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EU rules block investors from buying ETFs


Rules that went into effect January 1, 2018, set out by the European Commission, “Mifid II,” prevent investors in the European Economic Area from investing in U.S. domiciled exchange-traded funds (ETFs), among others. Americans living in Europe are also finding themselves affected as they may have or will start to see their brokers limit access to these financial products. This greatly limits investor’s options, as Europe finds every way to keep investors’ money within the union.

Not all brokers are complying with these rules yet and there may still be time to open new ETF positions. However, understand that their compliance may just be around the corner, forcing you to change your approach to investing.

Products not subject to these rules are stocks listed on the New York Stock Exchange and individual bonds. That means, investors can create their own portfolio comprised of U.S. large company stocks while accepting the responsibility of managing those positions. Individual stocks also hold the risk of a serious decline, unlike an index fund, where they are comprised of often thousands of individual stocks and can absorb the weakening of a single stock.

Americans already face significant headaches when approaching investments. Foreign banks frequently reject business from Americans as they would then have to comply with IRS regulations per the Financial Accounting and Tax Compliance Act (FATCA)^1. Americans investing offshore would also be subject to FATCA, FBAR, and PFIC tax filing requirements. Keeping investments in the U.S. while living overseas is generally the best option. However, you shouldn't lie about your whereabouts and often the brokerage firm won’t accept your foreign residential address. In addition, U.S. mutual funds are not allowed per the Patriot Act. This leaves ETFs, at least for those allowed to use them.

Good news might be approaching, if ever so slowly. There is a bill set for a vote in the U.S. House in 2019, the “Tax Fairness for Americans Abroad Act of 2018”, intended to eliminate the double taxation of U.S. expats.^2 Contact your representative to show your support and stay tuned by subscribing to my blog.

At Eureka Wealth Management, I help my clients in Europe by managing a collection of individual stocks and bonds, allocated per their risk tolerance and time horizon, and adjusted semi-annually or as often as needed. I also provide financial planning analysis and ongoing advice. Call for a free, initial consultation at +1(760) 537-0791 or online at eurekawealthmanagement.com.

HAPPY NEW YEAR!

Sources

^1: https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers

^2: https://americanexpatfinance.com/tax/item/65-concern-as-brady-tax-bill-fix-legislation-lacks-fixes

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©2020 BY EUREKA WEALTH MANAGEMENT.

Eureka Wealth Management is a registered investment adviser in the State of California. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.