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What to Consider Before Moving to Portugal as a US Expat

What to Consider Before Moving to Portugal as a US Expat

Portugal has been a very attractive retirement destination for foreigners for a long time, and I suspect that in places such as the coastal towns of the Algarve, you might wonder whether Portugal was part of the British Commonwealth of Nations, given the abundance of retired Brits. Portugal has grown tremendously in recent years as a popular destination for Americans, too, and the amount of clients that we serve that now call Portugal home has been an undeniably prominent trend recently. 

In this article we’ll explore five topics that every American moving to Portugal, or considering a move, should know. Whether you plan to work, start or continue a business, or retire in Portugal, these are subjects that you may pique your interest, and perhaps invite further conversations with us as you refine your plans to move to Portugal as an expatriate. 

Portugal is H-O-T 

(… and we’re not just talking about the pleasant Mediterranean climate!)

Portugal has long been an expatriate haven, but largely for Europeans. In recent years, however, the growth of the expat population has been rather explosive. In 2018, for example, the Portuguese immigration service (SEF) reported that the number of expats in Portugal grew 13.9% to over 480,000 – a very significant number for a relatively small country. U.S. expats are catching on, too, and there are many reasons to ride the expat wave to Portugal. Some of the legal/immigration and fiscal/tax advantages of Portugal are considered in other sections, but it would be remiss not to lead with the quality of life considerations. A very pleasant climate, a very welcoming and neighborly culture, low crime, affordable health care, great food and wine, and a relatively low cost of living compared to its Western European neighbors all come together to make Portugal a particularly attractive option for expats of all ages. In fact, International Living rated Portugal fifth on its Global Retirement Index, which is based on a study of a comprehensive list of metrics. European neighbors France and Malta came in at eighth and ninth, respectively, making Portugal the top European country on the list.  

Get to Know and Understand the NHR Program

One of the factors that can make Europe a problematic option for expats would be the relatively high taxes that dot the European landscape. Higher income tax rates, wealth cases, inheritance taxes, gift taxes, stamp duties, solidarity taxes, etc. seem to be a daunting fiscal obstacle for expats. Since 2009, Portugal has endeavored to make itself a more attractive option through the Non-Habitual Residence Program, or NHR. It’s not a very apt name, because you have to be a tax resident before you can apply to the NHR program. Participation in the NHR program lasts only up to 10 years, at which point the expat remaining in Portugal would be taxed at Portuguese income tax rates (which can exceed 50% for higher incomes) on their worldwide income. 

If you do opt in the NHR program, most income that is non-Portuguese source income will not be taxed in Portugal. We say “most” for two very important reasons. First, as of March 31, 2020, Portugal started to tax foreign pension income flowing to NHR participants, but only at a rate of 10%. If you have a U.S. pension or IRA and tax distributions, it is very unlikely that you are not paying a higher federal income tax rate than 10%, and the amount you pay in Portuguese income tax on these distributions will produce a foreign tax credit that you can use to directly reduce your U.S. tax liability from this income. Second, and this is where things get rather gray in terms of how Portugal taxes income, it is not clear that all passive income from investments outside of Portugal will not be subject to Portuguese income tax, and opinions, even from accountants, vary on this subject. It is clear that rental income and capital gains from the sale of investment real estate outside of Portugal is not taxed in Portugal. However, income from securities investments (intangible assets) – capital gains, interest, and dividends – may, in fact, be taxed at the standard Portuguese rate in Portugal. You will read many expat sites that state otherwise, but much of the literature is directed at non-U.S. expats (particularly Brits), and it may well be that the specific wording on taxation of dividends and capital gains on intangible property within the income tax treaty between the U.S. and Portugal augers a different, unfavorable outcome. We would encourage you to find and consult with a tax preparer in Portugal to make the final determination on that issue. Either way, the tax treatment of passive income for NHR expats will rate competitively against the tax rates experienced in other developed countries. 

