What are the rules for investing in the U.S. market while living abroad?

By | May 10, 2022

Many expats, Americans, and non-Americans, want to gain access to the US Stock Markets whilst reducing tax risks.

The answer to your question depends on if you are American or non-American, and which country you live in (more on that later near the bottom).

If you are non-American it is best to get access to US Markets with funds domiciled outside the US.

For example, regardless of whether you are a DIY investor or going through an advisor, it is best to invest in a non-US platform (say SwissQuote, Saxo, or whatever) rather than a US platform (Interactive Brokers, eToro as an example).

That is because there is always the small risk of US estate taxes, and other problems, even if the W8-Ben form is signed.

Second, it is best to buy the S&P500 domiciled on the London Stock Exchange, or indeed another stock exchange like Ireland, rather than on the NYSE.

People forget this basic fact. These days, you can buy the S&P500 ETF fund, in both Pounds and USD, on the London Stock exchanges and other exchanges.

Vanguard, BlackRock, and iShares have all created USD products held outside the US because they know about the estate and other potential taxes non-Americans could face. The fees and performance will be identical.

So by using a non-US broker, and investing in index funds or ETFs which are tracking the US Markets but are domiciled in Canada, the UK or Ireland, you can avoid the US tax web entirely.

Not just avoid it, but avoid many risks in the process. It is harder to do it this way if you want to buy individual shares rather than the whole market though.

If you are American, on the other hand, it can make a lot of sense to invest with a US-domiciled company that holds the money in America.

It is also essential that:

1.People have a portable solution. If you are living in country A, and then you move to country B, it is important that the brokerage won’t close down your account.

I will give you a simple example. I have a friend who opened up an account with the Dutch broker Derigo.

He should have invested with a platform that is domiciled in a more tax-efficient country, such as Swissquote, but that is another issue (capital gains taxes and so on). What really hit him was he moved from an EU country to Asia.

They closed down his account as they can only accept in 18 European countries. So that meant he had to sell his positions, go through hassles to open up another account, and pay capital gains taxes.

So going with a platform that can accept at least 170–180 of the world’s 190+ countries is important. As an expat, you could be moved almost anywhere in some industries.

2.As per the point made above, having a portable account domiciled in a country that doesn’t charge capital gains tax is important.

Simple example. If you are an expat living in Saudi Arabia or the UAE (no capital gains tax) or somewhere like Singapore (no overseas income or capital gains taxes), you can pay 0% capital gains tax if you domicile your accounts with a broker based in a 0% capital gains country.

This doesn’t apply to people from countries that tax by citizenship, like the US or Eritrea, but does apply to most nationalities.

3. Ideally, there should be some tax benefits as well.

As a final comment, it depends on where you are based. You could look at it as a traffic light:

If you are based in a developed country, there are many options.

You are in the “green zone” where you have so many advisor and DIY options.

If you are based in North Korea, Iran, or Iraq, there are close to zero options. The red zone.

If you are based in a place like Zimbabwe, Zambia, or most other places in Africa and Latin America, you are somewhere in the middle of those two extremes – orange/amber.

To get in touch about expat-specialized solutions – Expat wealth Management Specialist | Adam Fayed

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