Expat Tax Guide: 101 for U.S. Citizens Investing in Europe

for financial advisors, planners, and their clients

To Financial Advisors and Planners,

As a professional, you know that clients with international connections require a specialized level of care. However, the challenges facing American citizens living or working in Europe are uniquely complex, often in ways that are not immediately obvious.

The United States' system of Citizenship-Based Taxation means your U.S. clients remain subject to IRS rules on their worldwide income, regardless of where they live. This creates an immediate conflict with their host country's residence-based tax laws.  

This conflict creates severe and counter-intuitive traps. For instance, the standard, sound advice to "invest in local, low-cost index funds" can be financially disastrous for an American. Most European-domiciled funds (including UCITS, mutual funds, and those held in "tax-free" wrappers like a U.K. ISA) are classified as Passive Foreign Investment Companies (PFICs) by the IRS. This can trigger punitive tax rates and overwhelming annual reporting requirements.  

Furthermore, regulatory hurdles like FATCA and the E.U.'s PRIIPs rules have created a "catch-22." Many U.S. brokers are closing expat accounts , while European brokers are legally prohibited from selling them the "safe" alternative—U.S.-domiciled ETFs.  

This eBook, "Expat Tax Guide: European Investing for U.S. Citizens," was written as a basic 101 overview of these core challenges. It is intended as a foundational summary to help advisors and planners who may encounter these issues.

We hope it provides a helpful primer on the complex, high-stakes landscape your U.S. expat clients are facing. Understanding these fundamentals is the first step in helping them avoid costly, unintentional errors.  

For country-specific guides, see our eBooks catalog.

$99.99

Expat Tax Guide - Table of Content

Part 1: The Core Challenge: The U.S. Expat Investor's Dilemma

1.1. Understanding Citizenship-Based Taxation (CBT): Your U.S. Tax Net Follows You

1.2. The Global Reporting Framework: FATCA vs. FBAR

1.3. The "Accidental American" and the Perils of Non-Compliance

Part 2: The Investment "Minefield": Understanding the PFIC Trap

2.1. What is a Passive Foreign Investment Company (PFIC)?

2.2. The Catastrophe of the Default Tax Regime: Section 1291 "Excess Distributions"

2.3. Mitigation Strategies (And Why They Fail): MTM and QEF Elections

2.4. The Crushing Reporting Burden: Form 8621

Part 3: The Host-Country "Mirage": Why Local Tax-Free Wrappers Fail

3.1. United Kingdom: The Individual Savings Account (ISA) Trap

3.2. France: The Plan d'Épargne en Actions (PEA) Trap

3.3. Table: The U.S. Expat "Tax-Advantaged" Account Trap (UK & France)

Part 4: The Brokerage "Catch-22": The U.S./E.U. Regulatory Squeeze

4.1. Problem 1: Why Your U.S. Broker (Fidelity, Vanguard) Is Closing Your Account

4.2. Problem 2: The E.U./U.K. "PRIIPs" Regulation and the "KID" Requirement

4.3. The Central Dilemma: The "Regulatory Pincer Movement"

Part 5: A Strategic Path Forward: Building a Compliant Taxable Portfolio

5.1. Strategy 1: The "Expat-Friendly" U.S. Brokerage Solution (Pillar 1)

5.2. Strategy 2: Solving the PRIIPs "KID" Problem

5.3. Table: Expat-Friendly Brokerage Solutions: A Comparison

Part 6: Navigating U.S. Retirement Accounts from Europe

6.1. Managing Your Existing U.S. Accounts (401(k), IRA) from Abroad

6.2. The Most Critical Decision: Foreign Tax Credit (FTC) vs. Foreign Earned Income Exclusion (FEIE)

6.3. Why the FEIE (Form 2555) Blocks Your Ability to Fund an IRA

6.4. Why the FTC (Form 1116) Enables Your Ability to Fund an IRA (Pillar 2)

6.5. Strategic Impact: How the FTC vs. FEIE Choice Also Unlocks the Refundable Additional Child Tax Credit (ACTC)

6.6. Table: FEIE (Form 2555) vs. FTC (Form 1116): Strategic Impact on Expat Investing

Part 7: Host-Country Pensions: The Treaty-Protected Solution (Pillar 3)

7.1. How Bilateral Tax Treaties Create a "Safe Harbor" for Pensions

7.2. United Kingdom: The U.S.-U.K. Treaty and the Self-Invested Personal Pension (SIPP)

7.3. Germany: The U.S.-Germany Treaty and German Pensions

7.4. France: The U.S.-France Treaty and the Plan d'Epargne Retraite (PER)

Part 8: Synthesized Strategies: An Expat's Financial Playbook

8.1. Playbook for U.S./U.K. Residents (The "Dual-SIPP + Holy Grail" Strategy)

8.2. Playbook for U.S./German Residents (The "U.S.-Centric" Strategy)

8.3. Playbook for U.S./French Residents (The "PER-First" Strategy)

Part 9: Conclusion: A Framework for Financial Success Abroad

9.1. The "Four Pillars" of Expat Investing

9.2. The Non-Negotiable Need for Expert, Cross-Border Advice