen. I actually looked into this in great detail, but after analysing my overrall situation including aspects like Social Security and a 401k and some other personal circumstances... decided on balance (but it was fairly close and I may revisit in the future) that it might be too problematic.

The whole PFIC/PRIIPs/FATCA situation is just so utterly dumb. That US expats get left with no good investment option because there isn't a factsheet in the correct format makes no sense. So it would be totally fine for me to trade Tesla on margin daily without any information, but I can't buy-and-hold VTI or BND because it's too complex that I need to be protected. There really ought to be an easy way, without requiring 500k euros, to just say "Thanks, but I know what I'm doing and waive my need for a KID under PRIIPs".

Thanks for all those other options it's always good to know of them. I think if I did move then keeping my non-EU address is probably the easiest option at least for the short/medium term.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

To the OP. Good luck. And welcome to our non-US investor's world. Of madness.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by whodidntante »

occambogle wrote: Thu Sep 17, 2020 3:16 pm The whole PFIC/PRIIPs/FATCA situation is just so utterly dumb. That US expats get left with no good investment option because there isn't a factsheet in the correct format makes no sense. So it would be totally fine for me to trade Tesla on margin daily without any information, but I can't buy-and-hold VTI or BND because it's too complex that I need to be protected. There really ought to be an easy way, without requiring 500k euros, to just say "Thanks, but I know what I'm doing and waive my need for a KID under PRIIPs".
Just some thoughts on possible ways to avoid this issue.

1) Interactive brokers offers managed portfolios that are essentially managed baskets of stocks. Some of the portfolios have extremely low management costs, just a bit higher than the cheapest low-cost index funds.

2) You can "own index" your assets. For the asset class you want exposure to, define a sampling method that wouldn't drive you crazy, and do that. For example, you might pick the top 20 stocks in the S&P 500. Then buy those. This will provide ample exposure to the market factor, or you could chose other factors you want to target. It will not track an index or do as good a job of reducing idiosyncratic risk, but it's a much better investment than a European bank account.

3) I haven't investigated the cross border tax impact of this one, but I think a look at derivatives make sense. Can you buy a Eurex or CME Group futures contract without running afoul of regulations or having the tax authorities eat your lunch?
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by billthecat »

occambogle wrote: Thu Sep 17, 2020 1:18 pm
galeno wrote: Thu Sep 17, 2020 12:46 pm I personally know 2 USA expats that haven't lived in the USA since 1980. One uses Schwab. The other uses Fidelity.
I don't doubt that. But the point I think you aren't getting is that it's not just "US vs Foreign" residence that determines if a US brokerage will take you... even US brokerages that are generally considered expat-friendly such as Schwab use a list of specific countries they will or won't accept customers from. Mine is one they don't and I know this because I contacted them and they explicitly told me they don't accept accounts from people residing in the country I live in.
galeno wrote: Thu Sep 17, 2020 12:46 pm Is it really that difficult or costly to give them a USA address? To be able to buy and hold USA domiciled assets bought on USA bourses?
I'm sorry but I don't want to argue this point further. I don't want to lie and give them a fake US address because if at some point they determine I'm a non-resident (which isn't that hard to do these days) and freeze my account, then the likely outcome is they'd liquidate my assets which would likely prove very problematic as well as causing tax issues. This has happened to a number of expats before. So let's just say I'm fully aware that this option exists, I just don't view it as practical or something I want to do for now.

