Episode 81
Moving to Europe as an American: The Tax Mistakes That Can Cost You Dearly
For Americans moving abroad, the dream of a new life in Europe can quickly become complicated by US tax rules, foreign reporting requirements, estate planning mismatches, and costly investment mistakes. From buying property in France, to opening a business in Spain, to holding foreign mutual funds or trusts that no longer work overseas, the consequences of poor planning can be severe and expensive to unwind.
For those considering moving to America or moving to the US in the future, many of these same cross-border challenges apply in reverse, making early planning essential regardless of direction.
Richard Taylor – dual UK/US citizen and Chartered Financial Planner – is joined by Christine Alexis Concepcion – international tax attorney and Managing Partner at Concepcion Global PLLC – to discuss what US citizens and green card holders need to know before relocating abroad, especially to Europe. They explore ongoing US tax obligations, the risks of investing or structuring assets incorrectly, and why trying to “figure it out later” often leads to significantly higher costs.
Drawing on real client scenarios, they highlight how decisions around foreign investments, business advise, and international wealth structuring can create long-term tax exposure if not handled correctly. They also explain why working with a qualified wealth advisor and US tax help specialists is critical for navigating cross border complexity.
In this episode of Expat Wealth, Richard and Christine discuss:
How Americans and green card holders remain subject to US tax filing obligations on worldwide income and assets, even after moving abroad.
Why forming a foreign company, investing in a foreign business, or buying non-US mutual funds without planning can trigger punitive tax treatment and complex reporting requirements.
How trusts, foreign property purchases, and cross-border estate planning can create major problems in Europe if not reviewed before a move.
Why proactive planning with US and local-country specialists can reduce costs, protect long-term wealth, and help expats access the full benefits of international wealth planning.
—
Expat Wealth is supported by Plan First Wealth. Plan First Wealth is a Registered Investment Advisor serving fellow expatriates and immigrants living across the US on matters such as retirement planning, investment management, tax planning and non-US asset management.
Expat Wealth is affiliated with Plan First Wealth LLC, an SEC registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.
ABOUT RICHARD:
Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.
As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).
Connect with Richard on LinkedIn
TRANSCRIPT:
Christine :
[00:00:00 – 00:00:16]
So you are a US Taxpayer, and the first thing that you, you really do need to be mindful that you’re reporting your worldwide income and assets. So putting that aside, hopefully our audience understands that, or at least it will be their takeaway after 10 years.
Richard:
[00:00:16 – 00:00:18]
What triggered this person to finally.
Christine :
[00:00:18 – 00:00:34]
That’s a great question. So the trigger was that this person was going to become even more embedded in the local country, buying real estate, which requires tax returns, and, and then, you know, surprise Pikachu face. Oh, no, I’m gonna have to present something that I don’t have.
Richard:
[00:00:34 – 00:02:23]
Can I throw another one into the mix? Trusts. You know, you mentioned investments and businesses, but plenty Americans have trusts. Yeah, they’ll move and they’ll think, yeah, I’ve done my estate planning in the U.S. i’ll just, I’ll just move to France or wherever with this trust. And I mean, I’m on shaky ground here, but the most common one is the living TR Strike. Welcome to Expat Wealth, a Plan first wealth podcast dedicated to helping ambitious expatriates in America and Americans overseas thrive. I’m your host, Richard Taylor, and Plan first wealth is the business I founded and run today. And we work with successful expatriates, immigrants and internationally minded Americans to make the most of opportunity and avoid the expat landmines. First, a quick disclaimer. While Plan First Wealth, LLC is an SEC registered investment advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views and positions of Plan First Wealth. Information presented is for educational purposes only. Now, if you aren’t already receiving our emails, please go to our website, www.planfirstwealth.com and sign up there. It’s free and you’ll be notified every time we drop a new episode and so much more. Okay, let’s get back to this week’s show. Welcome to an Ask an expert show from Expat Wealth. My guest today is Christine Alexis Concepcion. Christine is the managing partner at Conception Global pllc and she is joining us today to discuss Americans who are considering a move abroad, especially to Europe. And that includes those who have already made such a move and what they need to be aware of and need to consider if they are going to truly thrive in their new destination. So welcome to Expat Wealth, Christine.
Christine :
[00:02:23 – 00:02:25]
Thank you very much for having me, Richard.
Richard:
[00:02:25 – 00:02:29]
Of course. Well, look, would you introduce yourself and tell everyone what you do?
