US Citizen residing in Germany. Where to invest?

74 posts in this topic

 

Hi Starshollow,

Based on your synopsis that a 50% market correction is Imminent and that commerzbank are doomed I don't fancy my chances in a savings account either as with the new EU Bail In option because Guess what, we would all be taking a haircut,

As for funds, given the high entry level currently minus the instant bid offer spread hit along with the impending 50% plus market drop you envisage and the fall out of a failed major financial institution here in Germany I don't think the residual value of my fund would be anything significant.

Also just a point of correction I have offered no product to anybody here I simply posted an opinion as everyone else does after all what is a forum? so to be clear nothing in my previous comments constitutes an offer.

Have a great rest of the day.

Cheers

 

Hi MJFWWB: sorry, mate, but you are missing the point here... I am not saying or anticipating a 50% market correction (which markets are we talking about, btw) or an imminent doom of the Commerzbank. However, the real risks these structured notes are inherently carrying need to be expressed and explained properly. If you fully understand them and are ok with taking such risks, then it may well be a good investment for you ---but not necessarily for the rest of the world. One size does not fit all in finance, that's for sure.

And while we can always discuss different forms of investments and have different opinions about them - it is important to say what they real, total risks of certain investments are.

 

glad to hear that you are not an IFA and offering these products to anyone in Germany. Private tipps and discussions are always welcome here on Toytown, but you have to accept if a professional advisor like me corrects some information if they are found to be partly misleading...as was your assessment that these structured notes are low to medium risk. thats all

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Taking this topic in another direction:

 

Which U.S. brokerage firms currently still accept expat business?  The noose has apparently tightened considerably in recent months (with some firms apparently misusing FATCA as justification):

 

1.  T. Rowe Price is now freezing accounts for expats with foreign addresses (a U.S. address is required for unfreezing)

2.  Merrill Lynch Edge is now freezing accounts for expats with foreign addresses unless more time is physically spent at a U.S. address

3.  Fidelity is now freezing accounts *and* imposing new restrictions on account establishment for expats with foreign addresses

 

We would appreciate anecdotal feedback about the current state of things at various U.S. brokerage firms, *excluding* accounts that are exclusively online accounts.  Is it true that the only brokerage account of this type that is currently open to expats with foreign addresses, and places no limitations on their investing (except with regard to U.S. mutual funds), is the Charles Schwab International Account?  Or are there others?

 

With regard to accounts that require a U.S. address in addition to a foreign one (the U.S. one being the "address of record"), are there U.S. firms that have *not* started hassling their expat customers more recently in response to FATCA?  (If a firm hasn't used FATCA as a fig leaf for this purpose by now, perhaps it's unlikely to do so in the future...)

 

Thank you!

 

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I'm with Morgan Stanley and use my sister's U.S. address. I did the same with Merrill Lynch for years.

 

I don't understand what you mean by firms misusing FACTA. My U.S. tax accountant handles that when she files my taxes.

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I think what he means is that the FATCA and US actions against Swiss banks has made the brokerages in the USA very nervous about retaliatory legal actions from countries which have their own rules against investments outside of the country of residence. These rules have been around since before FATCA but have generally been ignored by US investment houses as long as the investor has US citizenship.

 

Which brings me to my questions on this topic. I'm a USC living in Luxembourg the last three years and I am moving to Germany soon.  I have money in an investment grade corp. bond fund that I am using to build capital for buying a home in 5-10 years. To avoid PFIC rules I set up a US mutual fund account using a USA address. I understand from other threads that Germany has its own taxation rule about non-BaFin approved mutual funds under §6 of the Investmentsteuergesetz (thanks to straightpoop for the explanation). However, given those conditions, where the heck should a USC living in Germany invest? Berkshire Hathaway single stocks? Or invest in a US fund and do the §6 calculation? The §6 looks annoying and somewhat costly but better than the PFIC paperwork. Or just send the US fund returns to the BaFin and pretend that the fund meets §5 rules and pay the standard 26.375% tax on capital gains?

 

Thanks for any advice you can provide.

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If you want to invest for retirement, the best/only way I've figured out is to use Foreign Tax Credits to eliminate your US tax liability instead of the FEIE (should pretty much never be a problem with German tax rates) and then invest in a Roth IRA (using FTCs gives you "earned income" that the FEIE would exclude).