IB on the other hand, is quite happy to have me as a customer knowing full well where I live, and offer me the full range of US-domiciled ETFs so I'm very happy with them... the only issue is PRIIPs rules if I were to be come an EU resident.
The article you linked to doesn't indicate the accounts were liquidated. They were prevented from buying more, and one option is to find another broker. And the article goes on to speculate that it may be limited to managed accounts, or may be limited to mutual funds. I'm not debating, just discussing, in anticipation of being an expat some day and appreciate learning about pitfalls looming ahead.
International Asset Management wrote: First of all, the account can be liquidated – but this might have undesirable tax consequences.
The second option is to move the account to another US brokerage firm – but the number of brokerage firms willing to deal with US expats is pretty small. Still, different firms have different policies as to which countries’ residents they will accommodate. Also, in some cases it is only the managed accounts that are affected at these brokerage firms – selfmanaged accounts might not be affected and so if the client is willing to manage his or her own investments then perhaps the account can be transferred to a self-managed account at the same firm. In some cases the issue may be only that the accounts hold US mutual funds and if these are liquidated and exchange-traded investments used in place then everything might be OK.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

billthecat wrote: Thu Sep 17, 2020 4:24 pm The article you linked to doesn't indicate the accounts were liquidated. They were prevented from buying more, and one option is to find another broker. And the article goes on to speculate that it may be limited to managed accounts, or may be limited to mutual funds. I'm not debating, just discussing, in anticipation of being an expat some day and appreciate learning about pitfalls looming ahead.
Fair point, and I haven't looked into it in enough detail. Largely because they denied me an account in the first place. But here's some other examples:

viewtopic.php?t=176202
https://andrewhallam.com/2016/02/u-s-br ... -s-expats/
https://international-adviser.com/merri ... -closures/

I may be wrong on it being a forced-liquidation per se, but if all you can do with existing investments is hold them, not rebalance, not buy new, and even when you sell not be able to reinvest the proceeds... well that's pretty undesirable. And if the only option is to transfer to another broker otherwise you get liquidated, but no other broker will take you... then that's not much comfort either.

This is why I went with IBKR... they just seem to actually want expat and foreign customers, rather than seeing them as a problem to be got rid of. They are subject to the various regulations as well of course, and this can still create problems for people e.g. US expats in the EU, but at least I don't get the impression they get rid of expats/foreigners because of their business model, as opposed to the regulations they must follow.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by EddyB »

whodidntante wrote: Thu Sep 17, 2020 4:11 pm
occambogle wrote: Thu Sep 17, 2020 3:16 pm The whole PFIC/PRIIPs/FATCA situation is just so utterly dumb. That US expats get left with no good investment option because there isn't a factsheet in the correct format makes no sense. So it would be totally fine for me to trade Tesla on margin daily without any information, but I can't buy-and-hold VTI or BND because it's too complex that I need to be protected. There really ought to be an easy way, without requiring 500k euros, to just say "Thanks, but I know what I'm doing and waive my need for a KID under PRIIPs".
Just some thoughts on possible ways to avoid this issue.

1) Interactive brokers offers managed portfolios that are essentially managed baskets of stocks. Some of the portfolios have extremely low management costs, just a bit higher than the cheapest low-cost index funds.

2) You can "own index" your assets. For the asset class you want exposure to, define a sampling method that wouldn't drive you crazy, and do that. For example, you might pick the top 20 stocks in the S&P 500. Then buy those. This will provide ample exposure to the market factor, or you could chose other factors you want to target. It will not track an index or do as good a job of reducing idiosyncratic risk, but it's a much better investment than a European bank account.

3) I haven't investigated the cross border tax impact of this one, but I think a look at derivatives make sense. Can you buy a Eurex or CME Group futures contract without running afoul of regulations or having the tax authorities eat your lunch?
I hadn't considered #1, so thanks for raising that. It also seems like the "elective professional investor" category at IBKR is more attainable than I expected (based on a quick read, one trade per quarter and a 500.000 euro portfolio).
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

whodidntante wrote: Thu Sep 17, 2020 4:11 pm 1) Interactive brokers offers managed portfolios that are essentially managed baskets of stocks. Some of the portfolios have extremely low management costs, just a bit higher than the cheapest low-cost index funds.
It's not really appealing to me but I'd like to know... which "managed portfolios" at IBKR are you referring to? If it's the ones with "Interactive Advisors" then I'm pretty sure Interactive Advisors is available to US residents only.
If it's the kind of one you build yourself with "Portfolio Builder" in Trader Workstation then I guess that's an option but you still end up directly owning a lot of individual stocks which I guess may be OK for some but sounds messy to me. I just really like ETFs I guess. And also to do it I'd have to use the user-interface travesty that is TWS... :)
Last edited by occambogle on Thu Sep 17, 2020 5:04 pm, edited 1 time in total.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

All of our accounts have been frozen many times. At one time or another. It's a pesky but minor hassle.

