Should Americans Invest Their Money Overseas?

Can moving your investments overseas help you escape U.S. taxes?

For American citizens and green card holders, the answer isn't as simple as moving money to Switzerland, Malta, Cyprus, the Isle of Man, or another supposedly tax-friendly jurisdiction.

In Episode 35 of the Divorce the IRS Podcast, we wrap up our series on living, working, and retiring abroad by looking at one of the biggest investment mistakes American expats can make: owning certain foreign investments.

The United States generally requires U.S. persons to report and pay taxes on their investments regardless of where those investments are located. Moving your money outside the United States doesn't automatically remove it from the U.S. tax system.

And some foreign investments can create an entirely new set of problems.

One of the biggest is the Passive Foreign Investment Company, better known as a PFIC.

In this episode, you'll learn:

• Why moving investments overseas doesn't eliminate U.S. tax obligations
• What a Passive Foreign Investment Company, or PFIC, is
• Why foreign mutual funds and ETFs can create problems for Americans
• How UCITS funds can be treated for U.S. tax purposes
• Why a foreign version of a familiar U.S. investment isn't necessarily the same investment
• How foreign pensions and retirement plans can potentially create PFIC issues
• Why certain foreign life insurance and money market products may also be problematic
• How complicated PFIC reporting can become
• Why PFIC taxation can be significantly less favorable than traditional U.S. investment taxation
• Why Americans don't necessarily need foreign investment accounts to invest internationally
• How a U.S.-based portfolio can still provide exposure to companies and markets around the world

For Americans living overseas, one of the easiest mistakes to make is assuming an investment available locally works the same way as a similar investment available in the United States.

It may not.

A foreign mutual fund or ETF could look nearly identical to its U.S. counterpart but be legally structured differently, potentially turning it into a PFIC for U.S. tax purposes.

Owning a PFIC isn't necessarily illegal. But the reporting requirements and potential tax consequences can make these investments extremely unattractive for U.S. taxpayers.

And hiding money overseas isn't a strategy for divorcing the IRS.

If you want international diversification, you don't necessarily have to move your investments overseas to get it. U.S. financial markets provide access to investments and companies throughout the world while potentially avoiding many of the complications associated with foreign investment accounts.

The goal isn't to discourage Americans from living or retiring overseas. It's to understand the rules before making a financial decision that could create unexpected taxes, reporting requirements, penalties, or headaches later.

FREE U.S. EXPAT GUIDE

Considering living, working, or retiring abroad? Download the free U.S. Expat Guide for more information about the financial and tax issues Americans should consider before and after moving overseas.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

You can also learn more at baobabwealthabroad.com.

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