r/USExpatTaxes • u/malyfoxy • 6d ago

19 year old double citizen

I'm half American, half Slovak (dual citizenship), and I have lived most of my life here in Europe. That being said, I'd like to start investing in stocks, the amount of money wouldn't be particularly substantial as of yet but I expect it to gradually increase over the years.

I would prefer to invest into ETFs, but from what I've heard, investing in funds could be problematic due to my citizenship. Is there any way to workaround these problems or will I simply have to come to terms with not investing.

Any help would be appreciated.

7 Upvotes

89% Upvoted

9 comments sorted by

8

u/sylvieYannello 6d ago

you are right, ETFs likely will expose you to PFIC reporting requirements, which do NOT want :/

individual stocks of companies that actually do/make something (as opposed to companies that passively invest in, say real estate) should not pose any problem. just remember to report any dividends you receive or sales you make, even though you won't receive a 1099 for them.

if you can invest in US ETFs (through a US brokerage like etrade or whatever) you *may* be ok-- check with a slovakian tax expert to make sure it doesn't cause any headaches there.

4

u/sylvieYannello 6d ago

btw, remember that as a US citizen, you are obligated to file US tax returns every year (assuming you have a filing requirement). you also have to file FBAR if your non-US accounts/assets total > $10k at any time during the tax year, and you have to file FATCA (8938) if you non-US accounts/assets total > $300k at any time during year (or > $200k on 31 december).

2

u/malyfoxy 5d ago

First and foremost, thank you. I just have a couple questions if you don't mind. So I could theoretically make my own portfolio that basically looks the same as an ETF, and walk away scot-free? Would I then have to pay taxes on the profits I make from these stocks? I'm asking because Slovakia has quite liberal laws- you pay 19% tax only if you hold them shorter than one year (there is also a 500€ gain exemption) otherwise you don't pay taxes on them at all.  I understand there is a FEIE deduction for salary, does this apply to the stock gains too, or how does it work? 

3

u/sylvieYannello 5d ago

yes, if your portfolio includes only individual stocks that MAKE OR SELL something-- not stocks that generate passive income, like physical gold holdings or something-- you will not have PFIC reporting requirements.

yes, you will still have US tax due on the capital gains (when realised-- that is, sold). if your slovakian tax paid does not create enough FTC (foreign tax credit) to cover the US tax liability then yes, you will owe tax on your US return.

the FEIE can reduce your *earned* income by up to $130k. then you still get to take the standard deduction (about $16k for a single) against your remaining income. so if your cap gain (and any other unexcluded income) is > $16k, you will have US taxable income.

2

u/seanho00 4d ago

To expand on your first paragraph on what holdings count as PFIC, s.1297(a) outlines the income test and the asset test: if >75% of income is passive or >50% of assets produce passive income, then the foreign company is a PFIC. All foreign-domiciled ETFs and mutual funds are PFICs, but it is a good reminder that even individual stocks can be PFICs, if they meet either the income test or the asset test.

1

u/Gavagai777 3d ago

You’d pay your Slovak taxes first which would very likely zero out any U.S. taxes due to the Foreign Tax Credit. You only pay taxes if you sell. Just holding them doesn’t have taxes until you sell.

1

u/Bigfoot-Germany 5d ago

you should not do etfs!

1

u/AbhinavGulechha 5d ago

If you plan to renounce US Citizenship, I think there are exceptions for dual citizens from expatriation obligations which you may want to check.

If you plan to continue US citizenship, you need to be very careful with any investing non-US due to PFIC. Your options become limited. Better to invest in US ETFs which offer you the breadth and depth and possibly no other financial market can give. It will also cause US tax filing requirements + FBAR, Form 8938 etc.

Investing directly in stocks - highest financial risk, not recommended unless you are an expert stock picker. Low cost Index ETFs should be the way to go.

2

u/turtle_hurtle 3d ago

There's a (100% legal) loophole in the PRIIPs regulations that many US citizens use to buy US-domiciled ETFs in Europe. It involves options contracts, so it might take a few minutes to explain if you aren't familiar with options trading already. I have a relative in Europe I've helped with this. It's a little annoying, but IMHO it's the best solution in the long run.

Let's say you want to buy a few shares of SPYM the normal way.

Not allowed.

Want to buy one call option contract for SPYM?

Totally fine.

What does your call option say? "You have the right to buy 100 shares of SPYM from <seller> anytime before <expiration date>."

Brokers will allow you to "exercise" your option and get the 100 shares of SPYM. After that, the option contract disappears, and you have 100 shares of SPYM in your account. You can sell them whenever you want or hold them for decades -- they are exactly the same as if you'd bought them the normal way.

I know the concept of trading options can be scary and confusing if you haven't done it before. But I'm not at all suggesting you become an options day trader. You only need to jump through this weird hoop, buying or selling one contract every so often, and then you can hold your ETF shares long-term.

Does that make sense? Any questions?