 

This is not ideal for higher earners as the contribution limits are so low.  It's also not great if you want the money for something other than retirement.

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If you want to invest for retirement, the best/only way I've figured out is to use Foreign Tax Credits to eliminate your US tax liability instead of the FEIE (should pretty much never be a problem with German tax rates) and then invest in a Roth IRA (using FTCs gives you "earned income" that the FEIE would exclude).

 

This is not ideal for higher earners as the contribution limits are so low.  It's also not great if you want the money for something other than retirement.

I guess a Roth IRA is exempt from §6 because it is a trust account?

 

Unfortunately as I was in Luxembourg, I was using the FEIE and if I revoke it now, I think I am locked out for 5 years. I might go back to Luxembourg again so I cant risk to be locked out of FEIE.

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I have never been allowed to have any type of IRA account in the U.S. because neither I nor my husband work for a U.S. company.

 

I did recently inherit part of one from my dad.

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I guess a Roth IRA is exempt from §6 because it is a trust account?

 

Unfortunately as I was in Luxembourg, I was using the FEIE and if I revoke it now, I think I am locked out for 5 years. I might go back to Luxembourg again so I cant risk to be locked out of FEIE.

 

 

Yes, pretty much.  Straightpoop gave a more detailed answer on page 3 of this thread

 

 

I have never been allowed to have any type of IRA account in the U.S. because neither I nor my husband work for a U.S. company.

 

I did recently inherit part of one from my dad.

 

 

Working for an American company has nothing to do with your ability to open a Traditional/Roth IRA account.  All you need is a US address and most of the big banks/financial institutions (Vanguard, Fidelity, etc.) will let you open one.  You would need to work for a US company to have opened a 401(k) though.

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To utilize a Roth IRA your income must be under a specific level set by the IRS. Which level applies to you depends on your marital status. Your income must also be from work you performed rather than investment or rental income. The specific limits below are based on modified adjusted gross income.

 

Let me explain further. I only have investment income and my husband doesn't work for a U.S. company. 

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Just for those who might come later to this thread and without getting into too much back-and-forth:  income doesn't have to be US-sourced to be eligible to contribute to an IRA.  As long as you don't eliminate your US tax liability with the Foreign Earned Income Exclusion, all the income one makes in Germany would be counted as "earned income" and thus eligible to contribute.

 

I guess if your income does not qualify as "earned" and your spouse is a non-resident alien and you file your US taxes as MFS so as to avoid having to register their financial assets with the IRS,  it wouldn't work.

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Hi there, I have a related question and there are so many posts on Toytown about investing, many of them several years old that I hope people won't mind me asking something that may have been answered elsewhere.

 

I'm a US citizen working here in Germany. I still also have a US address. I've made money in Euros here in Germany. Since the EU - USD exchange rate sucks right now, I do not want to transfer my EU savings to a US based investment account unless it's Euro-denominated. So my question is, do people use, in August 2015, any US-based investment accounts at companies (Fidelity, Vanguard, Betterment, TDAmeritrade etc) with a Euro-denominated account in which they were able to successfully transfer Euros without an exchange rate penalty? If so, could you please let me know what you use?

 

Thanks in advance!

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Time to revive an old thread. I have been reading all the related threads on Bogleheads, Toytown, r/Finanzen and have came up with very little as far as good solutions for those Americans without large investment capital. I have additionally spoken with several Steuerberaters, one of which gave me extremely incorrect information. I am looking for clarification, confirmation, or other advice.

 

Background:

  • Studied for 2 years and graduated with a degree in Germany;
  • employed for 1.5 years and expecting to receive my niederlassungserlaubnis in June of next year;
  • No intentions of moving back to the USA, but unable to read the future;
  • living in a small town in East Germany with extremely low rent (350 cold/82m2);
  • No investments in USA or Germany. Almost paid off all student loans over the past year and a half (€3,500 left at 4%).

Summary of common advice:

  1. First Option: Transferring euros to USA and investing there in ETFs. drawbacks: Currency exchange losses both ways, costs and/or difficulties associated with filing German taxes, tax on unrealized gains (?);
  2. Second Option: investing within Germany only using stocks. Drawbacks: No access to ETFs (PFICs), difficulty finding a German broker as an American;
  3. Third Option: Investing in real estate. Drawbacks: Difficult to generate profit (especially with low rents, small town), work associated with rental properties.