No Wealth Tax in Portugal 

While other countries in Western Europe have conceived new ways to tax their most affluent tax residents based on the level of their affluence (examples include the Swiss Wealth Tax and the Netherlands “Imputed Income” (Box 2) tax), Portugal does not have these types of taxes. However, similar to the French “Impôt sur la Fortune Immobilière” (IFI), which we discussed in this blog post, Portugal recently (2017) has also developed a national property tax on it’s wealthiest property holders. This tax applies only on properties valued above €600,000 for individuals or €1.2 million for property owned jointly by married couples, with annual property tax rates ranging from 0.4% to 1.0%. Of note, unlike the French wealth tax on real property, Portugal’s national property tax applies only to high-value Portuguese real estate and does not apply to properties owned outside of Portugal. 

No Transfer Taxes in Portugal (Sort Of) 

Another differentiator in favor of Portugal is the absence of wealth transfer taxes, which is to say taxation upon the gifting of wealth during one’s lifetime and/or taxation upon inheriting wealth. Western Europe can be a great region of the globe to live, especially given their evolved healthcare systems, but it can be a terrible place to die (or to generously share your prosperity with others beforehand), namely because of their draconian taxation of inheritance and gifts. Since 2004, Portugal became a major exception to that general rule, when it abolished gift and inheritance tax. However, the affluent owner of assets within Portugal should become keenly aware of the stamp duty, which applies to the transfer of Portuguese assets through gifts or by inheritance. The stamp duty applies to transfers to someone other than the owner/decedent’s spouse or lineal descendant (children, grandchildren, etc.) and is imposed at a hefty rate of 10%. Additionally, for income tax purposes, the recipient does not receive a step-up in basis on the gifted or bequeathed property in Portugal, which means potentially significant capital gains

taxes (28% for residents, 25% for non-residents) if the benefactor turns around and sells the Portuguese property. 

Trusts May Surprisingly Work Reasonably Well If You Relocate to Portugal 

First, as a rule, an expat should always have their estate plan reviewed by a local estate planning expert in their prospective country of residence before moving abroad with an incumbent estate plan, particularly if that estate plan has trusts featured within the plan. It is worth emphasizing that most Civil Law countries (of which Portugal is most certainly a member nation with a Roman law heritage) do not recognize trusts and, therefore, trusts usually create legal and tax chaos when applied in a civil law context. 

However, 2015 legal reforms introducing the concept of “fiduciary structures,” and more recent court decisions in Portugal applying these newer laws to trusts have surprisingly led to income tax outcomes on trust distributions that appear much more benign, surprisingly akin to U.S. taxation of trust distributions. For example, these tax decisions have held that ordinary distributions to Portuguese beneficiaries from trust investments receive capital gains treatment (28% tax rate), and no income tax would be assessed upon terminating a trust and distributing its assets to the beneficiaries. In that latter case, only the stamp duties would likely apply to the beneficiary who is not the spouse or lineal descendant of the settlor of the trust. This compares quite favorably in comparison that such distributions would receive in most European civil law jurisdictions (such as France or Germany). With such tolerance for common law structures, perhaps it is not surprising that so many Brits feel very much at home in retirement in Portugal! 

Whether you are already residing in Portugal or contemplating moving to Portugal as a U.S. expat and are looking for someone to help you with wealth management, please feel free to reach out to Walkner Condon Financial Advisors to discuss your specific situation.

Stan Farmer, J.D., CFP®

Five Things to Know For Americans Moving to France

Five Things to Know For Americans Moving to France

The US embassy in Paris estimates that over 150,000 Americans reside in France, and the country remains a popular destination for Americans, both on a temporary and permanent basis. Whether you are making the move for family, professional or lifestyle reasons, there are a number of things to consider before you leave. This short article will cover five important topics that may make France a more ideal place for Americans to settle than its high tax reputation may indicate: income, wealth and inheritance taxes, Assurance Vie and trusts.

Income Tax May Not Be As Bad as You Think

Most people naturally think of France as a typical high-tax western European jurisdiction, with generous social benefits coupled with punitive income tax rates. While this is generally true, the reality is more nuanced for Americans living there. In many ways, France is a bit of a reluctant tax haven for American expats. Certain provisions in the France-USA double taxation treaty allow Americans living in France to effectively exclude a lot of their US-sourced retirement and investment income from French taxation. This is particularly useful for American retirees, who may be able to use treaty benefits to live in France while really only paying US taxes.

