The Challenges for Americans living in Europe and Actions you can take

Since FATCA (The Foreign Account Tax Compliance Act ) came into force in 2010, it has impacted Americans and US connected persons living abroad significantly. FATCA requires all US Citizens and US connected individuals (all those accidental Americans), to report and file for all their assets and income worldwide.

What’s an Accidental American? FATCA has a broad reach. it applies to US citizens, but also to this 2nd group, Accidental Americans. They are a broad group which could include: anyone that has held a green card (even if it is expired), parents of US citizens, children of US citizens, spouses of US citizens, business partners of US citizens, and those that under residency rules qualify as tax residents in the US. It’s complicated, and this list is not exhaustive, so if you are not sure, get advice.

People who have not filed their US tax returns, can – when identified by the IRS – potentially be penalized. The better news is that most people end up not having to pay additional tax, due to double taxation treaties, with one exception, those that have invested in what the IRS deems to be non-compliant investments. More on this later.

Our first advice to everyone that is US connected directly or indirectly is get compliant. Speak with an appropriate US specialist tax advisor who can assist you to make sure your US tax reporting is up to date.

Did you know that EU banks are obligated to report each client that is subject to American legislation – and possesses a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) – to the local tax authorities so they can inform the US government tax authorities if required.

The second piece of advice we commonly give is to make sure you get the right specialist advice for your investments, because what is appropriate and compliant for some expats will often not be suitable or available for Americans in Europe. The wrong investment can result in very expensive tax bills.

We have written previously here about PFICs and why they can be  bad for your financial health. In short, most investment opportunities that are approved, compliant and available to the international community in Europe are considered non-compliant by the IRS in the US; they are classified as PFICs. A PFIC is a Passive Foreign Investment Company. If you are invested in one of these and you are American or US Connected, you may be subject to considerably higher tax rates that, depending on the structure, might even sit outside the double taxation treaties, meaning you could pay tax twice. The wrong investment decision can cost you dearly.

There is a way around this: to invest compliantly in investments that qualify as a QEF- yes another acronym! This one stands for Qualified Election Fund. Of course, any investment still has to pass the fundamental assessments of compliance, liquidity, volatility, cost and returns (read our post on assessing investments here), but for Americans it also has to be specially designated and reported. There are also other important factors: diversification (not putting all your eggs in one basket) is important and investments also need to be well established, accessible for Americans through a suitable account or platform, and provide reporting assistance to make it easier for you to manage your US tax filing.

It can be confusing, and this is where we can help. We specialise in helping Americans to invest compliantly and avoid these dangers. Feel free to contact us to guide you.

Financial education and independent specialist advice empowers financial freedom

In collaboration with Beacon Financial Education, we also run regular webinars on various principles of investment specifically for Americans and US connected people living in Europe. Contact us to find out more, they are free to attend and are a good source of information.

Another way we support Americans in Europe is via our specialist seminars. Black Swan presents financial awareness seminars at organizations that employ Americans and / or US connected persons, and to associations with American members. Contact Black Swan Capital to host a seminar for your employees and / or members.

In summary, it can be difficult, complicated and potentially expensive as an American in Europe when it comes to managing your finances and investing. There are solutions and it is very important you get the right independent and specialist advice.

Feel free to contact us to discuss your situation and the options you have. We are more than happy to inform and educate people when it comes to their financial health!

As Europe’s first truly independent investment advisory group, Black Swan Capital Europe is here to help.