Investing for US Expats

One of the recorded webinars that I received from Democrats Abroad was about investing for Americans abroad. The speaker is a chartered financial analyst based in France and operates a capital management firm tailored specifically to US expats. The speaker clearly has a lot of experience navigating investing and tax rules in both jurisdictions. Since the webinar was tailored for a broad audience, he avoided questions about individual investment advice, tax questions, and country-specific questions. The webinar was also geared more towards US expats living in Europe since it seems like there are a lot more regulations involved.

Here are the things from the webinar that I thought were noteworthy:

• There is a difference between residency and citizenship. For most of the world, residency decides both which regulations you follow and where you’re taxed. Citizenship doesn’t matter unless you’re a US citizen. As a US citizen, you also have to follow US regulations and fill out US tax forms regardless of where you live.
• The reason why US expats can’t invest in US mutual funds is because mutual funds take advantage of tax treaties between countries. To take advantage of tax treaties, mutual funds have to certify that all of their investors are US residents.
• US mutual funds and ETFs are required to pay out their earnings due to US regulations. Foreign mutual funds and ETFs are not required to follow US regulations and therefore may be considered passive foreign investment companies (PFICs). US expats should avoid PFICs to reduce the additional tax reporting burden.
• It’s hard to find foreign brokerages or banks that are willing to accept US citizens as clients due to US FATCA reporting rules.
• It’s hard to find US brokerages that are willing to accept US expats as clients because they don’t have the resources to handle the additional regulation.
• In Europe, you cannot purchase US ETFs in a margin account. But you can get around it by showing that you have over €500,000 in assets. You can also purchase US ETFs in US retirement accounts.
• As a US expat, you can continue to invest in US retirement accounts like traditional IRAs and Roth IRAs. Side note: in Canada, there is no tax treaty that treats a Roth IRA as a retirement account.
• The speaker recommended opening an investment account with Interactive Brokers. They can generate the appropriate US tax forms for US citizens.
• US retirement accounts at Interactive Brokers are domiciled in the US.

I thought the webinar was very good and I learned a bit as well.

Here in Canada, Questrade is able to comply with FATCA reporting rules and generate the appropriate US tax forms for US citizens. I have a US brokerage account with TD Ameritrade, which was acquired by Charles Schwab. Charles Schwab is one of the companies that can support US expats. However, I know that from interacting with them for my company’s equity awards, I can’t hold a brokerage account at Charles Schwab as a Canadian resident. So I’ve been looking for alternatives before my TD Ameritrade account is converted to a Schwab account. If Schwab didn’t already know that I am a Canadian resident, then I wouldn’t be concerned as, like many other expats, I would continue to use a relative’s US address.

Now that I know that I can open a retirement account at Interactive Brokers, I started the process of creating an account. What I like about Interactive Brokers is that foreign exchange fees are low. Norbert’s Gambit using dual-listed stocks at Questrade takes a while and there is a lot more price volatility by using stocks instead of DLR and DLR.U. I plan to move all of my US equities to Interactive Brokers. For my Canadian accounts, I plan to move to Wealthsimple Trade.