No More Wealth Tax

For a long time, France was known as a prominent member of the small group of countries that apply a wealth tax as part of their fiscal arsenal. I still speak to Americans who worry about wealth taxation if they decide to relocate to France. The good news is: France no longer has a wealth tax. Everything changed with the 2018 Macron tax reform, which largely rescinded the wealth tax, but not completely. The traditional French wealth tax was replaced with something called “Impôt sur la Fortune Immobilière” (IFI), which is a tax imposed specifically on real estate wealth. Functioning much like a national property tax, IFI could still represent a significant liability if you happen to be heavily invested in real estate, but for the average American professional or retiree it’s unlikely to amount to any meaningful sums.

Death and Taxes, and Death Taxes

As benign as income and wealth taxation may seem for US expats in France, there is no sugar coating the fact that living in France may expose Americans to the dreaded “droits de successions”, France’s inheritance tax. Compared to US estate tax, French inheritance tax is a completely different beast: while a US estate enjoys an 11.58 million dollar exemption per person, the beneficiary of a French estate only gets a EUR 100,000 exemption in the case of first-degree relatives (children and parents) and likely much less for more distant relations. In the most extreme cases, inheritance tax rates can go up to 60% for transfers to unrelated inheritors. 

Learn What “Assurance Vie” Means

Regardless of your French proficiency level, there are two words you may want to quickly familiarize yourself with if you are considering moving to France: “Assurance vie”. While the term translates literally into “Life Insurance”, a french Assurance Vie has nothing to do with what we would call life insurance in the US. Instead, the Assurance Vie works more like a tax-advantaged retirement account. It’s almost impossible to talk about French financial life without mentioning its most ubiquitous investment vehicle. French residents have collectively squirreled away over 1,656 billion euros in Assurance Vie, representing roughly 40% of total French savings. If you ever walk into a French bank, or interact with any French financial services provider, it’s likely that they will try to sell you an Assurance Vie.  In most cases, these products are not suitable for Americans, so be very careful. A French Assurance Vie will often involve underlying investment in non-US registered mutual funds, which may be taxed punitively in the US (see IRS rules on Passive Foreign Investment Companies, or PFICs, for more information).

Trusts Don’t Travel Well

They just don’t. Over the years we’ve repeated this motto to a number of clients in various parts of the world, but this is especially true in France. In 2011, on the back of the UBS tax evasion scandal, French authorities introduced new regulations aiming to clarify the taxation of foreign trusts. The new set of rules also introduces specific disclosure requirements for anyone involved in any sort of French-connected trust arrangement (broadly defined as any trust having French resident grantor, trustee, beneficiary or holding French situs assets). The new rules eventually led to the creation of a public register of trusts, which included names of settlor, trustee and beneficiary, and was publicly available through the French tax administration website, all in the name of transparency. In 2016, the French constitutional court ruled that the public nature of the trust register violated fundamental rights to privacy, and public access to the register was suspended. While trust data is no longer public, the reporting requirements remain in place, and an American moving to France with a US trust will be required to make certain disclosures to French fiscal authorities, or face hefty fines for non-compliance. The required disclosures include a recurring annual filing, as well as an event-based filing to disclose any changes made to the trust. Beyond disclosure requirements, trying to reconcile US trust provisions with Napoleonic French civil law is likely to feel like the proverbial square peg in a round hole, and could create more problems than it solves. If you plan to move to France and retain existing trust arrangements, be sure to seek legal advice. 

Whether you are already residing in France or contemplating moving there as a U.S. expat and are looking for someone to help you with wealth management, please feel free to reach out to Walkner Condon Financial Advisors to discuss your specific situation.

 

Syl Michelin

Why are My Brokerage Accounts at UBS Being Closed as an Expat?

Why are My Brokerage Accounts at UBS Being Closed as an Expat?

In early December, we received several messages from prospective clients who are U.S. expats with brokerage accounts held at UBS. They’ve indicated to us that UBS was requiring them to move their accounts to another brokerage, as they would no longer be servicing these accounts. It was not clear whether or not the requirement from UBS to move accounts was specifically related to the country of domicile or all U.S. expats. In any case, Walkner Condon has helped many individuals in similar situations find solutions.

