Can an expat still invest and trade ETFs???

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Topic Author
mcc57
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Can an expat still invest and trade ETFs???

Post by mcc57 » Mon Aug 05, 2019 2:51 pm

I'm a US citizen but have been living in Italy for the last few years years. I've had a Schwab account for the longest time. When I moved to Europe a few years back, Schwab warned me that - as a result of my move - I could no longer make certain investments (such as mutual funds), but could certainly invest and trade ETFs.

All of this has worked fine until today I received a phone call from Schwab informing me that AS OF SEPTEMBER 2019, as a UE resident I will NO LONGER be allowed to invest and trade ETFs.

Has anyone else experienced this or heard of this?

EddyB
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Re: Can an expat still invest and trade ETFs???

Post by EddyB » Mon Aug 05, 2019 3:31 pm

Have you been using Schwab International (https://international.schwab.com/public ... _investing), or continued to use a brokerage account you opened when you were resident in the US (https://www.schwab.com/public/schwab/client_home)?

Topic Author
mcc57
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Re: Can an expat still invest and trade ETFs???

Post by mcc57 » Mon Aug 05, 2019 6:16 pm

When I originally moved to Italy I continued using my same online account. But a few years later, my brokerage US Schwab account was "transferred" to Schwab's British counterpart (schwab.co.uk). At that time I was told the transfer was *required* because of my EU residence. As a result of that transfer, my online Schwab portal continued giving me the same possibilities, same commands, identical layouts as https://www.schwab.com/public/schwab/client_home. Except I could no longer trade certain assets. Several mutual funds became off-limits to me as a result of my Schwab account governance transfer from the US to the British organization.
Still, I could continue trading ETFs, as ETFs were not affected by the transfer. This state of things continued for several years, until I was called by Schwab today, and was told that - starting next September - even ETF trading will be precluded to me, as a result of upcoming "EU regulations"...
I was wondering if anyone else had heard anything similar...

aednichols
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Re: Can an expat still invest and trade ETFs???

Post by aednichols » Mon Aug 05, 2019 7:01 pm

I have no specific knowledge of a September 2019 change, but I know certain US ETFs are restricted from investment in the EU because the issuer has not translated the prospectus into every official language of the EU. This is a consumer protection against investors being sold something they don't understand.

You may be able to work around this restriction by buying EU-domiciled ETFs, which have complied with the requirement from the outset.

aednichols
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Re: Can an expat still invest and trade ETFs???

Post by aednichols » Mon Aug 05, 2019 7:25 pm

I suppose the September 2019 timing could also be ahead of the October 31 Brexit deadline, and Schwab's UK division is slamming the door on investment from the continent until they get a feel for the new regulatory environment and figure out how to comply.

I would definitely recommend calling them with questions, and encourage a followup post - this topic is relevant to my interests.

TedSwippet
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Re: Can an expat still invest and trade ETFs???

Post by TedSwippet » Tue Aug 06, 2019 2:38 am

aednichols wrote:
Mon Aug 05, 2019 7:01 pm
I have no specific knowledge of a September 2019 change, but I know certain US ETFs are restricted from investment in the EU because the issuer has not translated the prospectus into every official language of the EU. This is a consumer protection against investors being sold something they don't understand.
This would be PRIIPs. It's not clear if this is the culprit at Schwab -- they haven't said, and it would be good to have it confirmed. Maybe the topic author can drag more details out of them?
aednichols wrote:
Mon Aug 05, 2019 7:01 pm
You may be able to work around this restriction by buying EU-domiciled ETFs, which have complied with the requirement from the outset.
Unfortunately, this is almost certainly a terrible idea. These are all PFICs under US tax law. They would be fine for anyone else, but not for a US citizen thanks to the US's horrible tax regime.

aednichols
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Re: Can an expat still invest and trade ETFs???

Post by aednichols » Tue Aug 06, 2019 8:13 am

TedSwippet wrote:
Tue Aug 06, 2019 2:38 am
aednichols wrote:
Mon Aug 05, 2019 7:01 pm
You may be able to work around this restriction by buying EU-domiciled ETFs, which have complied with the requirement from the outset.
Unfortunately, this is almost certainly a terrible idea. These are all PFICs under US tax law. They would be fine for anyone else, but not for a US citizen thanks to the US's horrible tax regime.
Good to know! U.S. tax exceptionalism strikes again. Surely, though, for OP’s purposes it is better than not investing at all. One can always pay someone to sort out the tax quagmire.