Christine :
[00:02:30 – 00:03:27]
Absolutely. I am an international tax attorney based in Miami. I also have an office in Madrid and in Paris to serve My European based clients. And just like Richard said, I help U.S. persons, U.S. taxpayers, which includes citizens and green card holders, move abroad. Right now we see a lot of movement to Europe and these moves could be either temporarily or permanently. But there’s a lot of considerations in either move for both a US tax perspective and a local country perspective. And I help marry both concepts, both tax concepts. And sometimes my clients call me a quarterback because I help develop the team to help my clients move abroad. So, yeah, we’ll be talking today about outbound tax planning for U.S. taxpayers.
Richard:
[00:03:28 – 00:03:31]
You have a presence in Madrid and Paris. Do you really? Wow.
Christine :
[00:03:31 – 00:04:11]
I do, I do. I noticed a lot of my clients from Latin America were moving to Europe, particularly in Spain. And I said, you know what, I’m going to follow my clients and who doesn’t love to be in Spain for a few months out of the year and the Paris office. The reason is because I lived in Paris for some time when I was studying and I did a little bit of law school over there, I did a little bit of my MBA over there and I have an affinity for French culture. So it was the next natural spot to open up an office.
Richard:
[00:04:11 – 00:04:29]
Lovely. So we are going to talk about Americans moving or who have already moved out the US but we’re going to focus on Europe because, I mean, look, you’re much closer to this than I am. But anecdotally this to me seems to be exploding in popularity. Is that what’s happening?
Christine :
[00:04:29 – 00:05:06]
I absolutely see a lot of clients and potential clients considering a move. And it always starts with, we’re going to buy an apartment over there and see how it goes. And I think it’s a fascinating time. There’s a lot of movement and I think social media has really helped open up the world to, to a lot of individuals because you see a lot of social media posts about people traveling to this country and to that country and then it just starts getting clients thinking, oh well, you know what, maybe I can visualize my life over there. So let’s start exploring what that looks like. Actually.
Richard:
[00:05:07 – 00:05:15]
Do you find people come to you before they leave or do you find they come into you once they’ve already left and an issue has arisen?
Christine :
[00:05:16 – 00:05:46]
You know, it’s really a 5050 mix and I think it depends more on the client profile. There’s people who are planners and people who are fixers and the ones who plan ahead are the ones who call me a year or two in advance of a move and the people who call me once they already have the Issues because they’ve moved over there. Those are more the ones who need the fixing solution. I’ll figure it out later. So to me it’s a 50, 50 are split.
Richard:
[00:05:46 – 00:05:59]
So if I could wave a magic wand, I would always try and reach someone before they left because there’s just so much, there’s so much damage control you can do before. Is that it’s the same going the other way, I take it?
Christine :
[00:05:59 – 00:07:16]
Absolutely. Yeah, it really is. I have to say that the clients that reach out to me beforehand, they’re more informed about what is going to happen in the future if they, if and when they do make this move. And the legal fees and accounting fees are a fraction of the price of if they call me a year, two, three years down the line and they say these are the facts. And I now I understand that I have some problems. Can you troubleshoot? And when we’re talking about troubleshooting, the costs are astronomical. And it’s not just the legal and accounting fees and maybe even the financial advisor fees, but we’re talking about real tax dollars that are going to one country or the other that is going to be a lot higher without the planning in advance. So, you know, whoever’s listening to us right now, if you are thinking about moving abroad, you really need to plan ahead. Maybe at least give us six months, but I prefer a year in Adamant. And if you can’t do six months or a year, at least maybe call me a month before and I will advise you on what not to do when you get there. And at least we’re, we’re removing that area of risk.
Richard:
[00:07:16 – 00:08:09]
We will be saying this till we’re blue in the face, till we’re much, much. This came up in a, in a, in an internal meeting we had on Monday. We got some people who, who are, who are going from the U.S. to the U.K. and from the U.K. to the U.S. and in both situations they just haven’t given us all the tax advisory enough time. And what’s really bizarre is not, it’s not bizarre, but, and I don’t want to, I don’t want to blame anyone because there’s so much going on when you’re moving. There’s so much going on that I understand this could be one of those things that you try to put off, but the consequences are serious and can be severe. And in both cases, we’ve kind of told these people, like, look, we need a year. And a year has ticked by and not enough action has been taken. And I actually think bad outcomes could occur from this. And we’ve kind of watched it and we tried and this is one who is engaging us.