Why Did This Happen?

For major brokerages houses like UBS, this is not a new phenomenon. We have written extensively on the subject before in a white paper, “Why is it so Hard to Open Accounts for American Expats?” The passage and implementation of the Foreign Account Tax Compliance Act (FATCA) in addition to myriad regulations that encompass anti-money laundering laws may leave some financial services companies deciding that the compliance burden is simply too high for the revenue.

Who Should I Use for Brokerages?

While the answer depends on your particular situation, we delved into the pros and cons of some custodians that are well known for working with U.S. expats in a blog post, “What is the Best Brokerage for Expats?Interactive Brokers, TD Ameritrade, and Charles Schwab all provide services to U.S. expats, though it varies by country as to what is specifically available.

How We Can Help

Walkner Condon Financial Advisors dedicated U.S. expat group helps our clients with wealth management, including investments that comply with country specific restrictions, the complexities of navigating through currency and taxation, and cross-border financial planning.  We touch on those subjects and more in our Expat Investment Guide.Visit our website today to learn how we help our U.S. expat clients achieve confidence and clarity about what they are trying to accomplish in the future.

Five Critical Estate Planning Considerations Before Moving Abroad

Five Critical Estate Planning Considerations Before Moving Abroad


NOTE:  Keith Poniewaz originally wrote about Three Estate Planning Considerations for Expats Moving Abroad in February of 2019. With Stan Farmer joining Walkner Condon as Director of International Financial Planning this September, Stan and Keith thought this might be a great topic to revisit and expand upon. There are many planning considerations that take on additional complexity when individuals move abroad and their wealth becomes subject to multiple, different, and perhaps even conflicting legal and tax jurisdictions. We consider five critical areas that every expat should examine before moving abroad.

As part of the 2017 tax reform bill (Tax Cut and Jobs Act of 2017), the United States estate tax exemption amount was raised to approximately $11.58 million per individual in 2020 or $23.16 million per couple. As a result, the estate planning and financial planning concerns of most Americans have changed radically. According to the Washington Post, only about 2000 individuals per year will end up owing estate taxes under the current limits. While they should still be worried about an effective estate plan to help ensure that minor children, spouses, and family are protected, under the current regime, few Americans have to worry about effective estate planning in order to avoid future tax bills.  

However, if an American decides to move abroad, they can bring local estate or inheritance tax laws into play and, consequently, be faced with a new set of complications– especially as their U.S. estate planning tools may not necessarily work in their new country. Below are five important items any American should consider before they more or retire abroad.

IDENTIFY YOUR ASSETS AND WHERE THEY ARE LOCATED

Will you still own a house in the United States? In your new country? A business? Or will you simply own stocks and bonds? Where are those located?  The answer isn’t as straightforward as one might suspect. Instead, Americans living abroad may have to consult the Estate Tax treaty between the United States and their country of residence to determine where the assets are located (situs is the legal term for the legal location of property) for estate tax purposes.  The United States has treaties with 15 countries currently.

UNDERSTAND YOUR POTENTIAL FUTURE TAX EXPOSURES

Whether there is an applicable estate tax treaty or not, American expats should be aware that once they establish a long-term residence abroad (in the U.S., the legal term would be “domicile,” but in most foreign countries, the critical term is simply “residence”), they may have gift, estate and/or inheritance tax exposures based on the laws of their residence country, even on assets back in the United States. Those expats should then prepare a plan to handle such taxes when they come due.

Even U.S. tax exposures should not be completely dismissed for the affluent expat. Remember that the aforementioned 2017 tax reforms are due to sunset after 2025 (if they are not repealed in the interim), which means that federal gift and estate tax exemptions will be halved to the inflation-adjusted pre-2018 levels (somewhere in the $6 million range per individual and $12 million per U.S. citizen couple.  Moreover, if the U.S. expat marries a non-citizen spouse, the ownership (by sharing, acquiring, or inheriting) of U.S. situs assets by a non-citizen spouse may have dramatic implications for the couple’s overall U.S. gift and estate tax exposures. Such mixed nationality couples have distinct estate planning needs, which differ greatly depending on whether there is an applicable estate tax treaty and, if so, the specific language within each treaty regarding spouses.