I agree that OP should inquire further with the broker.

TedSwippet
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Re: Can an expat still invest and trade ETFs???

Post by TedSwippet » Tue Aug 06, 2019 9:01 am

aednichols wrote:
Tue Aug 06, 2019 8:13 am
Good to know! U.S. tax exceptionalism strikes again. Surely, though, for OP’s purposes it is better than not investing at all. One can always pay someone to sort out the tax quagmire.
Unfortunately, it's not just a quagmire, but also a large tax expense.

No EU domiciled fund will make a QEF election (at least, no EU based fund that you might want), leaving you with either mark-to-market or section 1291 taxation. Even the least bad of these, mark-to-market, will have you paying income tax rates annually on accrued (but not yet realised) annual capital gains, and on any dividends. Much worse than holding US domiciled funds or individual shares, then. And this is the best practical case. Section 1291 takes unreasonableness to heights rarely seen even in US taxes.

The problem for US citizens living outside the US is that the US (pretty much uniquely) taxes on citizenship, the US tax code harshly penalises any non-US domiciled fund holdings, and US fund providers have taken a commercial decision not to follow EU rules to allow their funds to be sold to EU investors. This combination can leave US citizens living in Europe high and dry, with no usable access to any index funds at all. Their only chance is to find a US based broker who do not (or do not have to) comply with EU regulations when it comes to offering investments to EU residents.

UpperNwGuy
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Re: Can an expat still invest and trade ETFs???

Post by UpperNwGuy » Tue Aug 06, 2019 9:25 am

When I retired a few years ago, I had thought about moving to Europe. As I learned more about the ex-US investing restrictions, the foreign bank account reporting requirements, and the lack of ex-US Medicare coverage, I changed my mind.

TedSwippet
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Re: Can an expat still invest and trade ETFs???

Post by TedSwippet » Tue Aug 06, 2019 9:55 am

UpperNwGuy wrote:
Tue Aug 06, 2019 9:25 am
When I retired a few years ago, I had thought about moving to Europe. As I learned more about the ex-US investing restrictions, the foreign bank account reporting requirements, and the lack of ex-US Medicare coverage, I changed my mind.
A cynic might conclude that deterring emigration is one of the aims of some of these ridiculous US tax rules and restrictions.

bgreat
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Re: Can an expat still invest and trade ETFs???

Post by bgreat » Tue Aug 06, 2019 11:35 am

aednichols wrote:
Mon Aug 05, 2019 7:25 pm
I suppose the September 2019 timing could also be ahead of the October 31 Brexit deadline, and Schwab's UK division is slamming the door on investment from the continent until they get a feel for the new regulatory environment and figure out how to comply.
Schwab are also claiming that they're winding down their UK division in general, and are trying to move some customers back to Schwab US. However for a few EU countries they're continuing to use Schwab UK, but they're also trying to start a new division in a different EU country for after Brexit. Italy happens to be one of the countries they seem to prefer serving from within the EU ( https://www.schwab.co.uk/public/schwab- ... rexit.html ). Note that for countries not in that list, they're directing signups to Schwab US, so it's entirely possible that residents of some EU countries won't have issues.

But it is true that immigrants in the EU (at least those resident in the countries listed above) with US citizenship are indeed in a pickle...


That said, any non-EU broker should be able to sell you US ETF's. Most non-US brokers will reject you (for obvious reasons), but I'd recommend looking to see if you can find _any_ US broker that services non-residents. Firstrade seem to be one such broker (they don't require residence, and they don't appear to have any links to the EU), however I have no idea how reliable or reputable they are.

Json
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Re: Can an expat still invest and trade ETFs???

Post by Json » Tue Aug 06, 2019 2:41 pm

Just curious, did you keep a US address in your accounts or are you using your address in Italy?

Topic Author
mcc57
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Re: Can an expat still invest and trade ETFs???

Post by mcc57 » Wed Aug 07, 2019 5:46 am

Json wrote:
Tue Aug 06, 2019 2:41 pm
Just curious, did you keep a US address in your accounts or are you using your address in Italy?
At the time I moved to Italy I immediately informed Schwab (as well as my US bank) of my new Italian address. Pretty naively, I must admit. A few years later I paid the price of such transparency: today, I CANNOT transfer MY money from MY personal US bank account to Schwab, or viceversa. Needless to say, I am well aware of friends that have kept fictitious US addresses, and have none of these problems.

squirrel1963
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Re: Can an expat still invest and trade ETFs???

