Should you retain a US based investment advisor when you live in France or elsewhere in Europe?
US citizens who live in France often believe it is necessary to keep an investment advisor in the United States. In that way, they can continue to invest in the fashion that they always have. However, realizing that US firms often close the accounts of overseas citizens, they simply provide their brokers a « fake address », perhaps a friend or family member. since all the transactions and statements are done through the internet, what’s the difference?
There are actually quite a few reasons this doesn’t make sense.
Regulations are based on residency, not on citizenship. So, if you are a European resident, you are under European regulation. This is why US firms don’t want you as clients. They don’t know the requirements for European regulation, which are different than in the US. Hence, they avoid the problem by not having you as a client. It is actually even worse, because each European country has different rules. Advisors like Levitt Capital who are licensed in Europe understand the rules that are required by the European and French authorities.
There are some states that will also chase you for State income taxes. Have a driver’s license from the US and brokerage accounts with a US address? How do you then say you are not a state resident?
Yet there is something else which is even more important. French residents, for example, are subject to taxes on their worldwide income. To avoid double taxation, there is a tax treaty. The French US tax treaty lays out who taxes what, whether it is taxed in the US or taxed in France. And it depends on the type of securities you buy. For example, if you buy stock in a US company, such as Intel Corp, you will be taxed in the United States. If you buy stock in a Mexican stock ETF, the treaty says you will be taxed in France, not the US. The same goes for investment in any international fund, or Asian fund. And here is where it gets tricky. When managing a portfolio of securities, a smart investor will offset their gains with their losses. But if you are a resident in France, you must be careful to offset US stock losses with only US stock gains.
US based advisors aren’t familiar with these rules, even those who claim to work with expat clients. And it is easy to see why when you consider that the tax treaty for France is different than the rules in Italy, or Germany or Portugal. Each country has a different tax treaty and therefore the investment strategies must be different. In Denmark, unrealized gains are taxed at 42%. In Germany, a Roth IRA is taxed as any taxable investment.
Now we tough on another point, and that is whether you will declare the foreign account on your French tax declaration. French residents must declare all foreign accounts or they will be fined. So, if you are hiding your address from the US firm, are you also hiding the account from the French tax authorities? That’s tax evasion in France. Further, even if you have only US securities in the account, are the dividends, interest payments and capital gains being reported for the purposes of the PUMA contribution? If you are declaring the account in France, do you not expect that the French authorities will eventually notify the US financial institution to verify the disclosures?
Then we have the idea of a US dollar based portfolio. Americans are subject to the U.S. dollars but those who live in Europe are subject to the Euro. Do you want a portfolio that is only dollar based when your expenses are Euro based? It may seem great when in the recent period the US dollar has been strong and the US stock market as well. Will that be true going forward, when the leader of the free world is proposing protective tariffs and an American isolationist approach?
Now we agree, French financial institutions aren’t set up for US citizen clients. Some won’t take you because of the extra-territorial laws like FATCA. Others will sell you products that are PFICs, such as mutual funds or Assurance Vie, that can subject you to penalty US tax rates. And none of the French banks will provide you with the detailed information required to prepare your US taxes, like a 1099 or a report of realized capital gains.
This is why you should consider using a firm in Europe, like Levitt Capital Management which specializes in US citizens who live in Europe. We know the rules. We know ways to have access products like ETFs and open IRA accounts while living in Europe. We know the products you can invest in and we are regulated in Europe.