Christine :
[00:08:09 – 00:10:00]
But you know, you know, I have a potential client that called me last week and said, christine, I have been living in this foreign country for 10 years. I have kept my US business alive, running. And I just, you know, I’ve never filed taxes in my local country and I want your help fixing the situation. And the problem is that not only do they have problems in the local country, but now we have foreign tax credit issues. So when we file the foreign tax, when we file the taxes abroad, they’re going to now have to amend the US Tax returns for all the foreign taxes that they will have paid over the last 10 years or whatever the statute of limitation is in that particular country. And then we have to then reconcile what the statute of limitations is in the United States, because for a refund, it’s typically two years. When the refund arises out of tax returns in a foreign country, we might be able to do a 10 year statute of limitation, but it’s not guaranteed. So this person has completely complicated their situation because of lack of planning. And then to make matters worse, we now have some retroactive tax planning that we might have to do for the US Company. And she saw the legal fees involved on both the local countryside and the US side. And this person might not even come into compliance in either of the countries. Actually in the U.S. she’s fine, but in the local country she’s so afraid that she just might not come into compliance. So, you know, the problems are significant when you just wait so long.
Richard:
[00:10:00 – 00:10:32]
If we could just get people to see this as an investment before they leave, that would be a huge win. That sounds frankly terrifying. It doesn’t surprise me. Some people just bury their heads in the sand and, you know, hope it goes away. But it doesn’t go away. It just gets worse. And the argument it gets worse because now you can’t, you can no longer plead ignorance. I mean, I think it’s hard to plead ignorance anyway, but certainly at this point, you’ve been made aware of all this stuff and you’ve chosen to continue on this path. It’s brutal. Out of interest, what was the trigger after 10 years, what triggered this person to finally.
Christine :
[00:10:32 – 00:12:23]
Because this person was going to buy real estate in that country and so there was going to have to be documentation provided to purchase the real. That’s a great question. So the trigger was that this person was going to become even more embedded in the local country buying real estate, which Requires tax returns. And, and then, you know, surprise Pikachu face. Oh, no, I’m going to have to present something that I don’t have. So that was the impetus. And you know, I have another client who says, oh, I’m going to buy this multimillion dollar property in France and I want to see what taxes I can save. The notaire said that I can purchase it in different ways. But obviously the notaire cannot advise the client because the notaire represents the French government, not the individual. So the client calls me and says, hey, the notaire said this, this and this. What is your advice? And I said, well, you know, we can be very simple and tax consequences are going to be significant or we can do something a little bit more complex. And actually, I could save you maybe all of the French estate tax. And, and surprisingly, the client said, I don’t care, my children will deal with it. So she’s passing down a significant estate, French estate tax liability, because she just simply didn’t want to deal with it. Had she called me probably maybe not a month before the closing of the French apartment, then she probably would have been able to digest all of what I would have given her. But from lack of planning, now her heirs are probably going to be subject to, you know, €500,000 worth of estate tax on a property.
Richard:
[00:12:23 – 00:12:39]
Wow. But you know, as well, at least she contacted you. How many people do you think, how many Americans don’t even. Don’t contact you? Follow the advice with a note here. Advice and inverted commerce with a note. Hair and end up in a real pickle, I imagine. I mean, I don’t know for sure, but I can imagine that’s a situation.
Christine :
[00:12:39 – 00:13:19]
Oh, no. I have more stories. Another story. Another story I have is husband and wife purchase property in Florida. They’re non residents, they’re French citizens, they pass away and then leave a world of hurt to their heirs. So now we had to probate the property, we had to pay the US Estate tax. So although this is inbound planning, the issues are the same. The issues are lack of planning and leaving the problems to the heirs. So the heirs had to sell the property at a fire sale to be able to pay the estate tax. So, you know, it’s just lack of planning.
Richard:
[00:13:19 – 00:13:45]
Well, let’s talk about Americans moving abroad, Americans moving to Europe. Like what, what are the main issues? What, what, you know, what’s the checklist of, like, you be aware of this before you leave or if you, or if you’re already there. If you’re already there, listening to this. And some of the things we hit on apply to you. Don’t bury your head in the sand. You know, it’s never going to go away. Sort it out and move on with your life. What are these issues?
Christine :
[00:13:45 – 00:14:33]
Yeah. So, you know, I think that the, that the biggest issue is no understanding that in the United States, if you’re a U. S. Taxpayer, a citizen, or a green card holder, you are responsible to. You have to file your taxes every single year to report your worldwide income and your worldwide assets. So what happens a lot of times is that US Taxpayers, and I’m using the word taxpayer intentionally because I want to make sure that the audience understands that I’m not talking just about United States citizens. I’m also talking about green card holders. So when a US Citizen or a green card holder move abroad, they need to understand that they have continued filing obligations.