Post by squirrel1963 » Wed Aug 07, 2019 1:42 pm

TedSwippet wrote:
Tue Aug 06, 2019 9:01 am

The problem for US citizens living outside the US is that the US (pretty much uniquely) taxes on citizenship, the US tax code harshly penalises any non-US domiciled fund holdings, and US fund providers have taken a commercial decision not to follow EU rules to allow their funds to be sold to EU investors. This combination can leave US citizens living in Europe high and dry, with no usable access to any index funds at all. Their only chance is to find a US based broker who do not (or do not have to) comply with EU regulations when it comes to offering investments to EU residents.
Is this because of EU's MIFID2 regulations?

squirrel1963
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Re: Can an expat still invest and trade ETFs???

Post by squirrel1963 » Wed Aug 07, 2019 2:08 pm

UpperNwGuy wrote:
Tue Aug 06, 2019 9:25 am
When I retired a few years ago, I had thought about moving to Europe. As I learned more about the ex-US investing restrictions, the foreign bank account reporting requirements, and the lack of ex-US Medicare coverage, I changed my mind.
My wife & I have been contemplating to retire to south EU (PT, ES, FR or IT) in a few years, but I've been deterred by taxation issues for US expats as well as the much higher taxation which EU countries have (both in terms of higher tax brackets and/or a tax on net worth). One saving grace about residing in EU is that healthcare is for the most part paid by government (with your taxes of course). Right now I'm thinking that we'll initially do a lot of travel in EU (without becoming residents) and eventually retire in Portugal, where you can reside the first 10 years without paying PT taxes. That's one possible alternative which would avoid most tax problems. Of course this is predicated on the fact that by the time we retire permanently to PT, we would be able to keep a US based brokerage.

bgreat
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Re: Can an expat still invest and trade ETFs???

Post by bgreat » Wed Aug 07, 2019 2:09 pm

squirrel1963 wrote:
Wed Aug 07, 2019 1:42 pm
TedSwippet wrote:
Tue Aug 06, 2019 9:01 am

The problem for US citizens living outside the US is that the US (pretty much uniquely) taxes on citizenship, the US tax code harshly penalises any non-US domiciled fund holdings, and US fund providers have taken a commercial decision not to follow EU rules to allow their funds to be sold to EU investors. This combination can leave US citizens living in Europe high and dry, with no usable access to any index funds at all. Their only chance is to find a US based broker who do not (or do not have to) comply with EU regulations when it comes to offering investments to EU residents.
Is this because of EU's MIFID2 regulations?
Yes. But note that in addition to the route of finding a non-EU broker (EU rules only apply to EU domiciled brokers), there's also the option of electing to be treated as a professional investor, in which case apparently the prospectus requirements are waived too.

Interactive Brokers (who are subject to EU rules as they serve customers through IB UK) have a well documented process to do so, but require a combination of being an actual professional, having enough investments (500k EUR), and/or trading frequently enough (2 out of 3 being necessary). This may or may not work for some people here.

squirrel1963
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Re: Can an expat still invest and trade ETFs???

Post by squirrel1963 » Wed Aug 07, 2019 2:22 pm

bgreat wrote:
Wed Aug 07, 2019 2:09 pm

Yes. But note that in addition to the route of finding a non-EU broker (EU rules only apply to EU domiciled brokers), there's also the option of electing to be treated as a professional investor, in which case apparently the prospectus requirements are waived too.
Thanks much for the reply. Do you know which brokerage firms would allow to be treated as a professional investor, other than IB? In my case i am neither a professional investor nor I trade frequently (unless all they care is that you do some "nominal" trades, like buying and selling a few shares, enough to comply with the letter of the requirements).

DouroBound
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Re: Can an expat still invest and trade ETFs???

