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4 Tips for Managing U.S. Expat Investments

May 8, 2023

How to Navigate the Complexities of Cross-Border Investing

Many Americans living abroad find managing their investments to be especially challenging. American expats know all too well that overcoming the operational challenges of opening and maintaining investment accounts created by the Foreign Account Tax Compliance Act (FATCA) and other legislation can be daunting. Once the obstacle of opening an account has been overcome, U.S. expats then face the mind-numbing task of navigating the complex interaction between U.S. and foreign country residence tax laws. All told, Americans living overseas face significant challenges when investing. These challenges can be so overwhelming that some U.S. expats decide not to invest at all. However, avoiding the complexities of investing may result in a failure to achieve one’s financial goals. The good news is that Americans around the world can still efficiently and effectively plan, save and invest to achieve their financial goals. Here are four key tips to help navigate the challenges of U.S. expat investing.

1. Establish a brokerage account with a U.S. custodian. 

The first step is to find a U.S. custodian that will allow you to establish a brokerage account. FATCA laws have made it challenging for U.S. persons to open non-U.S. investment accounts (which also have additional U.S. reporting requirements associated with them). There are many advantages to housing one’s assets in a U.S. account. For starters, the U.S. financial markets are the largest and most liquid in the world, offering a wide range of investment products. By investing in U.S. markets rather than foreign markets, you can avoid multiple reporting headaches and the potential misstep of investing in a passive foreign investment company (PFIC), which can lead to significant tax penalties (up to 60%-70% tax rates on investment income).

For this reason, U.S. expat investors should avoid owning non-U.S. mutual funds. However, establishing a U.S. investment account is often the first challenge faced by American expats. Many U.S. banks and brokerage firms have stopped accepting non-U.S. residents due to concerns around compliance with the foreign country’s laws. These concerns have prompted many custodians to close the U.S. brokerage accounts of American expats and/or restrict the services available to non-U.S. residents. Fortunately, there are still a handful of U.S. brokers that continue to work with Americans living abroad. While some will not open an account directly for an individual, they will work with an advisory firm, such as Creative Planning International, to open accounts on a client’s behalf.

2. Optimize income and transfer taxes.

The biggest challenge for U.S. investors living overseas is navigating the tax requirements of two separate countries. You’ll need to manage your U.S. expat investments in a manner that is tax efficient on both sides, taking into account many complex factors, some of which include:

  • Different accounting regimes
  • Different filing deadlines and accounting periods
  • Different currencies (this article highlights some ways to manage currency risk)
  • Rapidly evolving rules related to immigration status, length of residency, etc.
  • Complex transfer tax rules on gifted and bequeathed assets and estates
  • Investments with varying tax and investment outcomes

It’s important to work with financial and tax professionals who have extensive knowledge of how U.S. rules overlap with your resident country’s rules and how to optimize those overlaps to reduce your tax liability and transfer fees.

3. Understand any income, estate and Social Security treaties that exist between the United States and your country of residence.

A key to successfully managing your U.S. expat investments is to take advantage of any tax treaties held between the United States and your country of residence. Once your U.S. investment accounts are established, take some time to educate yourself on strategies to reduce or eliminate your withholdings and tax liabilities accordingly. Your Creative Planning International wealth manager is a great source for updated information and can help you navigate the intricacies of these treaties.

4. Hire a qualified team of advisors.

Wealth and tax advisors outside the United States seldom have the experience and knowledge necessary to navigate the U.S. tax system. Likewise, U.S. advisors who have never worked with expat investors likely do not have experience navigating cross-border investment accounts and tax treaties. Watch this short video on what defines “expat” and “cross-border.” That’s why it’s vital to put together a team of experienced advisors who understand the unique challenges you face as a U.S. expat. Your team should include the following:

  • A fiduciary financial advisor – You’ll want to enlist the help of a fee-based registered investment advisor (RIA). Fee-based advisors are compensated based on the assets they manage on your behalf. They don’t receive product or referral commissions or transaction fees. This means their interests are aligned with yours; they grow as you grow.

As fiduciaries, RIAs are legally bound to put your best interests first, at all times and in all situations. On the flipside, brokers can charge a commission based on product sales and do not have a fiduciary responsibility to clients.

  • An experienced tax accountant – It’s important to work with someone who has experience navigating the tax treaty between the United States and your country of residence. Tax laws are rapidly changing, so your accountant should be able to demonstrate a deep understanding of current regulations in order to help you avoid any missteps.

Feeling overwhelmed? We can help. At Creative Planning International, we work with Americans abroad and cross-border families to help maximize their wealth and avoid costly mistakes, especially when it comes to U.S. expat investments. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and take into account currency, diversification, tax and other portfolio considerations as we help you plan and invest for the future. If you’re an American living abroad who could use some help establishing a U.S. expat investment strategy, schedule a call with a member of our team.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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