Richard:
[00:14:34 – 00:14:59]
So one question, don’t answer this now. One question is, are people, are US Citizens still unaware of that? But, but before we get onto that, yeah, I just want to put a marker in and just if you are on a green card and you are leaving the U.S. you are, you need to be super careful. I’ve literally just recorded an episode on leaving the green card, on leaving the US On a green card. Because, you know, those problems can get. Can get very serious indeed.
Christine :
[00:14:59 – 00:16:49]
Absolutely. So you are a US Taxpayer, and the first thing that you really do need to be mindful that you’re reporting your worldwide income and assets. So putting that aside, hopefully our audience understands that, or at least it will be their takeaway. They have to be very mindful of how they invest abroad, in what type of assets. And if they’re going to form a company abroad, they really need to understand what the consequences are in the United States, investing abroad, either in a foreign financial portfolio or opening up a business or investing in a foreign company as an angel investor, as a minority shareholder, these are significant tax consequences. And again, planning in advance can help you. But if you’re not planning in advance, at least pick up the phone and speak to an international tax attorney, pay for the consultation so that you could issue spot and that person, feel free to call me. We can issue spot what the facts are so that you’re not getting yourself into a situation that you can’t get out of or that’s going to cost you five times more to fix the situation. And I see this all the time. For example, I have a client that moved abroad, invested in a foreign company, and was the majority shareholder of this foreign company, did not do any tax planning. And three years later, when they called me, three years later, they had been reporting their taxes incorrectly and we needed to spend a lot of money fixing them and doing retroactive tax planning. So again, if you’re moving abroad, make sure that you at least pick up the phone and speak to an international tax attorney to issue spot.
Richard:
[00:16:49 – 00:17:24]
Okay, can I throw another one into the mix? Trusts? Yeah, you mentioned investments and businesses, but plenty of Americans have trusts. Yeah, they’ll move, they’ll think, I’ve done my estate planning in the U.S. i’ll just, I’ve just moved to France or wherever with this trust. And I mean, I’m on shaky ground here. But the most common one is the living trust. Right. But France doesn’t see they can get you to. That’s just the most common one. And that can get into a real sticky wicket in France and other places.
Christine :
[00:17:25 – 00:19:36]
So the trust is a significant problem because for us it’s Estate Planning 101. It’s so easy to create a trust. I can’t imagine not advising a client to form a trust in most cases. So they get to their foreign country. Again, we’re saying Europe in general, but to almost any of the European countries, the local country is going to look through that trust and say, well, this is completely disregarded. You own the asset directly. So now we have a significant mismatch for income tax purposes and for estate tax purposes. So oftentimes we need to dissolve the trust. And this is again for people who are moving permanently abroad that we would want to dissolve it. But then for people that aren’t going to be permanently in that local country, then we have to start saying, well, are we going to unwind all of this awesome estate planning that you have for U.S. tax purposes or can we just manage how you live abroad? So then the conversation changes to managing how you live abroad. And a great example is ultra high net worth individuals or, you know, not even ultra high net worth individuals who are more mobile than others. So people who don’t have children or school age children are a lot more mobile than those who have school aged children. So these individuals, I would probably advise them to not become a tax resident of whatever country that they’re looking at. You know, would it hurt you to spend four months in one country and four months in another country and four months in another country? And that might be the way that we solve that problem. But then it just becomes a little bit more complex because now we have to look at the residency rules for each country. It’s not an insurmountable problem. But it’s something that again, you need to be aware of and we need to manage because that might be a lot easier than dissolving all the estate planning that you have in the United States for people that don’t want to move to whatever country permanently.
Richard:
[00:19:36 – 00:20:24]
I was going to say that sounds not sustainable long term. So I was literally about to ask you, do you think that is that for people who are just. This is like a five year, ten year adventure. You know, kids are off their hands and they’re still fit and healthy and they have money, they have that time, health and wealth trifecta finally. And they want to go and have a European adventure and bouncing around, I don’t know, Portugal, Spain, France. Spain, Italy, France. That sounds pretty cool. I get behind that. And that might be a way to just sidestep all this, you know, all these conundrums. Yeah, but, but the problem you have then, I guess is if you fall in love and you want to settle in with the country and you want to settle down there permanently, well, then this problem raises itself again.