All bank accounts in Nicaragua, Costa Rica, and Panama. Too many times to remember.

We've used 4 different stock brokers in the last 40 years. 5 if I count Schwab Cayman being absorbed by Schwab International. All of them frozen for some reason or another at least once.

Right now our IB account is semi frozen. They changed the "dress code" on us. And it looks like they're going to switch us from IB USA to IB UK. Once we change our clothes. In the meantime we can sell shares of our UCITS ETFs but cannot buy anything. We can also wire cash to our bank.

When you give them what they want they unfreeze your account.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

Oh.

We non-US investors should be very careful with those IB "bots". They seem to cater to US investors. Buy and sell on USA exchanges.

But they just may be the OP's solution. It's a pretty slick idea.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by international001 »

occambogle wrote: Thu Sep 17, 2020 5:53 am If I were to move to the EU in the future, I'm worried that I'd suddenly get locked out from buying US ETFs - I realise I'd be able to keep what I have now but my understanding is I wouldn't be able to buy new US ETFs, or rebalance etc.... correct?
Have any other US expats been in the same situation? Especially with Interactive Brokers, but also generally? How did you handle it and what did your brokerage do?
Maybe I was mistaken, but I thought MIDIF II (and KIIDS ) talks about the securities you can buy in an EU broker (so you could still buy them in a US broker)

A US expat living in Europe, can't buy ETFs with a US broker? At least if you already had the account, no?

I read for funds is different, and that a US citizen resident in EU cannot even hold them
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by international001 »

occambogle wrote: Thu Sep 17, 2020 4:49 pm If it's the kind of one you build yourself with "Portfolio Builder" in Trader Workstation then I guess that's an option but you still end up directly owning a lot of individual stocks which I guess may be OK for some but sounds messy to me.
Did you consider investing on BRK (at least for the US portion of your portfolio)? Many BH seem to think it's equivalent to a SP500 ETF(plus it's like accumulation, since there are no dividends)
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by TedSwippet »

international001 wrote: Thu Sep 17, 2020 6:02 pm A US expat living in Europe, can't buy ETFs with a US broker? At least if you already had the account, no?
Well, yes, except that the topic author does not have an account with a purely US broker, and appears unable to find one that will take them.

US brokers that have cross-border operations, such as IB and Schwab International, are it seems abiding by PRIIPs and MiIFID. It is not clear whether they do so because they must, or just because it is easiest, cheapest, and safest for them to do so, but either way the effect is the same. US brokers with no connection to the EU are not required to follow EU regulations (contrast to the reverse situation with FATCA).
international001 wrote: Thu Sep 17, 2020 6:02 pm I read for funds is different, and that a US citizen resident in EU cannot even hold them.
The word "cannot" seems overstated. Based on anecdotal reports, a few US providers appear to have concluded somehow that mutual funds are less safe to sell to non-US residents than ETFs, but again this is uneven.

As a counterexample, I am a non-US citizen living in the UK, and I have no particular problems(*) investing in US mutual funds though my Vanguard US account, opened when I was a US resident and kept since. Yet Vanguard US will not let me switch to brokerage and use US domiciled ETFs. Shrug.


(*) They quickly become a UK tax nightmare, but that's a different story.
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occambogle
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by occambogle »

TedSwippet wrote: Fri Sep 18, 2020 3:09 am US brokers that have cross-border operations....
I've been doing some more research into this and am reading about a couple entities who some reports say are US brokers willing to take non-US-resident clients, who don't have EU operations, and don't enforce MIFID/PRIIPS. Don't take this as any endorsement, I'm just relaying some discussion seen on the internet....

