Investing in Euro denomination for US citizen residing in EU

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Topic Author
sss2009
Posts: 153
Joined: Fri Dec 25, 2009 12:27 am

Investing in Euro denomination for US citizen residing in EU

Post by sss2009 »

Hello,
I would like your opinion of what would be the simplest/easiest way for a US citizen to invest in Euro denomination at IBKR. Something even like a money market fund would be enough. Something simple as I don't want to make accounting/tax filing hard for my family.

Background: I have Vanguard money market fund for cash reserves and would like to receive money in Euro (living expenses and occasional large expense like buying car/home etc). I was wondering if buying some Euro denomination fund at IBKR (US account) would help me serve two proposes: First diversify and move some money out of Vanguard, second, help be convert money to Euro and send it to my EU bank account (I realize that IBKR prohibits simply converting USD-->EU and withdrawing.
Any advice or experience?
sss2009
occambogle
Posts: 972
Joined: Thu Dec 12, 2019 3:58 am

Re: Investing in Euro denomination for US citizen residing in EU

Post by occambogle »

Don't have much expertise really here, but a few things to note...

- You'd need to find a US-domiciled euro-denominated fund/ETF because any European-domiciled ones (such as any UCITS funds) are likely to be classed as PFICS thus making you subject to nasty US taxation on foreign funds. I'm not sure if EUR-denominated US funds exist (maybe they do), but IBKR may also not allow you to buy such a fund if it doesn't comply with EU regs and they think you are EU resident.

- If this is for cash or cash equivalent... you could just leave it in Euros cash at IBKR and receive cash interest on amounts above 10k (excluding the first 10k which gets zero interest), current interest rate on Euros is 3.174%... https://www.interactivebrokers.com/en/a ... -rates.php

- "I realize that IBKR prohibits simply converting USD-->EU and withdrawing" - This is a really confusing area. They don't want people primarily using the account for currency conversion, there's some regulatory reason afaik. But that doesn't mean you cannot exchange some money from USD>EUR from time to time and withdraw it so long as you are also using the account primarily for investing purposes. But to avoid potential closure I would want to check this directly with them.

- "I have Vanguard money market fund" - I'm guessing you haven't told VG you are EU resident because normally they would prohibit any non-US-residents from purchasing new US mutual funds (though you can continue to hold existing ones).

Hopefully some points to think about, but I may well be wrong on some of them so take other advice too please.
assyadh
Posts: 605
Joined: Tue Sep 18, 2018 12:44 pm

Re: Investing in Euro denomination for US citizen residing in EU

Post by assyadh »

You could just convert to EUR on IBKR and keep the money in cash. IBKR pays benchmark ECB rate - 0.5% above 10k
TedSwippet
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Location: The rainy island next to France

Re: Investing in Euro denomination for US citizen residing in EU

Post by TedSwippet »

occambogle wrote: Wed Jul 10, 2024 7:12 am - You'd need to find a US-domiciled euro-denominated fund/ETF because any European-domiciled ones (such as any UCITS funds) are likely to be classed as PFICS thus making you subject to nasty US taxation on foreign funds. ...
Just for completeness, worth noting that specifically for a distributing non-US domiciled money market fund, provided they file US tax returns the right way, mark-to-market, a US 'taxable person' can effectively eliminate PFIC nastiness.

The reason is that under mark-to-market, the nastiness (punishment) is US income tax rates on unrealised capital gains, but because (distributing share class) money market funds distribute everything regularly as income, they do not accumulate any unrealised capital gains for the US to punish.
Topic Author
sss2009
Posts: 153
Joined: Fri Dec 25, 2009 12:27 am

Re: Investing in Euro denomination for US citizen residing in EU

Post by sss2009 »

occambogle wrote: Wed Jul 10, 2024 7:12 am - If this is for cash or cash equivalent... you could just leave it in Euros cash at IBKR and receive cash interest on amounts above 10k (excluding the first 10k which gets zero interest), current interest rate on Euros is 3.174%... https://www.interactivebrokers.com/en/a ... -rates.php

- "I realize that IBKR prohibits simply converting USD-->EU and withdrawing" - This is a really confusing area. They don't want people primarily using the account for currency conversion, there's some regulatory reason afaik. But that doesn't mean you cannot exchange some money from USD>EUR from time to time and withdraw it so long as you are also using the account primarily for investing purposes. But to avoid potential closure I would want to check this directly with them.
Thanks for your reply, and yes, this is primarily for cash and cash equivalent. I did transfer a couple of time USD to IBKR and after sometime withdrew EU, but they did send me a warning notice, stating that currency conversion is specifically for trading in securities, hence my question.
Topic Author
sss2009
Posts: 153
Joined: Fri Dec 25, 2009 12:27 am

Re: Investing in Euro denomination for US citizen residing in EU

Post by sss2009 »

TedSwippet wrote: Wed Jul 10, 2024 7:29 am Just for completeness, worth noting that specifically for a distributing non-US domiciled money market fund, provided they file US tax returns the right way, mark-to-market, a US 'taxable person' can effectively eliminate PFIC nastiness.
Thanks Ted, and what would be such a fund., and how do I find it on IBKR platform.
assyadh
Posts: 605
Joined: Tue Sep 18, 2018 12:44 pm

Re: Investing in Euro denomination for US citizen residing in EU

Post by assyadh »

One of the widely used ETFs for overnight returns are the Lyxor ones.

Lyxor Smart Overnight Return UCITS ETF D-EUR

There are Distributing and Accumulating flavor. You might want to use the Distributing ones.
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