US Citizen relocating to the EU: how to keep and manage assets in the US?

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
linenoise
Posts: 21
Joined: Sat Mar 17, 2018 2:27 pm
Location: U.S.A

US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by linenoise »

Hello,

I am a single, no debts, no kids, 35yo dual US/FR citizen. I spent my entire adult life in the US, but I am currently planning to come back live in France, for a new chapter in my life. I never had any income in the EU, and I would like to continue to build my wealth, and conduct business, in the US, that is I am not interested in relocating my assets in the EU. (My understanding is that it's basically impossible because of how PFICs are treated).

The biggest problem arising with being domiciled in the EU is loosing the ability to buy ETFs because of EU legislation.

I have been approached by Morgan Stanley, who cater to people in my situation, and they offer to manage my assets. As a bank, they are not affected by the EU legislation, and can conduct trades with US-domiciled ETFs for me. Unfortunately I am not fond of their investment strategy nor of their fee schedule.

If I decided to keep self-managing my assets, my understanding is that I would have to purchase UCITs instead of your regular US-domiciled ETFs. Am I correct that the main drawback of UCITs (other than a limited list of UCITs to choose from) is another level of taxation? (Level 1 from "Levels of taxation").

Doing some research on the wiki I have also stumbled upon this note where @finrod_2002 works around the EU legislation by buying ETFs through options. This looks brilliant, and I might look into that, but I wanted to make sure I understand the drawback of UCITs first.

Thank you for your input!
TedSwippet
Posts: 5141
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by TedSwippet »

linenoise wrote: Sat Feb 10, 2024 1:15 pm If I decided to keep self-managing my assets, my understanding is that I would have to purchase UCITs instead of your regular US-domiciled ETFs. Am I correct that the main drawback of UCITs (other than a limited list of UCITs to choose from) is another level of taxation?
Not really. Your main problem, by a country mile, is US tax. Specifically, the way that the US will tax you for holding non-US domiciled funds and ETFs.

Unlike practically every other country, the US taxes its citizens (you) no matter where they live on the planet. And it has a particularly savage and spiteful tax regime for taxing 'offshore' (that is, non-US domiciled) funds, one that will nearly always leave you worse off than otherwise.

In the worst cases, PFIC tax can wipe out your entire gain over time. In the best case, you'll end up paying income tax rates on capital gains, and paying them annually even though you have not sold anything; that is, on unrealised gains. Most rational investors find this unacceptable.

Your main options are (a) find a broker who allows access to US domiciled ETFs, (b) use options to bypass PRIIPs, or (c) manage a portfolio of individual stocks, since these do not run into PFIC tax.
Topic Author
linenoise
Posts: 21
Joined: Sat Mar 17, 2018 2:27 pm
Location: U.S.A

Re: US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by linenoise »

Ugh, yeah thanks, UCITs are PFICs too, that escaped my mind.
TedSwippet
Posts: 5141
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by TedSwippet »

linenoise wrote: Sat Feb 10, 2024 2:13 pm Ugh, yeah thanks, UCITs are PFICs too, that escaped my mind.
Indeed. From a wiki footnote:
Practically every non-US domiciled fund and ETF will be a US PFIC. As a quick way to tell, if it has 'UCITS' somewhere in its name, it is European domiciled and so a PFIC. Aside from reading its prospectus, KID, or fund documents, the other unambiguous way you can tell is to find its ISIN. If the first two letters are not 'US', it is almost certainly a US PFIC for tax purposes. Most UCITS funds are domiciled in either Ireland, with ISIN code 'IE', or Luxembourg, with ISIN code 'LU'.
The US really does make life difficult for its expats, doesn't it?
TimoFrance
Posts: 1
Joined: Sun Feb 11, 2024 4:16 pm

Re: US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by TimoFrance »

I am in a similar position, just a few years older than yourself as I am a US Citizen looking at moving back to France and will also be losing access to ETFs / Mutual Funds in the United States.

The best option I found is just buying individual stocks and bonds in the United States.

I understood that you can keep the mutual funds you already own as well so you could try to invest all your funds prior to relocating.

I might reach out to a financial advisor friend to check if I could buy mutual funds / ETFs via him.

Cheers,

Timo
User avatar
typical.investor
Posts: 5201
Joined: Mon Jun 11, 2018 3:17 am

Re: US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by typical.investor »

linenoise wrote: Sat Feb 10, 2024 1:15 pm
Doing some research on the wiki I have also stumbled upon this note where @finrod_2002 works around the EU legislation by buying ETFs through options. This looks brilliant, and I might look into that, but I wanted to make sure I understand the drawback of UCITs first.
Other options include:

1) You could use futures too. The required documentation is available for US, Japanese, and Brazilian (I believe stocks). Why no MSCI? I dk. https://www.cmegroup.com/market-regulat ... ducts.html

I find futures easier to wrap my head around than options but YMMV.

2) Create an LLC for investing. Since the LLC would be in the US, it wouldn't run afoul of EU restrictions. US taxes are easy as they just pass through to you, but you'd have to look at how France would tax it. There are many sites detailing how to do it and will assist for a small fee. That might reduce it's usefulness a great deal.

But yeah, the options that settle in shares is worth a try. So is futures. Just start small and see what you are comfortable with. And as with an LLC, do look into taxation

3) It's been rumored that TastyTrade and FirstTrade allow the sale of US domiciled ETFs to EU residents. I have no direct experience with that.

4) If you maintain a US address (with family or friends), I strongly recommend using a US mailing service for the mailing address. This will prevent notifications being mailed to your family/relatives. Some things like address change/withdrawal notifications may not be able to be turned off, and sometimes mistakes are made and a whole statement goes out. Also, it's easiest if you have a debit card that gets lost or expires. It just goes to the mailing service and then forwards to you. There is some cost of course. You also need to get a form notarized to allow the USPS to allow the service to forward your mail. And NEVER use a mailing service for your street/legal/place or residence or whatever your broker labels it as, and ONLY use the mailing service for the mailing address. Watch out for possible state taxation especially if you previously were a resident there. Some states will try to tax you, others won't. Use a currently opened a brokerage account or open the account while resident in the US, it will help you pass their KYC checks.

Or 5) do individual stocks

It's a hassle all of this, especially with foreign taxes but do find the time to get a strategy that is least painful for you. It's too easy to put it off thinking "I am not sure how long I will be here and I will just wait until I am sure I want to figure out options that settle in shares/futures/LLCs/US address/ or individual stocks". Please do invest as it is to your advantage.
Topic Author
linenoise
Posts: 21
Joined: Sat Mar 17, 2018 2:27 pm
Location: U.S.A

Re: US Citizen relocating to the EU: how to keep and manage assets in the US?

Post by linenoise »

Thank you for the thorough reply @typical.investor!

I can look into 1) & 2).

4) Thank you for clarifying that financial institutions should allow you to setup two different addresses, a legal one and a mailing one. I used such service before while traveling as USPS can't hold your mail for more than a month IIRC.

5) Way too hard imo, I don't know how people manage that tbh.

Definitely a hassle, thank god I am doing this months ahead of my move, all the indecision cost me a lot of money already…
Post Reply