Tradestation - ironic as they use IB
Drivewealth
ToledoTrade - also uses IB

Some discussion links:
https://forum.mrmoneymustache.com/inves ... in-the-eu/
https://www.reddit.com/r/investing/comm ... fs_access/

Another option I've read about, but not confirmed, is if your account e.g. at IB is held through an advisor, but have yet to understand how that works.....
Last edited by occambogle on Fri Sep 18, 2020 4:04 am, edited 1 time in total.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by typical.investor »

whodidntante wrote: Thu Sep 17, 2020 4:11 pm
occambogle wrote: Thu Sep 17, 2020 3:16 pm The whole PFIC/PRIIPs/FATCA situation is just so utterly dumb. That US expats get left with no good investment option because there isn't a factsheet in the correct format makes no sense. So it would be totally fine for me to trade Tesla on margin daily without any information, but I can't buy-and-hold VTI or BND because it's too complex that I need to be protected. There really ought to be an easy way, without requiring 500k euros, to just say "Thanks, but I know what I'm doing and waive my need for a KID under PRIIPs".
Just some thoughts on possible ways to avoid this issue.

1) Interactive brokers offers managed portfolios that are essentially managed baskets of stocks. Some of the portfolios have extremely low management costs, just a bit higher than the cheapest low-cost index funds.
Not an option. The managed portfolios are for US residents only. As for faking thing with a fake address, things are stricter these days. Brokers will often do a public records search and if you don't show up, will ask for other verification (utility bill in your name at that address, payslip etc).

whodidntante wrote: Thu Sep 17, 2020 4:11 pm 2) You can "own index" your assets. For the asset class you want exposure to, define a sampling method that wouldn't drive you crazy, and do that. For example, you might pick the top 20 stocks in the S&P 500. Then buy those. This will provide ample exposure to the market factor, or you could chose other factors you want to target. It will not track an index or do as good a job of reducing idiosyncratic risk, but it's a much better investment than a European bank account.
IB has a basket trader tool. It looks possible to replicate an index - they have a tool to do it I believe based on their documentation (could have been outdated though - never done it). Still, seems complicated ...
whodidntante wrote: Thu Sep 17, 2020 4:11 pm 3) I haven't investigated the cross border tax impact of this one, but I think a look at derivatives make sense. Can you buy a Eurex or CME Group futures contract without running afoul of regulations or having the tax authorities eat your lunch?
Might work. Am not sure about taxes either.

If I were you, I would trade ETF options (not index options) on CBOE that settle in actual ETF shares. A dutch trader brought this to our attention and it's a popular thing there for tax reasons.

I don't have a great explanation of the mechanics but the concept is here.

https://www.investopedia.com/articles/o ... ions%20can.

CME has a page comparing futures to ETF Options. Maybe the downside of options would be the size of the contract. If micro e-minis can be done this way.... sweet.

https://www.cmegroup.com/education/cour ... -etfs.html
Last edited by typical.investor on Fri Sep 18, 2020 4:11 am, edited 1 time in total.
typical.investor
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by typical.investor »

occambogle wrote: Fri Sep 18, 2020 3:51 am
TedSwippet wrote: Fri Sep 18, 2020 3:09 am US brokers that have cross-border operations....
I've been doing some more research into this and am reading about with a couple entities who some reports say are US brokers willing to take non-US-resident clients, who don't have EU operations, and don't enforce MIFID/PRIIPS. Don't take this as any endorsement, I'm just relaying some discussion seen on the internet....
Of course they would. It's not illegal to have US clients who live overseas.

What it means though is that they are not doing compliance checks to make sure the accounts they open for foreign residents are being done in accordance with international agreements/law. And they are probably too small to draw much attention.