MAKE SURE YOUR WILL IS RECOGNIZED WHERE YOU LIVE

The U.S. system for determining how assets are distributed by a decedent to the beneficiaries (commonly known as probate) is not universal and several countries do not allow people to simply determine to whom they wish to distribute their assets, but instead, the legal code may dictate who receives the assets.  However, in several cases, there are ways for Americans to have their wills accepted by local authorities.  For instance, in the European Union, there is regulation 650/2012 which allows for European Union residents to select their home country’s laws as those governing probate or the distribution of their assets.  Note, however, this doesn’t allow for Americans to bypass laws governing taxes! It also will require a new will in most cases, because this special EU provision and the election of U.S. probate law must be specified within the will itself.

TRUSTS DON’T TRAVEL WELL

Relatedly, not all countries recognize trusts and as a consequence, an American trust can cause large headaches from a foreign country taxation perspective.  For instance, in certain countries, distributions from the trust can be taxed both at the level of the trust and at the level of the recipient.  As a result, trust distributions taxes can approach 70% or 80%.  In other cases, a U.S. trust with a U.S. trustee may deemed to become a resident-country trust upon the trustee (e.g., the grantor of a living trust) becoming a resident of the country. When the trustee returns back to the United States, the trust itself could be liable to pay an exit tax that is effectively a realization of all unrealized gains within the trust! Consequently, Americans outside of the United States who need the protections of trusts should consider a wide variety of “trust substitutes” including direct gifting, 529 plans, or other strategies. 

Should the would-be expat try to avoid this problem by setting up a new trust upon their arrival in their adopted country?  Not so fast –This is almost certain to cause onerous U.S. taxes to be applied!  The U.S. Internal Revenue Code is particularly skeptical of “foreign trusts” with U.S. beneficiaries. Ultimately, distributions to such U.S. beneficiaries will face a very complex and punitive tax regime specifically designed to treat current-year distributions as only partially accrued income from the current year and inappropriately deferred income from prior years. The upshot is that the U.S. beneficiary will have to restate taxes over several years in each year they receive a distribution, pay ordinary income tax instead of capital gain rates (or return of capital, which would be untaxed in a domestic trust) on portions of each distribution, and interest and penalties for the portions deemed to be deferrals of income from prior years for good measure.

THE IMPLICATIONS OF INHERITING OR RECEIVING GIFTS WHILE LIVING ABROAD

While the United States taxes the donor of a gift or the decedent’s estate, in most foreign countries that tax these wealth transfers, it is the recipient of the gift or inheritance that is taxed. This simple difference in legal cultures may have extremely profound consequences for the U.S. expat who receives a gift or bequest from a parent or other family member. Will property located outside of the residence country of the expat actually subject the expat to local taxation upon receiving it through a gift or inheritance? The answer varies not only from country to country, but, in certain cases (e.g., Spain or Switzerland) may even vary depending on the region (e.g., province or canton) in which the expat resides!

The implications described here are far reaching and the key takeaway is that the expat must not only be mindful of their own estate plan before moving abroad, but also the estate plan of those family members from whom they are likely to receive or inherit wealth in the future. Besides the potential tax exposures from direct gifts or inheritances, there may again be negative consequences flowing from the expat’s present or future interest in a family trust. The expat’s own trust may not travel well, but it’s not only their own trust that an expat needs to consider.

Stan Farmer, CFP® and Keith Poniewaz

Life Insurance For Expats

Life Insurance For Expats

Life insurance is one of the most important, but often least understood, tools for financial planning, especially as it relates to estate planning. However, its specific uses are often overshadowed by a marketing strategy that pitches it as a Swiss Army Knife for all financial situations– retirement, estate planning, etc. This is not the case.