Post by DouroBound » Wed Aug 07, 2019 5:55 pm

squirrel1963 wrote:
Wed Aug 07, 2019 2:22 pm
bgreat wrote:
Wed Aug 07, 2019 2:09 pm

Yes. But note that in addition to the route of finding a non-EU broker (EU rules only apply to EU domiciled brokers), there's also the option of electing to be treated as a professional investor, in which case apparently the prospectus requirements are waived too.
Thanks much for the reply. Do you know which brokerage firms would allow to be treated as a professional investor, other than IB? In my case i am neither a professional investor nor I trade frequently (unless all they care is that you do some "nominal" trades, like buying and selling a few shares, enough to comply with the letter of the requirements).
This is interesting. I've been wrestling with the exact same thing in preparation for a move, and have only just started looking at this professional trader designation. If one still had several months before their planned move, maybe it would be worth trading a bit between now and then to hit the required average trading frequency (?). It seems they require an average of 10 trades of "significant size" per quarter over the prior four quarters to qualify. Does anyone know what counts as "significant size" or what constitutes a trade (i.e., if I sell one stock and buy another, is that two trades or one)? Anyone have experience with this qualification process?

bgreat
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Re: Can an expat still invest and trade ETFs???

Post by bgreat » Thu Aug 08, 2019 2:00 pm

squirrel1963 wrote:
Wed Aug 07, 2019 2:22 pm
bgreat wrote:
Wed Aug 07, 2019 2:09 pm

Yes. But note that in addition to the route of finding a non-EU broker (EU rules only apply to EU domiciled brokers), there's also the option of electing to be treated as a professional investor, in which case apparently the prospectus requirements are waived too.
Thanks much for the reply. Do you know which brokerage firms would allow to be treated as a professional investor, other than IB? In my case i am neither a professional investor nor I trade frequently (unless all they care is that you do some "nominal" trades, like buying and selling a few shares, enough to comply with the letter of the requirements).
Unfortunately I have no idea (I live in a non-EU country, so I haven't had to go through this myself). The IB requirements are listed here, and it does seem like it would be tricky to fulfill their requirements (200k EUR in trades in the past year is one of them - I suppose if your income is high enough then that's doable without having to sell...):
https://ibkr.info/article/3298

But on another forum I've seen people suggest Firstrade and Tastyworks, who both serve non-US-resident customers (and they don't appear to have any EU offices, hence wouldn't be subject to EU rules). I have no idea how good they are, how their customer service, is etc. - and I don't have an account with any of them myself - but it might be worth investigating them in case they turn out to be an option?

Topic Author
mcc57
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Re: Can an expat still invest and trade ETFs???

Post by mcc57 » Tue Aug 13, 2019 4:23 pm

I received TODAY (August 13th) the following notice from Charles Schwab

New U.S. ETFs and ETNs purchase restrictions as of September 19
Beginning September 19, 2019, Schwab clients who are residents of the E.U. will no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

What this means for your account.
This restriction results from regulatory changes and affects all residents of the E.U. With this change:
• You will be able to maintain any existing U.S. ETF or ETN positions you hold, but you will not be able to purchase more.
• Dividends can no longer be reinvested in U.S. ETFs or ETNs.
• You may liquidate U.S. ETFs or ETNs, but you will not be able to repurchase them.
Alternative ETFs.
As an alternative to U.S. ETFs, Schwab is offering ETFs that have been authorized as Undertakings for Collective Investment in Transferable Securities (UCITS). These funds meet relevant E.U. requirements and offer investment strategies similar to those of their U.S. counterparts. They will be available to eligible global investors only. U.S. residents will not be able to purchase UCITS. For more information about UCITS ETFs, please contact Schwab Global Services at +1-800-992-4685.

Thank you for investing with Schwab. If you have questions regarding this change, please contact us at 00800 0826 5001 (in the U.K.) or +1-415-667-8400 (outside the U.K.).

squirrel1963
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Re: Can an expat still invest and trade ETFs???

Post by squirrel1963 » Tue Aug 13, 2019 10:55 pm

bgreat wrote:
Thu Aug 08, 2019 2:00 pm
squirrel1963 wrote:
Wed Aug 07, 2019 2:22 pm

Thanks much for the reply. Do you know which brokerage firms would allow to be treated as a professional investor, other than IB? In my case i am neither a professional investor nor I trade frequently (unless all they care is that you do some "nominal" trades, like buying and selling a few shares, enough to comply with the letter of the requirements).
Unfortunately I have no idea (I live in a non-EU country, so I haven't had to go through this myself). The IB requirements are listed here, and it does seem like it would be tricky to fulfill their requirements (200k EUR in trades in the past year is one of them - I suppose if your income is high enough then that's doable without having to sell...):
https://ibkr.info/article/3298
Interesting. According to the link you provided, to requirement is to do at least 40 trades, with "The total notional value of the top forty (40) trades of the last four (4) quarters is greater than EUR 200,000". Assuming all they care is the letter of the rule, and not the spirit, you can buy and sell a bit more than 5K for 40 times of a few different securities, say money market ETFs or treasuries. So you'd only need, say 6K for this little game. I'd call them up and ask if they are okay with it, though.

