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US connected persons

FINANCIAL PLANNING FOR US-CONNECTED PERSONS

Expats face unique financial challenges living outside their home country. U.S. connected persons face even tougher challenges with regard to their investments – many financial institutions simply won’t allow U.S. connected persons to hold investment products and increasing numbers of U.S. financial institutions are closing brokerage accounts for U.S. connected persons with overseas addresses.


In addition it is not possible for those living outside the United States to invest in U.S. mutual funds and U.S. brokerage services are also excluding U.S. ETFs. The U.S. Foreign Account Tax Compliance Act (FATCA) has paved the path for subsequent and more global regimes, notably the Common Reporting Standard (CRS).


Providing an investment solution to expats including an American or U.S. connected person was difficult in the past, however Invictus AMG is uniquely positioned to help.

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Are You US-Connected?

Who is a Citizen?

  • You’re a U.S. citizen if you were born in the U.S.
  • You’re also a U.S. citizen if you were born outside the U.S. with one U.S. citizen parent
  • Note that the Passport you have is irrelevant, in fact you may not have a U.S. passport but rather one from the country you were born in or live in.
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Who else is US-connected?
  • Green Card holders
  • Other visa holders living in the U.S.
  • Anyone who is Tax Resident
  • Note that the Passport you have is irrelevant, in fact you may not have a U.S. passport but rather one from the country you were born in or live in.

There’s a test for this, ie to find out whether you are in fact US connected or not.

Why does all this matter? Well one simple reason – if you’re American or a U.S. connected person then you have a U.S. tax reporting obligation no matter where you live.  You’ve always had this obligation however it became more enforceable because FATCA.

FATCA is nothing to be scared of and it doesn’t increase your tax liability.

Do you have a PFIC?

PFIC stands for “Passive Foreign Investment Company”. For all intents and purposes PFICs are non-U.S. investment funds, such as: mutual funds, hedge funds, and exchange traded funds (ETFs for short).


Like many expats you are probably asking yourself, why do I need to know this? The answer is because:


PFICs are subject to draconian taxation by the U.S. that often wipes out any profits they generate; and You have to file a report to the IRS for each PFIC.

PFIC gains are, amongst other punitive tax treatments, not eligible to be treated as capital gains but instead are taxed as ordinary income tax.


Having a PFIC may be very hard to avoid but minimizing the number you have and then only investing in those that are Qualified Electing Funds (QEFs) is important.

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What to look for in a compliant investment:

When considering investments it’s important to make sure that they cover some key things:

  • Compliant:

    Non-compliant investments for U.S. citizens living overseas are taxed as income (up to 37%). Compliant investments have the potential to be taxed as capital gains tax (from 0%-20% subject to long/short-term considerations).

  • Liquid:

    Many U.S. compliant overseas investments are pension based and cannot be accessed before retirement (age 50-59.5 years) without penalties. It’s important to find investments that can be liquidated based on your needs and that are mobile as you move to other countries.

  • Established:

    An established financial jurisdiction would regulated the investments and you should focus on top-tier managers.

  • Fees:

    All fees should be clearly disclosed and in today’s world products should be cost-efficient, especially in an actively managed portfolio product.

  • Reporting:

    All necessary tax reporting should be available. For Americans the ability to file Form 8621 for a Qualifying Elected Fund (QEF) is important to get the correct tax status of the investment.

Take Control of Your 401k

If you have a 401k retirement plan in the U.S. then you might think that your options are limited now as an expat.  We can help you with options to rollover your 401k into an Individual Retirement Account (IRA).


There are many reasons why this could be right for you:

  • WIDER SELECTION OF INVESTMENT CHOICE
  • LOWER COSTS
  • FLEXIBILITY FOR WITHDRAWALS
  • MORE CONTROL
  • WEALTH TRANSFER ADVANTAGES ON DEATH
  • FEWER RESTRICTIONS


There are merits to both the 401k and IRA models. Our process will help you determine if the IRA platform is the right option.

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