I don't see why using them would be a problem if they open an account for you. But just because I don't see it doesn't mean it couldn't be there. I don't know what kind of entanglement you'd be in if the broker got in hot water. A normally frozen account can be transferred in-kind, but I personally wouldn't want to take the risk of that option not being available.
TedSwippet
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by TedSwippet »

typical.investor wrote: Fri Sep 18, 2020 4:09 am I don't see why using them would be a problem if they open an account for you. But just because I don't see it doesn't mean it couldn't be there. I don't know what kind of entanglement you'd be in if the broker got in hot water. A normally frozen account can be transferred in-kind, but I personally wouldn't want to take the risk of that option not being available.
Right. I think the reason we don't see brokers operating consistently here is because each is deciding for themselves, and on different and unrevealed criteria. For example:
  • Correct interpretation of US regulations
  • Correct interpretation of EU regulations, if multi-national operations
  • Incorrect interpretation of regulations
  • Over-cautious interpretation of regulations
  • Unwillingness to handle the expense of having non-residents as clients
  • Unwillingness to invest time in understanding the tsunami of conflicting regulations
  • Complete inability to understand the regulations, having tried and failed
  • ... and so on.
Sometimes there's an identifiable cause for some broker restriction ("correct interpretation of ..."), but often there is not. For example, this from a popular UK direct-to-customer retail platform:

https://www.youinvest.co.uk/sites/defau ... itions.pdf
12.3 We cannot open a Dealing Account for You, if You are, and We may close Your account if You become, a USA citizen, a USA resident for tax purposes, a Canadian citizen or a Canadian resident for tax purposes. You must inform Us immediately if You become a USA citizen, a USA resident for tax purposes, a Canadian citizen or a Canadian resident for tax purposes.
Rejection of US citizens is caused by them not wanting to tangle with FATCA, so "unwillingness to handle the expense". Fine. (Well, not fine, but explicable.) Rejection of Canadian citizens living in the UK is entirely inexplicable. At least as far as I know, all other UK platforms will happily take Canadians, though many will reject Americans. The cause should not be FATCA, since that doesn't apply to Canadian citizens who are not also US citizens, and unlike the US, Canada does not torment its diaspora with punitive and restrictive extraterritorial tax laws. No apparent pattern or cause, then.

And it seems that we see the same thing with US and with international brokers. From the outside (and perhaps also from the inside), their decisions often appear random. Some may well indeed be random. No way to tell.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by galeno »

I can attest there is a lot of random and arbitrary decision making. When I was young I used to argue and fight. Get upset.

Now I just comply or change. Or I have lawyers or accountants deal with it.

Actually my super wife deals with the lawyers and accountants. Thank goodness.

"And it seems that we see the same thing with US and with international brokers. From the outside (and perhaps also from the inside), their decisions often appear random. Some may well indeed be random. No way to tell."
KISS & STC.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by typical.investor »

typical.investor wrote: Fri Sep 18, 2020 3:59 am

If I were you, I would trade ETF options (not index options) on CBOE that settle in actual ETF shares. A dutch trader brought this to our attention and it's a popular thing there for tax reasons.

I don't have a great explanation of the mechanics but the concept is here.

https://www.investopedia.com/articles/o ... ions%20can.

CME has a page comparing futures to ETF Options. Maybe the downside of options would be the size of the contract. If micro e-minis can be done this way.... sweet.

https://www.cmegroup.com/education/cour ... -etfs.html
The ETF options seem to trade in blocks of 100 shares, so I think this is doable. The list of possibilities is long (30+ Vanguard funds and many others), but it might be best to stick to the more liquid offerings.

http://www.cboe.com/products/options-on ... d-products

I still don't know the trading mechanics and how to ensure I get a fair price but it's what I would look into if I were in Europe and couldn't buy ETFs.
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by finrod_2002 »

typical.investor wrote: Fri Sep 18, 2020 7:00 pm
typical.investor wrote: Fri Sep 18, 2020 3:59 am

If I were you, I would trade ETF options (not index options) on CBOE that settle in actual ETF shares. A dutch trader brought this to our attention and it's a popular thing there for tax reasons.

I don't have a great explanation of the mechanics but the concept is here.

https://www.investopedia.com/articles/o ... ions%20can.

