Investing while in the US with long term plans to go back to Europe

[acreativefollower]

Just discovered this group. I recently made ved from Europe to the Us, where I plan to stay for a few years before eventually move back to Europe.

In Europe I used to invest in ETFs, but I sold all before moving. Now it’s time to start again but I am not sure about the strategy, considering that I plan to keep these investments also after my move out of the US.

Two points where I am asking advice

1. US-based ETFs/funds vs Europe-based ETFs: my understanding is to prefer the former, because of lower fees and lower taxes. The only disadvantage is that I won’t be able to buy additional quotes when outside the US, but still I can keep what I have. Is this correct?
2. Which broker to choose, to make my life not too complicated when moving abroad?

Thank you in advance for any advice

 

[stanleylynch]

@acreativefollower Do you have any friends or family with an address in the US? Will your investments be significant enough to warrant spending money every month on a mailbox service? If so, as far as US brokerages are concerned, you can continue to buy / sell in your brokerage account (whether this is permitted by your home country in Europe is an entirely different question).

I've used Fidelity, Schwab, and WellsTrade as an expat with a US address without a problem. My preference is Fidelity > Schwab > WellsTrade.

 

[valyafconservative]

@acreativefollower I think if you reside in US is better you use US brokers like Vanguard, Fidelity etc.

When you will move back to Europe, depending on which country you my find slightly different rules. Usually it's possible to transfer assets in-kind between brokers, so for example Interactive Brokers is very good for expats, you can transfer your assets to IBKR very easily.

There are countries like Italy that tax unfavorably US ETFs, so in that case a different portfolio may be better.

 

[acreativefollower]

@valyafconservative Thank you for your comment. Why US brokers are better, a matter of fees or tax reporting?

 

[valyafconservative]

@acreativefollower Tax reporting.

If you are a US person (citizen or resident) you have to report all foreign assets, that is form FBAR for cash and PFIC for assets. PFIC reporting is complicated and tax rates on them are high.

PFIC stands for Passive Foreign Investment Company, all foreign ETF or mutual funds are considered PFIC.

 

[shawnab]

@acreativefollower I lived in the US for the last 5+ years and about to leave again (not a US citizen).

1. I only ever had US ETFs and taxes were zero or next to zero for long term cap gains. For dividends afaik it is 30% (or 15%) depending on tax treaty, but dividends are such a small percentage of most portfolios that it will hardly make a difference.
2. I can recommend Charles Schwab for investments. Unlike the other main brokerages (Vanguard, Fidelity) they allow you to keep your account once you leave the US again, according to a conversation I had with one of their advisors. Not only this but once they switch you to an international account you can keep buying US ETFs through their platform (though no mutual funds for some reason, you can keep what you have but no longer buy more). Their website is shit though so might have a bit of a learning curve to figure out what's where lol. I can also confirm that 2FA works with google voice from outside the US, and as a little extra bonus they offer a debit card that reimburses ATM fees worldwide. For these reasons Schwab is the one brokerage I'm keeping.

 

[4rtlauderdale]

@shawnab My understanding is the same as you say on #2. IB suppose to offer similar conditions.
I have been studying and putting together this information for the times when I'm moving back to Europe. In case someone finds it useful.

US ETFs for European Residents​

Retention of 30%:
- If you do not submit Form W-8BEN to your broker, the broker will automatically withhold 30% of your dividends, which is the standard withholding rate for non-U.S. tax residents.

Retention of 15% under Tax Treaty:
- If you submit Form W-8BEN to your broker, the withholding rate may be reduced to 15%, depending on the tax treaty between the U.S. and your European country of residence. The Form W-8BEN must be submitted to your broker and is generally valid for three years.
- You must renew and submit a new Form W-8BEN before the three-year period expires to ensure the correct withholding rate continues to apply.

Situations Requiring a New Form W-8BEN:
- Change in Tax Status: If there is a change in your tax status (e.g., you become a tax resident of another country), you must submit a new Form W-8BEN.
- Update of Information: If your personal information or contact details change, it is advisable to update the Form W-8BEN with your broker.

Using Form 1099-DIV:
- Use the information from Form 1099-DIV to complete Form 1040NR.

Who Should File:
- Non-U.S. tax residents with income from U.S. sources.

When to File:
- If you have income subject to U.S. taxes, including dividends from your ETFs and mutual funds.

Tax Declaration in Your New European Country of Residence:
- Ensure you declare your U.S. income in your new country of residence in Europe and explore tax credits that might be applicable.

 

[shawnab]

@4rtlauderdale Thanks for adding these details!

You seem well read on the topic. Paying any taxes to the US if you are not US tax resident seems counterintuitive, and looks like the US takes at least 15% no matter what.

Is there a scenario where you pay 0% to the US or where you get the withholding back?

Also, to clarify, this tax only applies to dividends and not to capital gains from selling ETFs?

 

[4rtlauderdale]

@shawnab Right, this applies to dividens and I meant for accounts where you have invested after tax money, not 401k or IRAs.
As per the capital gains if the country has a treaty with US and you have filled correctly the form W-8BEN, no tax should be withheld in US. It will be your responsibility to declared in the country where you have your fiscal residency. I've red in some forums people having some with issues with Fidelity wrongly withholding the tax, but you should be able to get it back from IRS after filling 1040NR, non resident alien income tax return and including form 8833 and supporting documentation.

 

[4rtlauderdale]

Not sure if answered your question completely before, I'm not aware of any scenario where the withheld dividend taxes would be 0%, with the exception of a handful of countries and for specific pension accounts. But not for normal after tax investment accounts.

 

[shawnab]

@4rtlauderdale Yeah so be it. 15% is lower than income taxes most anywhere, and dividends are usually a small portion of all gains, so not too bad. Thanks!

 

[shawnab]

@4rtlauderdale Awesome, thanks for that info. I'll be dealing with this stuff next tax year, so this is very timely.

 

[4rtlauderdale]

@shawnab Good luck with it. I'll be there in few years as well if everything goes well. There is no much information for non resident aliens, most of the info you can find around is for American expats.

 

[shawnab]

@4rtlauderdale So true! Really hard to find this info.

 

[4rtlauderdale]

@shawnab Can I ask you where are you planning to move?

 

[shawnab]

@4rtlauderdale I'll be slow traveling through EU and Latin America.

 

[4rtlauderdale]

@shawnab It sounds like an amazing plan. Not sure if in would be able to stop working upon moving in Europe.

 

[shawnab]

@4rtlauderdale My plan is to focus on work for once haha. I'll make sure to do some sightseeing tho.

 

[troyoftroy]

@acreativefollower Following