US Citizen Living in Europe – Finding the Right Financial Advice

Direct answer: US citizens living in Europe face a particularly complex financial situation because the United States taxes its citizens on worldwide income regardless of where they live. European investment funds are often classified as PFICs (Passive Foreign Investment Companies) by the IRS, which can create significant US tax problems. You need an adviser who understands both US tax rules (including PFIC, FATCA and FBAR) and the tax rules of your European country of residence.

This guide explains why the US-citizen-in-Europe situation is more complex than most, and how to find an adviser who understands both jurisdictions. It does not provide personalised US tax advice.

Why this situation is more complex

Most countries tax people based on where they live (residence-based taxation). The United States is different — it taxes its citizens on worldwide income regardless of where they live. This means a US citizen living in France, Spain or Portugal must consider both:

1. US tax rules — because they are a US citizen
2. European tax rules — because they are a tax resident of their European country

This creates overlapping obligations, potential double taxation, and complex reporting requirements. Not every financial adviser understands both systems.

US tax obligations

US citizens living in Europe generally must:

• File a US tax return every year, reporting worldwide income
• Report foreign bank accounts on FBAR (FinCEN Form 114) if the aggregate value exceeds $10,000 at any time during the year
• Report foreign financial assets on FATCA (Form 8938) if they exceed certain thresholds
• Consider PFIC rules when investing in non-US investment funds
• Claim foreign tax credits or the foreign earned income exclusion to reduce or eliminate double taxation

The Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) may reduce or eliminate US tax owed, but the filing requirement typically remains. Even if no US tax is owed, the return must usually be filed.

Source: IRS — International Taxpayers

European residence and tax

When you live in Europe, you are generally a tax resident of your European country. This means:

• You may be taxed on your worldwide income in your country of residence
• You may need to report foreign assets and income to the local tax authority
• You may be subject to local social security contributions
• You may have reporting obligations under local rules (for example, FATCA-equivalent reporting in some European countries)

The specific rules depend on your country of residence. France, Spain, Portugal, Italy, the UK and the Netherlands all have different tax systems and reporting requirements.

Investment restrictions

US citizens living in Europe face investment restrictions from both sides:

From the US side

• PFIC rules: Most non-US investment funds (including European mutual funds and ETFs) are classified as Passive Foreign Investment Companies (PFICs) by the IRS. PFICs are subject to complex and generally unfavourable US tax rules, including punitive tax rates and interest charges on gains.
• US mutual funds from Europe: Many US mutual fund providers will not allow non-US residents to invest in US mutual funds due to European regulations (such as MiFID II and PRIIPs).

From the European side

• European investment restrictions: Some European investment products may not be available to US citizens due to FATCA reporting requirements.
• Local product rules: Some European countries have tax-efficient wrappers (for example, assurance-vie in France, plan de ahorro in Spain) that may have different US tax treatment.

This means US citizens in Europe often need specialist investment solutions, such as:

• US-compliant European investment platforms
• US-domiciled ETFs that are UCITS-compliant for European residents
• Individually managed accounts rather than pooled funds
• Specialist insurance wrappers designed for US citizens

PFIC considerations at a high educational level

A Passive Foreign Investment Company (PFIC) is a non-US corporation that meets certain income or asset tests. In practice, most non-US mutual funds and ETFs are PFICs.

The US tax treatment of PFICs is complex and generally unfavourable:

• Excess distribution rules: Gains may be allocated across the holding period and taxed at the highest marginal rate for each year, with interest charges added
• QEF election: A Qualified Electing Fund (QEF) election may allow you to pay tax on your share of the fund's income each year, but this requires the fund to provide specific US tax information, which most European funds do not
• MTM election: A mark-to-market election may be available for PFICs that are regularly traded on a qualified exchange, but this has its own complexities

This is a high-level educational overview. PFIC rules are complex and you should seek advice from a US tax professional before investing in any non-US investment fund.

Source: IRS — Passive Foreign Investment Company (PFIC)

US investment accounts

US citizens in Europe may be able to maintain:

• US brokerage accounts — some US brokers allow non-US residents to keep existing accounts, though some may restrict new investments
• US retirement accounts — 401(k), IRA and Roth IRA accounts can generally be maintained from abroad
• US bank accounts — generally can be maintained

However, some US financial institutions restrict services to non-US residents. Check with your provider.

European investments

US citizens in Europe may be able to invest in:

• European insurance wrappers — some are specifically designed for US citizens and have US-compliant structures
• Individual securities — directly held stocks and bonds may avoid PFIC issues
• US-domiciled UCITS ETFs — some US-domiciled ETFs are available to European residents and avoid PFIC classification

The key is to work with an adviser who understands which European investment products are suitable for US citizens and which are not.

Adviser licensing

An adviser advising a US citizen living in Europe needs to understand:

1. US tax rules — including PFIC, FATCA, FBAR and the foreign tax credit
2. European tax rules — for the client's country of residence
3. Investment product restrictions — which products are available and suitable for US citizens in Europe
4. Regulatory authority — the adviser should be regulated in the client's country of residence

Not all advisers have this knowledge. Some advisers claim to specialise in US expats but have limited understanding of PFIC rules. Ask specific questions about their experience with US citizens in your country of residence.

Custody

For US citizens in Europe, custody is particularly important:

• The custodian should be able to accommodate US citizens living in Europe
• The custodian should provide US-compliant tax reporting
• The custodian should be regulated in your country of residence
• You should be able to verify your holdings independently

Finding professionals who understand both jurisdictions

To find an adviser who genuinely understands both US and European rules:

1. Ask about their US tax knowledge — specifically PFIC, FATCA and FBAR
2. Ask about their experience with US citizens in your country of residence
3. Check their regulatory status in your country of residence
4. Ask what investment products they use for US citizens
5. Ask whether they work with a US tax specialist — some advisers partner with US tax professionals
6. Verify their claims — ask for examples of how they have helped US citizens in similar situations

Link Independent is a curated introduction service that helps expats and internationally mobile clients connect with appropriately regulated financial advisers based on their circumstances. If you are a US citizen living in Europe, find an adviser who understands both jurisdictions.

Country-specific pages

Over time, we will create country-specific pages for US citizens in:

• France
• Spain
• Portugal
• Italy
• UK
• Netherlands

In the meantime, if you are a US citizen living in one of these countries, the Link Independent Expat Planner can help you organise your circumstances before deciding what professional help you may need.

Summary

• US citizens in Europe face citizenship-based US taxation plus European residence-based taxation
• Most European investment funds are PFICs, which have unfavourable US tax treatment
• FATCA and FBAR reporting requirements apply
• You need an adviser who understands both US and European tax rules
• Investment product selection is restricted from both sides
• Always seek advice from a professional who genuinely understands both jurisdictions

This guide does not provide personalised US tax advice. Always consult a qualified US tax professional and a regulated financial adviser before making financial decisions.

Find an adviser or use the Expat Planner to get started.