Here are some thoughts about investing abroad for US expats, Americans living abroad, and others who may be moving overseas. This guide may teach you what kinds of accounts you can use, based upon where you live, and your citizenship. Pay careful attention because knowing this information may help you reduce unwanted taxes.
Before we get started, I’ve written these blogs about moving to and living in Israel which you may enjoy as well:
Checklist for moving to Israel
The following principals related to investing abroad are general and most likely apply to most countries, but do check with your local advisor or CPA. We will focus on Israel and the UK as examples – and on liquid tradable securities.
Some words about investing overseas
If you are an American living abroad you may:
A. Invest via a US domiciled brokerage account.
B. Invest via a foreign domiciled brokerage account for example in Israel or the UK – but only in directly in individual stocks and bonds. Investing in mutual funds, exchange traded funds and other pooled investment vehicles will trigger a higher PFIC tax in the US, plus higher tax filing fees.
Possible tax implications
If you are a non-US person who wants to invest in a US domiciled brokerage account, you may do so but will be subject to inheritance tax for amounts over $60,000, irrespective of the profit and losses in the account. This does not include some bonds and non-US stocks held in the US brokerage account.
Tax treaties matter when investing overseas
In addition, unless there is a tax treaty between your country and the US, dividend payments will have a 30% tax withholding by your US custodian. Therefore, for clients in such countries, e.g. Greece, one will want to focus on securities that generate interest income rather than dividends, or low or no dividend equities. There is no tax withholding on interest and capital gains
If you are a US citizen who has lived in the United Kingdom for more than seven years, then from a US perspective you may be best keeping your brokerage account in the US. However, while the UK permits this, it will tax at a higher rate mutual funds and ETFs which has not been approved for reporting purposes by the United Kingdom’s – HMRC – Her Majesty’s Revenues and Customs. The list of funds approved US funds is small, so one will prefer to invest directly in stocks or bonds, or work with an advisor who is well-versed in which funds can be invested in.
Final thoughts for expats who want to invest abroad
Please note – one is not prohibited from investing differently from what we have discussed above, as long as it is disclosed, but your tax bill may be much higher. As mentioned earlier, nothing in this blog should be interpreted as financial advice specific to any individual. For recommendations specific to your situation, please consult a tax or financial advisor.
We are expat financial advisors located in Israel and the US, serving expats globally. If you are moving to Israel or another country and don’t know where to start when it comes to the financial side of things, please contact us.
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Norman H. Chait, CFA, Managing Principal, Nardis Advisors LLC, June 10th, 2022.
Disclaimer: Nardis Advisors LLC (“Nardis”) is a Registered Investment Advisory Firm regulated by the U.S Securities and Exchange Commission in accordance and compliance with applicable securities laws and regulations. Nardis does not render or offer to render personalized investment advice through this medium. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and Nardis.