While there can be many legitimate uses for whole, variable, or universal life policies for U.S.-based people (Confused? That’s partially the goal, I think, but for more information on the types of available policies, click here.), most Americans outside of the United States frequently find themselves shut out from these policies because of their address. Even if they find themselves able to buy an American life insurance policy outside of the United States, the need to schedule fitness exams, etc. may make actually buying the policy impossible or they will– upon investigation– discover that their whole life policy may run afoul of local regulations, causing major tax headaches.    

Some investors will consider buying a whole life policy in their country of residence: however, this may not be a great idea because the whole life policy’s underlying cash value is generally invested in investment funds that are tax toxic from a U.S. perspective, the dreaded PFIC.  As noted cross-border Tax specialist Phil Hodgen notes on his blog, the ownership of the underlying assets means:

  • You have to file Form 8621 to report all of the mutual funds held as part of the investment account in that insurance policy.

  • If, during the time the life insurance policy is active and you are alive, the insurance company buys and sells mutual funds, you will have actual taxable sales under the excess distribution rules.

  • When you die, your estate will be treated as having sold the PFICs inside the “insurance policy” for fair market value, again triggering tax under the excess distribution rules.

This information doesn’t include the additional reporting requirements. In his blog, Hodgen goes into more detail on the policy itself and the fact that if the insurance policy doesn’t meet IRS definitions of a life insurance policy, any estate planning benefits will be eliminated.

As we’ll discuss below– while this is annoying– not having a whole life policy is not necessarily a disadvantage for Americans (especially when one takes into account that some of the estate planning strategies embedded in Life Insurance and Life Insurance Trusts will run up against regulations in the country of residence– the dreaded PRIIPS/KIDS). In what has become a cliché, those providing independent advice about such policies for Americans who are not expats generally recommend to “buy term and invest the difference,” and the same holds true for Americans outside of the United States.

(Curious about the definition of term insurance? Click here)

In certain cases, and with a bit of legwork, Americans abroad may find themselves able to buy such a policy in the United States, and they will generally find that any “pure life insurance” product they purchase in the United States will not pose problems in their country of residence. However, Americans should confirm any purchase of such a policy with a tax and legal advisor in their country of residence as local regulations are always shifting. 

The second option is to buy such a policy in their country of residence. However, this can be a bit more complicated for several reasons. First, before purchasing, Americans should confirm the policy is a “Pure life insurance” product without additional bells and whistles. Second, it is always encouraged to verify the policy against U.S. regulations, and generally, major insurance suppliers can help with that. An additional concern is the “excise” tax the U.S. charges on Foreign Insurance Policy Premiums– this ranges from 1-4%, but is 1% on pure life policies. However, the U.S. maintains treaty agreements with 17 countries which means that insurers from these countries are generally exempt from the “excise tax,” and the United States maintains a list of foreign insurers who are also exempt from the tax requirements. Consequently, these insurers would be, accordingly, a good place to investigate term life policies. For more information on the tax-related implications of foreign life insurance, we’d recommend this article from U.S. CPA Virginia La Torre Jeker.

No life insurance purchase takes place inside a vacuum and anyone considering a purchase of life insurance should undertake to analyze such a policy in the context of their long-term plans and goals covering the amount of policy recommended (especially to analyze in terms of any public or private pensions available), long-term family goals, determinations regarding long-term residence, etc. While Walkner Condon doesn’t sell life insurance (or any insurance), such discussions and analyses are part of our long-term financial planning process.

For Americans within the United States, the conversation about life insurance can be rather involved, as a variety of options are available and all of these options can be used to solve a variety of issues.

Generally, these options are limited for Americans outside of the United States as while insurers will continue to honor whole or variable life insurance policies for Americans outside of the United States, it is generally much harder for them to write new forms of these policies for Americans living outside of the United States. This generally leads to their option in the United States being term insurance.

Likewise, Americans outside of the United States should likely not invest in more complicated insurance products in our opinion, because these will generally hold assets that are referred to as PFICs (or Passive Foreign Investment Companies) and are taxed at a higher rate.  

Keith Poniewaz

What is the Best Brokerage for Expats?

What is the Best Brokerage for Expats?