Finances:

I am looking for an expedient way to invest approximately €750 a month, indefinitely.

 

Questions:

  1. I still have a Schwab account. If I invest in the USA are there any major advantages to using Interactive brokers (IB) instead or Schwab (Tax forms for Germany, etc.)?

  2. My local bank (Commerzbank) has denied me the option of opening any sort of investment account. Are there any German brokers (which would automatically file tax information for me) which would accept me as a client to buy only stocks within Germany? And if so, would it be restricted to German stocks, or could I also buy American stocks?

  3. Due to the low capital I am investing, my goal is to file my taxes on my own. I have done so for my entire life both Germany and in the USA for all previous years without issue - but this was before I began investing abroad. My assumption is that investing in Germany using stocks will be simple, but that investing in Germany will create a more difficult filing situation (assuming self-filing in both countries). Can anyone confirm this or provide advice in this area?

  4. In general, I am looking for advice on my options. Currently (if I can find a local broker) I am leaning towards the idea of buying individual stocks (diversifying through buying 6 different stocks yearly at €1500 each).

     

I welcome any advice, recommendations, corrections. The information out there feels really scarce and difficult to navigate for me, so I am just hoping to compile a little bit more here.

 

@Starshollow

I saw in a recent post that you were working on a solution for smaller funds. Please update us as information is available in this regard.

 

Thank you everyone for any additions to the discussion.

 

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On 21.9.2019, 12:44:13, Idyllic Blues said:

Time to revive an old thread. I have been reading all the related threads on Bogleheads, Toytown, r/Finanzen and have came up with very little as far as good solutions for those Americans without large investment capital. I have additionally spoken with several Steuerberaters, one of which gave me extremely incorrect information. I am looking for clarification, confirmation, or other advice.

 

Background:

  • Studied for 2 years and graduated with a degree in Germany;
  • employed for 1.5 years and expecting to receive my niederlassungserlaubnis in June of next year;
  • No intentions of moving back to the USA, but unable to read the future;
  • living in a small town in East Germany with extremely low rent (350 cold/82m2);
  • No investments in USA or Germany. Almost paid off all student loans over the past year and a half (€3,500 left at 4%).

Summary of common advice:

  1. First Option: Transferring euros to USA and investing there in ETFs. drawbacks: Currency exchange losses both ways, costs and/or difficulties associated with filing German taxes, tax on unrealized gains (?);
  2. Second Option: investing within Germany only using stocks. Drawbacks: No access to ETFs (PFICs), difficulty finding a German broker as an American;
  3. Third Option: Investing in real estate. Drawbacks: Difficult to generate profit (especially with low rents, small town), work associated with rental properties.

Finances:

I am looking for an expedient way to invest approximately €750 a month, indefinitely.

 

Questions:

  1. I still have a Schwab account. If I invest in the USA are there any major advantages to using Interactive brokers (IB) instead or Schwab (Tax forms for Germany, etc.)?

  2. My local bank (Commerzbank) has denied me the option of opening any sort of investment account. Are there any German brokers (which would automatically file tax information for me) which would accept me as a client to buy only stocks within Germany? And if so, would it be restricted to German stocks, or could I also buy American stocks?

  3. Due to the low capital I am investing, my goal is to file my taxes on my own. I have done so for my entire life both Germany and in the USA for all previous years without issue - but this was before I began investing abroad. My assumption is that investing in Germany using stocks will be simple, but that investing in Germany will create a more difficult filing situation (assuming self-filing in both countries). Can anyone confirm this or provide advice in this area?

  4. In general, I am looking for advice on my options. Currently (if I can find a local broker) I am leaning towards the idea of buying individual stocks (diversifying through buying 6 different stocks yearly at €1500 each).

     

I welcome any advice, recommendations, corrections. The information out there feels really scarce and difficult to navigate for me, so I am just hoping to compile a little bit more here.

 

@Starshollow

I saw in a recent post that you were working on a solution for smaller funds. Please update us as information is available in this regard.

 

Thank you everyone for any additions to the discussion.