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Maple
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Re: Can an expat still invest and trade ETFs???

Post by Maple » Wed Aug 14, 2019 12:59 am

mcc57 wrote:
Tue Aug 13, 2019 4:23 pm
I received TODAY (August 13th) the following notice from Charles Schwab

New U.S. ETFs and ETNs purchase restrictions as of September 19
Beginning September 19, 2019, Schwab clients who are residents of the E.U. will no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

...

As an alternative to U.S. ETFs, Schwab is offering ETFs that have been authorized as Undertakings for Collective Investment in Transferable Securities (UCITS) ...
mcc57,

Thanks for sharing the notice you received from Schwab.

This may be inconvenient news for E.U. resident clients of Schwab who want to invest in U.S. ETFs. However, this may be FANTASTIC news for other Schwab international clients, because many of us want to buy Irish domiciled ETFs and up to now Schwab has not been a good broker for this (Interactive Brokers is one of the few good brokers offering this). Have any board members inquired recently with Schwab about trading Irish domiciled ETFs?

typical.investor
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Re: Can an expat still invest and trade ETFs???

Post by typical.investor » Wed Aug 14, 2019 2:53 am

Maple wrote:
Wed Aug 14, 2019 12:59 am
This may be inconvenient news for E.U. resident clients of Schwab who want to invest in U.S. ETFs. However, this may be FANTASTIC news for other Schwab international clients, because many of us want to buy Irish domiciled ETFs and up to now Schwab has not been a good broker for this (Interactive Brokers is one of the few good brokers offering this). Have any board members inquired recently with Schwab about trading Irish domiciled ETFs?
I encourage you to call and ask.

Note the number listed goes to Schwab Global. It's not the Schwab International One account that many of us not in the US use, but instead gives access to different markets in different currencies.

The Schwab Global account used to be only for those physically residing in the US. In fact, the Schwab Global web site (whose number is the same as the one listed in the notice) still states that.

TedSwippet
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Re: Can an expat still invest and trade ETFs???

Post by TedSwippet » Wed Aug 14, 2019 5:49 am

mcc57 wrote:
Tue Aug 13, 2019 4:23 pm
I received TODAY (August 13th) the following notice from Charles Schwab
... As an alternative to U.S. ETFs, Schwab is offering ETFs that have been authorized as Undertakings for Collective Investment in Transferable Securities (UCITS).
For you as a US citizen, following Schwab's recommendation would be a spectacularly bad idea. I am surprised that they appear unaware of this.

typical.investor
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Re: Can an expat still invest and trade ETFs???

Post by typical.investor » Wed Aug 14, 2019 6:23 am

TedSwippet wrote:
Wed Aug 14, 2019 5:49 am
mcc57 wrote:
Tue Aug 13, 2019 4:23 pm
I received TODAY (August 13th) the following notice from Charles Schwab
... As an alternative to U.S. ETFs, Schwab is offering ETFs that have been authorized as Undertakings for Collective Investment in Transferable Securities (UCITS).
For you as a US citizen, following Schwab's recommendation would be a spectacularly bad idea. I am surprised that they appear unaware of this.
Schwab clearly knows hence the “They will be available to eligible global investors only. U.S. residents will not be able to purchase UCITS” wording in the cited message from them.

TedSwippet
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Re: Can an expat still invest and trade ETFs???

Post by TedSwippet » Wed Aug 14, 2019 6:27 am

typical.investor wrote:
Wed Aug 14, 2019 6:23 am
Schwab clearly knows hence the “They will be available to eligible global investors only. U.S. residents will not be able to purchase UCITS” wording in the cited message from them.
US citizens who are not US residents are those at most risk from PFIC rules. Schwab either does not know that, or they have failed to word their message accurately and correctly.

squirrel1963
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Re: Can an expat still invest and trade ETFs???

Post by squirrel1963 » Thu Aug 15, 2019 5:14 pm

mcc57, you may want to read the related thread viewtopic.php?f=22&t=287492

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