Christine :
[00:20:25 – 00:21:34]
Yeah. And again, thinking about my clients who are planning to move abroad, even again, they say temporarily, but what if temporarily is five, six, seven years? You still have to plan long term in that country because at the end of the day you do not know when you’re going to pass away and clients have a hard time understanding that concept. So then we have to again think even more creatively. And sometimes what I advise is if you don’t know, then we’re just going to have to buy life insurance and at least buy a policy sufficient to pay the taxes if you were to pass away in that country. Okay. And we’ll still do some additional state planning. That’s not to say that life insurance is a solution for everything, but it’s part of the solution. And sometimes it allows us to have a less complicated solution and more flexible if we just incorporate that into the plan. And so it’s part of being practical, being creative. It just really does depend on the client facts.
Richard:
[00:21:35 – 00:22:49]
I’m excited to announce that Expat wealth has its first sponsor, the Global Financial Planning Institute. The GFPI exists to provide education, community tools, resources and ongoing research for financial planners and other advanced financial professionals working with international and cross border clients in the US And Americans abroad. I’m a GFP Institute fellow and I’ve put all our employees through their GFPI programs when they join us. I’ve met some great people. I’ve learned a ton It’s a genuine community of internationally minded folk doing their best to serve their clients properly and critically sharing what they know in the oftentimes challenging and ambiguous US Cross border environment. And as anyone in this sector will tell you, you’re always learning. So if you work with international clients and or Americans abroad, or if this is an area you’re looking to get into, check out the gfpi@www.gfp.in stute you will be glad you did and I hope to see you there soon. Would another risk be if you’re doing if you’re following that plan, bouncing around country to country, if you got sick or were injured in one country and ended up in the hospital for a prolonged stay, you could trigger the residency inadvertently.
Christine :
[00:22:49 – 00:23:15]
Yeah, very similar in the US Although in the US if you get sick here, that typically does not count towards your residency days in the United States. However, are you going to be by yourself? Unlikely. Are you going to bring your spouse or your child to help you? Well, guess what, they do not benefit from that exception. So if the US has those rules that at least we need to start thinking about to see if there’s an equivalent in other countries.
Richard:
[00:23:16 – 00:23:53]
Excellent. Right. Just rewinding a little bit. Should we get into nitty gritty? So you mentioned we were talking about if people are moving over, people are leaving America, what they need to be thinking of. I mentioned non US Investments. You know, and can I throw into that some of these, the way you get residency in some countries can be through investment and that can be problematic. Right. I think because then non US investments. So yes, that might get you residency in the country, but that can cause you headaches in the US and businesses. Let’s get into what do we mean. So what do I actually mean by avoid non US investments?
Christine :
[00:23:54 – 00:26:52]
Okay, if we’re going to get really nitty gritty, I’m going to try to make these concepts as easy as possible. So if we think about U.S. entities, we understand how they’re taxed. In the U.S. typically, clients understand that a U.S. lLC with one owner is disregarded, but a U.S. lLC with two owners is considered a partnership. And a corporation is generally a corporation unless there’s an S Corp election. So if the client understands that concept, now we have to translate that to what it means for foreign entities. The tax code and the tax code and the regulations are not going to explicitly say that a French entity here is going to be taxable this way unless we’re talking about foreign corporations. So the tax code is going to say that A French entity that is, let’s say, Associiete Anonym or Associada Anonyma in Spain. Those are going to be treated as foreign corporations. And then when you have a foreign corporation, you’re going to be subject to a certain set of rules in the tax code. And those are called the anti deferral rules. The key words there are controlled foreign corporations and a passive foreign investment company. If you have either a CFC or a pfic, then we’re in a world of hurt almost when it’s time to start reporting your taxes. And you might even have some phantom income, which means you might be paying taxes on income that you never actually received in the distribution. But then there’s another set of entities that don’t fall under they’re not a foreign corporation per se, that they are other types of entities that the tax code actually allows the US Taxpayer to elect how it’s going to be treated for U.S. tax purposes. And that’s typically the world that we want to be in. We want to be in those, what we call eligible entities. So if we have an eligible entity, we could say, hey, irs, I have this eligible entity and I want it to be taxed either as a disregarded entity if it has one owner, or as a foreign partnership if it has two or more owners. And then the tax consequences are different. Typically you’re going to be paying the income is going to be reported on your personal income tax return and then you get the foreign tax credit. And you’re not necessarily going to have that phantom income that we have. Okay. So it allows for a lot more flexibility. Those entities, we still have to report them on additional forms that are attached to your 1040. But those forms are a lot easier to prepare than the forms if you have a foreign corporation, such as a controlled foreign corporation or a passive foreign investment company. I hope I haven’t lost anyone.