 

 

Charles Schwab have just informed clients with residence in the EU that starting Sep. 19th they will not allow these clients anymore to invest newly into US-domiciled investment funds anymore.  Since investing in non-US-funds is creating the PFIC-hazzard for investors with the IRS-reporting, this is not good news for many US-citizens who live in Germany, too. 
The same is true, btw,. for Interactive Brokers (I am on close contact with them).

Here is an excerpt from the info that Charles Schwab sent to one of our clients:

New U.S. ETFs and ETNs purchase restrictions as of September 19

 

Beginning September 19, 2019, Schwab clients who are residents of the E.U. will no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

What this means for your account.
This restriction results from regulatory changes and affects all residents of the E.U. With this change:

   

You will be able to maintain any existing U.S. ETF or ETN positions you hold, but you will not be able to purchase more.

 

Dividends can no longer be reinvested in U.S. ETFs or ETNs.

 

You may liquidate U.S. ETFs or ETNs, but you will not be able to repurchase them.

 

 

 

Cheerio

.

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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2 hours ago, Starshollow said:

 

Charles Schwab have just informed clients with residence in the EU that starting Sep. 19th they will not allow these clients anymore to invest newly into US-domiciled investment funds anymore.  Since investing in non-US-funds is creating the PFIC-hazzard for investors with the IRS-reporting, this is not good news for many US-citizens who live in Germany, too. 
The same is true, btw,. for Interactive Brokers (I am on close contact with them).

Here is an excerpt from the info that Charles Schwab sent to one of our clients:

New U.S. ETFs and ETNs purchase restrictions as of September 19

 

 

Beginning September 19, 2019, Schwab clients who are residents of the E.U. will no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

What this means for your account.
This restriction results from regulatory changes and affects all residents of the E.U. With this change:

 

   

 

You will be able to maintain any existing U.S. ETF or ETN positions you hold, but you will not be able to purchase more.

 

 

 

Dividends can no longer be reinvested in U.S. ETFs or ETNs.

 

 

 

You may liquidate U.S. ETFs or ETNs, but you will not be able to repurchase them.

 

 

 

 

Cheerio

.

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.

 

Thank you for the input. I i've seen that Charles Schwab sent these out, but so far they havent sent anything to me. I still have a registered address (at my parents) in the United States.

 

I am aware that the doors have been closing both in the USA and in Germany and am looking for any sort of advice or updates from anyone who has any. Do you know, for example, of any German banks which will take me on as an investor to buy individual stocks?

 

Best regards,

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17 minutes ago, Idyllic Blues said:

 

Thank you for the input. I i've seen that Charles Schwab sent these out, but so far they havent sent anything to me. I still have a registered address (at my parents) in the United States.

 

I am aware that the doors have been closing both in the USA and in Germany and am looking for any sort of advice or updates from anyone who has any. Do you know, for example, of any German banks which will take me on as an investor to buy individual stocks?

 

Best regards,

last I heard, if you do NOT have a US-address, the Augsburger Aktienbank will accept you as a client and there you can set up an account that invests directly into stocks.

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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On 9/21/2019, 12:44:13, Idyllic Blues said:

Summary of common advice:

  1. First Option: Transferring euros to USA and investing there in ETFs. drawbacks: Currency exchange losses both ways, costs and/or difficulties associated with filing German taxes, tax on unrealized gains (?);

 That's what I (would) do...

 

But I disagree with some of your "drawbacks". Currency exchange... costs to transfer back and forth with Transferwise are extremely low. German tax filing with Schwab ETFs isn't too bad since 2018. Tax on unrealized gains - the Vorabpauschale covers ETF, not just ETFs you would buy in the US.

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1 hour ago, Starshollow said:

last I heard, if you do NOT have a US-address, the Augsburger Aktienbank will accept you as a client and there you can set up an account that invests directly into stocks.

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.

 

Thank you, I will contact them and see what they say.

 

1 hour ago, Storamin said:

 That's what I (would) do...

 

But I disagree with some of your "drawbacks". Currency exchange... costs to transfer back and forth with Transferwise are extremely low. German tax filing with Schwab ETFs isn't too bad since 2018. Tax on unrealized gains - the Vorabpauschale covers ETF, not just ETFs you would buy in the US.

