We know that it can be particularly difficult as a US citizen living in Europe when it comes to managing your money. The US non-resident tax and reporting laws are complex, and they impose a number of conditions and restrictions that impact how you can manage your finances when living abroad.
We have listed some key things to do and not to do, based on the most frequently asked questions when we speak with Americans living in Europe.
US Investments and your address
We are often asked if it is ok to maintain a US investment by providing the US based institution with an address of a family member back home. The clear answer is NO. This is the number one action to avoid. If you are doing this, you are being reported as a US tax resident rather than as a tax non-resident. Not only is it inaccurate it may be considered tax-fraud. If this is you, or if you are not sure if you have kept your details up to date, we recommend you check and update with your current address and residential status.
US Reporting Foreign Assets & Income
We have observed that there is confusion around what must be reported back to the US tax authorities and what does not. Some people are of the belief that if they have a smaller asset value they do not need to report, or that they do not need to report foreign earned income. The FBAR reporting with the various thresholds can be confounding.
We have heard the argument that because the double taxation treaties between the US and EU countries, American expats may not have to pay taxes twice and therefore do not have to report. This is not correct. Avoid this! Make sure you report all your foreign earned income and your worldwide assets, even if they are below the thresholds. This includes clarifying if you are claiming foreign tax credits or alternatively applying the foreign earned income exclusion.
If you don’t report, you can get fined. Avoid this. The IRS also offers an amnesty for those that need to get up to date with their tax reporting.
If you are not sure if you are up to date, or how to manage your US tax reporting, we recommend you speak with a tax adviser that can manage your US tax submissions and obligations to ensure you stay compliant and up to date. Now is a good time to speak with someone to get your situation in order.
Am I an Accidental American?
The FACTCA regulations cover the reporting obligations and investment restrictions for US citizens and US connected individuals living around the world. They also define who is covered by the regulations and in these definitions, there is another aspect to be aware of and action to avoid.
Do not just presume that because you don’t consider yourself American you can avoid the requirements for reporting. The FACTA net can be broad. Whilst this ruling is being challenged and debated it remains in place.
Here are some examples and there are many more. Perhaps you were born in the US, have a US passport but left as a child. Or you have a parent that is a US citizen, or your spouse is American (depending on how you and they file taxes). Do you have a green card that is still functional, even if you live outside the US?
In the above examples, and other similar scenarios, you may find yourself as being defined as a US connected person, which means you will have to file your US tax returns.
Avoid being caught out. Speak with a specialist tax professional and get clarity about your situation.
The one must do- You can invest in Europe compliantly as an American
A common frustration we hear from many Americans is that they are restricted from many investment options in Europe and from investing into the US from the EU. You don’t have to be.
Here is the one must-do:
You can invest compliantly in the EU as a US citizen or connected person without having to forego returns or locking your funds away with no access. You should treat an investment like any other part of your financial plan so that it is a component of your financial plan and aligned to achieving your objectives, not just investing because you have found an option. Speak with us to find out how this might be relevant and applicable for you.