CME has a page comparing futures to ETF Options. Maybe the downside of options would be the size of the contract. If micro e-minis can be done this way.... sweet.

https://www.cmegroup.com/education/cour ... -etfs.html
The ETF options seem to trade in blocks of 100 shares, so I think this is doable. The list of possibilities is long (30+ Vanguard funds and many others), but it might be best to stick to the more liquid offerings.

http://www.cboe.com/products/options-on ... d-products

I still don't know the trading mechanics and how to ensure I get a fair price but it's what I would look into if I were in Europe and couldn't buy ETFs.
If you do VTI (total stock market all caps) and VXUS ( international ex US all caps) options you have the whole market. They are physical settled, so when you exercise you get the shares: 100 VTI for every VTI option, 100 VXUS for every VXUS option. To minimize costs buy the call option on day of expiration.

Sounds complex, but it is easier done then explained. Allows OP to stay the course I guess without changing plans.

Actually a non sense that EU regulations prevent us to buy ETF directly but still allow us to get them via options. :?
typical.investor
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by typical.investor »

finrod_2002 wrote: Sat Sep 19, 2020 5:41 am
typical.investor wrote: Fri Sep 18, 2020 7:00 pm
typical.investor wrote: Fri Sep 18, 2020 3:59 am

If I were you, I would trade ETF options (not index options) on CBOE that settle in actual ETF shares. A dutch trader brought this to our attention and it's a popular thing there for tax reasons.

I don't have a great explanation of the mechanics but the concept is here.

https://www.investopedia.com/articles/o ... ions%20can.

CME has a page comparing futures to ETF Options. Maybe the downside of options would be the size of the contract. If micro e-minis can be done this way.... sweet.

https://www.cmegroup.com/education/cour ... -etfs.html
The ETF options seem to trade in blocks of 100 shares, so I think this is doable. The list of possibilities is long (30+ Vanguard funds and many others), but it might be best to stick to the more liquid offerings.

http://www.cboe.com/products/options-on ... d-products

I still don't know the trading mechanics and how to ensure I get a fair price but it's what I would look into if I were in Europe and couldn't buy ETFs.
If you do VTI (total stock market all caps) and VXUS ( international ex US all caps) options you have the whole market. They are physical settled, so when you exercise you get the shares: 100 VTI for every VTI option, 100 VXUS for every VXUS option. To minimize costs buy the call option on day of expiration.

Sounds complex, but it is easier done then explained. Allows OP to stay the course I guess without changing plans.

Actually a non sense that EU regulations prevent us to buy ETF directly but still allow us to get them via options. :?
OK, finrod_2002 is the one who brought this to our attention!!! Another post with more detail is here viewtopic.php?p=4491492#p4491492 and it has a link to another post with more info.

How does taxation work? You pay for the options contract, and then to exercise it and get the 100 shares. What is your cost basis or were you doing it in a tax sheltered account?
finrod_2002
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Re: US expats: Moving from non-EU country to EU, getting locked out from US ETFs, esp. with IBKR

Post by finrod_2002 »

How does taxation work? You pay for the options contract, and then to exercise it and get the 100 shares. What is your cost basis or were you doing it in a tax sheltered account?
Regarding taxation I can only speak as a Dutch resident. Here we have a flat rate (around 1.5% on top of my head) over the whole portfolio value on 1 January of each year. Until a certain threshold you don't pay taxes, so only on the part above the threshold you pay the 1.5%.
It doesn't matter what kind of products you own only the value (in Euros) matters.

I don't know how it works for other tax systems, only thing I can say is that you have the option position for a really short time. So I would say you don't have to consider it. Also, you are not closing it by selling it or doing the opposite trade, but by exercising. So there should no capital gain to be considered, i guess ( for countries that have this of course)?

Regarding commissions (transaction fees) I guess it depends on the broker. I'm using Lynx, an IBKR reseller. You pay 2 euros something per option contract traded, and no fees when exercising. So you get the 100 shares for "free".
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