 

Thanks for the input. And do you self-file your taxes in Germany? I used SteuerGo last year and (I believe) they do not allow such situations. I am quite competent in self-filing, but I havent found any good resources for this situation.

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13 hours ago, Storamin said:

 That's what I (would) do...

 

But I disagree with some of your "drawbacks". Currency exchange... costs to transfer back and forth with Transferwise are extremely low. German tax filing with Schwab ETFs isn't too bad since 2018. Tax on unrealized gains - the Vorabpauschale covers ETF, not just ETFs you would buy in the US.

Yes, that is an important point that many - even within the banking and financial advice business - have not fully grasped yet: since January 2018 the taxation of ETFs is exactly the same whether you buy German/European ones or US domiciled ones.
And fairly simple, too, as only 4 reporting parameters now are the base for the taxation
1. price of ETF shares on Jan 1st

2. price of ETF shares on Dec 31st

3. Dividends or interest paid

4. differentiation between 100% share-based funds, mixed funds and 100% bond-based funds.

 

That's about it.

 

Therefore for US-citizen in Germany the easiest and best choice is to invest in US-domiciled investment funds /ETFs because the European ones cause such serious tax-reporting headaches (read: costs) with the IRS as they are considered PFICs.
Only problem is now that due to MIFID II the product information from US-domiciled funds is not compliant with EU-regulation. 
Which is why US-banks and platforms will not allow anymore for US-citizens residing in the EU to directly invest into US-domiciled funds from now on. 
This is where solutions come in with a specialized financial advisor who acts basically as a legal buffer between the US-bank/platform the end-consumer here in the EU.  Usually in the form of a discretionary manager for the clients.

The only other alternative if you want/need to invest into EU-domiciled funds is to use existing 401k and IRA accounts in the US for that, because they are exempt from the PFIC-rules for tax reporting with the IRS. BUt, as said above, there is no real good reason to do that anymore at least from a German taxation point of view. 

 

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Hi,

 

First of all, thanks to all for this interesting thread! I never thought this is so complicated...

Here is my situation. I am German, but my girlfriend is US-American. We are both living and working in Germany. She would like to save some money for retirement on the stock market as current interest rates are so low... For me as a non-US person this is not a problem, but, as I learned here, it seems really tricky for her.

Just to make sure, I understand all of this correctly I tried to summarize the current situation with regards to ETFs or mutual funds:

  • Using German broker buying MiFID II compliant / European ETFs or funds: Only few German brokers would accept US citizen due to strict FATCA regulations. Furthermore, this is strongly discouraged. These funds are considered Passive Foreign Investment Companies (PFIC) as they are not registered with the Securities and Exchange Commission (SEC). PFICs are subject to strict and extremely complicated tax guidelines by the IRS.
  • Using German broker buying US registered  ETFs or funds: Not available in Europe because these are not MiFID II compliant.
  • Using US broker buying MiFID II compliant / European ETFs of funds: These are PFICs and are therefore discouraged (see above). Furthermore using a US address of family while residing in Germany is legal grey area (see https://www.americansabroad.org/mutual-fund-restrictions ).
  • Using US broker buying US registered  ETFs or funds: many US brokers do not take US customers residing outside of the US. Maybe this is because they are not allowed to sell non-MiFID II compliant funds (they are not registered brokers for Europe) or because they can't comply with the SEC "know you client" rule regarding money laundering regulations. I am not sure what the reason for this is?

Is this a correct summary? If so, apart from Starshollow's discretionary intermediate manager, is there any other possibility for her to privately save money for retirement on the stock market with ETFs/funds (I know single stocks would work)?

 

Starshollow mentioned PFIC exceptions for IRA accounts. My girlfriend has an IRA account in the US, but how would this work practically? Could she use a German broker and put money into an IRA? Or would she need an US broker? But they don't take US clients living abroad anymore, right?

 

Thanks and best wishes from Germany

 

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14 hours ago, TowerSpire said:

Using German broker buying US registered  ETFs or funds: Not available in Europe because these are not MiFID II compliant.

I doubt this is correct. There are US registered ETFs / mutual funds you can buy as a German resident via a German broker. E. g. my mother (a German tax resident with German bank/broker account) held ISIN: US00162Q8666 | WKN: A1H99H | Symbol: 03AC

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