One of the challenges for expats that leave the United States and want to invest elsewhere is that the traditional investment options available to them in the US may not be available. (For more information on this topic, read our white paper on the topic). As a result, there are some custodians in our experience that are more “friendly” than others. Please note that not all brokerages will accept clients internationally: It is best to ask your financial advisor or contact the brokerage house directly to do some due diligence on your particular situation before moving forward with any of these options. For instance, some expats believe that they can just use a P.O. Box or a friend’s address, but in many cases, it is not that simple (and potentially not legal either!).

The following list of pros and cons originates from our perspective of financial advisors working with international clients. The tools may differ for someone that is trading on a “retail” platform rather than an institutional one. Because expat investing in many cases limits access to the use of mutual funds, often we are forced to use Exchange Traded Funds (ETFs). ETFs have grown significantly in popularity and offer in many cases a low-cost, tax-efficient, diversified manner in which to invest. Recently, regulations in the European Union have restricted access to ETFs for European Union residents.  Consequently, we use a variety of strategies in an effort to ensure our clients remain invested.

If you need help choosing a brokerage or have further questions about investing as an American abroad, schedule a no-cost, no-obligation appointment here.

TD Ameritrade

Pros: TD Ameritrade offers commission-free trading for ETFs. Their trading tools for financial advisors that custody assets with them, iRebal, is a robust rebalancing software for portfolio management. TD has rolled out a Model Market Center that helps advisors utilize model portfolios from investment managers at no cost. They also offer the ability to blend multiple models to help advisors diversify investments and customize the portfolio to meet their clients needs. TD is known for its integrations with other software programs, offering an open API that plugs in well with other tools. TD Ameritrade finished as the #3 online broker in Barron’s 2018 rankings.

Cons: TD Ameritrade tends to be a bit more stringent in who they can take on as clients internationally, especially now in Europe. TD may have a more limited selection of international individual bonds. Paperwork can sometimes take a little longer at TD, as they generally take a little more time to clear out not in good order (NIGO) items.

Interactive Brokers

Pros: Interactive Brokers (IB) is known for being a friendly platform in setting up accounts for expats. They offer a wide variety of funds across various countries as well as the ability to trade currencies at reasonable rates.  Barron’s ranked Interactive Brokers as the #1 Online Broker for 2018. IB is also known for having extremely low commissions relative to others in the industry. Additionally, IB allows multiple currencies meaning deposits can be made in many local currencies and do not need to be converted to dollars before deposit. If you have a unique situation and heard “no” from another custodian, there is a good chance that IB will get it done. IB promises a fully digital transfer process.

Cons: This platform, while robust, is difficult to navigate, as the user experience (UI) isn’t as easy to use as TD Ameritrade or Schwab. IB has a very paltry commission-free ETF list. Trades may carry ticket charges on them through their more robust trading platform, IBKR Pro, although Interactive Brokers has released a commission-free platform recently called IBKR Lite, which is currently only available to “retail” investors. (Although it isn’t a certainty that commission-free trading is actually less expensive than paying ticket charges. Read more on that here!) The impressive amount of choice and offerings they have tends to be overwhelming for new clients on the platform.

Schwab

Note: We have recently published a FAQ related to Schwab no longer offering ETFs to EU retail investors. Read that here.

Pros: Schwab offers a wide menu of ETFs and no commissions on ETF trades. They are generally fairly friendly towards expat investors, although not to the level of Interactive Brokers due to some recent changes in offerings. Although they have a more closed technological interface relative to TD Ameritrade, their own technology is impressive. Schwab finished with the #4 ranking in Barron’s 2018 online broker rankings.

Cons: Although Schwab generally is a bit more friendly to opening accounts than TD Ameritrade, it still lags behind Interactive Brokers for ease of opening accounts for expats. Recently they have announced they are leaving select European markets including Italy and France. Additionally, it is a fully U.S. brokerage, which means they don’t allow deposits in foreign currencies and charge to convert assets from dollars to foreign currencies. Unlike Interactive Brokers, there is also a $25 dollar international wire fee. Moreover, like most mainstream brokerages, the list of permissible jurisdictions for account openings has shrunk in recent years.

Looking for help? Set up a no-cost, no-obligation appointment with Keith, our Director of International Advisory Services, to explore your investment and financial planning options.