If you are a US citizen living in Europe or an ‘Accidental American’ – one of those people caught in the complex web of US government taxes even though you don’t have a US passport (see our recent article here if you are not sure if that’s you)– you will know how difficult it can be to manage your finances and assets.
We know what it is like, as we specialise in helping Americans all over Europe to be able to manage their assets and investments in a way that navigates the complexities of being tax-compliant, while also helping them to achieve their goals.
Why is it so hard for an American to invest their money in Europe?
It comes down to reporting and a collection of US tax laws brought together under the 2010 Foreign Accounts Tax Compliance Act (known as FATCA). We won’t bore you with the details, essentially it requires two things:
- Firstly, that anyone connected with the US in most circumstances must file a US tax return wherever they are living in the world, including in Europe. More on this below.
- Secondly, all EU banks and financial or investment institutions are required to report each and every client and transaction that could be subject to American legislation to the local tax authorities so they can inform the US authorities every year. If they get this wrong, there are big penalties. That is why it is easier for many of them to simply refuse to take on American clients. Good for them and bad for you.
Here are 3 actions you can take to make sure you are on the right side of reporting, and making the most of your financial position as a US expat in Europe
1. Link your goals to your investments and start investing compliantly
We speak with a lot of Americans in Europe and we often hear similar stories, of people that have felt like they cannot invest they way they want to achieve their goals.
The three obstacles Americans most frequently mention are that:
- They have to leave their money in cash- this is not true;
- No investment companies will work with their money; or
- They have to lock their money away in a restrictive structure for many years or until they retire. Again this does not have to be the case.
The good news is there are several US-compliant investment solutions that you can access in Europe, where you can maintain liquidity and invest in accordance with your goals, but you need to make sure they are right for you. You don’t have to leave your money in cash, and you also don’t have to lock your hard-earned investments away in a convoluted pension or long-term contract.
We are very aware that life for international professionals can change suddenly and you may need to change that investment or move it to another jurisdiction. We always make sure you have that flexibility should you need it.
If this is you, speak with us and we can discuss solutions that might work for you.
2. Check your existing investments are compliant
As an American living in Europe, if you have an existing investment, it is important to check that the investment is compliant and won’t incur punitive tax rates or worse, penalty charges. Contact us and we can arrange a time for a meeting or a video call. We can conduct a review of your situation and ensure your investments will help you get to your goals, whilst being compliant with all the US FATCA regulations. Getting it wrong can be expensive so this can be a worthwhile exercise.
3. Check if you are up to date with your US tax filing. If you are not up to date, fix it now!
People who have not filed their US tax returns or who have misrepresented their financial information can – when identified by the IRS – potentially be fined or prosecuted.
Filing doesn’t necessarily mean you will get another tax bill. Many people end up not having to pay additional tax, due to double taxation treaties, but if you are in the wrong investment, you can potentially incur steep tax bills.
The action here is to ensure that your US tax filing is accurate and up to date for at least the last six years. You can do it yourself on the IRS website or you can speak with a tax professional here in Europe that has experience in the US system.
In summary, it can be difficult to invest as a US person living in Europe, but you don’t have to waste this time and miss out on growth in your portfolio. Investing in a compliant way whilst living in Europe can help you to get closer to your goals. Speak with the team at Black Swan Capital and we can help you navigate the complexities for you.