Richard:
[00:26:54 – 00:27:10]
We talk about this mainly from an. From a. I want to set up a business perspective, right? This is for. Or is this maintain my existing business, not all foreign corporations. If I want to. If I’m moving to France, say I want to, and I’m going to set up a business there that doesn’t. That’s not automatically a cfc.
Christine :
[00:27:10 – 00:27:47]
No, no. So this is what we’re trying to avoid. So let’s say France has five different types of entities that you can choose. You could choose from Associate Anonym, an sei, Societe Civil Immobilier. You could choose from an SARL srl. So all of Those entities we need to figure out, we need to translate that into the U.S. system. So there, so the associated I know names are automatically going to be a cfc, a foreign corporation. And if you own a certain percentage, it will be a controlled foreign corporation. But the other.
Richard:
[00:27:47 – 00:27:53]
And just. So that’s going to come with reporting requirements and unlikely punitive or unpleasant taxes.
Christine :
[00:27:53 – 00:28:41]
Exactly. And then also you have to look at the type of asset it has. But putting that aside, then the other entities, if you do not do any tax planning with the irs, then they’re most likely going to be, they’re going to default to a foreign corporation. And again, if you have more than a certain percentage, let’s just round it off to 50%. If you have more than 50% of this foreign company, then you’re still going to fall under the CFC and PFIC rules potentially. So then what you do is again, you work with an international tax attorney to know what type of entity you’re investing in, decide what is a better type to invest in so that you can change the classification and, and not be under these onerous CFCP FIC rules.
Richard:
[00:28:42 – 00:29:04]
And if you go and if you’re just, if you’re, if you’ve landed in France or Spain or Portugal and you’re seeing you talking, you know, there will be a, there’ll be a most common structure for small businesses there and people will say, oh, just set up a limited company or whatever, you know, whatever it is, not knowing that in doing so you are exposing yourself to a whole world of pain which will probably have to be unwound at some point.
Christine :
[00:29:05 – 00:30:48]
Exactly. And this is why you really do need to work with an international tax attorney. Because we’re not saying that you can’t invest there, we’re just saying that invest there, invest in the companies. But if you’re in control of forming the entity, let’s just have an entity classification, entity selection, discussion so that you’re forming the right entity in the local country. And then with the irs, we’re making sure that the IRS recognizes that entity how we want it to be recognized. Because if we don’t do that part, then we’re in the bad tax area and that’s what really we’re trying to avoid. But like you said, sometimes these citizen or residency by investments, you do not have the option to choose how you invest. You’re investing in that entity. But what I understand happens is that if they’re trying to attract US persons, they already have the structure that is flexible enough for the US Person to invest in without tripping over these rules. I mean, if I were, if I were representing one of these, these companies that sells these residency and citizenship by investment, I would make sure that the entity that I’m setting up abroad is good enough for the US person to invest in. So I wouldn’t be forming like a fund that would be like a foreign mutual fund. I’d be, I’d. Be. Exactly, yeah. I would not be doing that. I’d be forming an entity that allows you to check the box to be a foreign partnership and then. And then going from there.
Richard:
[00:30:48 – 00:31:20]
So you mentioned Pifix and Pivot can be, I guess, a company that you are involved in owner operating, but also on a much smaller scale. It can just be a regular mutual fund etf. If you’re now making money in euros or pounds, but specifically thinking about euros and you want to invest in euros, well, you’ve got to be very careful there as well, because the vast majority of the universe available investments to you is going to be Pfix, these passive foreign investment companies that come with a whole host of challenges, let’s say.
Christine :
[00:31:20 – 00:32:37]
Yeah. And this is why it’s so important to work with someone who understands the tax ramifications of investing abroad when you’re a US person. So what I tell my clients to do is if you’re, if you want to move your money abroad, that’s fine, but let’s move your money abroad to someone who is a registered investment advisor and, and then that person is going to know what to invest in for US persons. So that person is not going to invest in a foreign mutual fund. They do their magic behind the scenes, but whatever they are investing in, they’re not going to trip up the CFC rules. So I always recommend that they speak to a financial advisor abroad who understands the US client. And if they don’t want to give up that, let’s say, 1% management fee, we walk through the types of assets that they should not invest in and obviously I’m not going to give them investment advice, but I let them know, hey, let’s not invest in foreign mutual funds unless you are willing to assume all of these problems. And if they want to talk with me about, hey, can I invest in this asset or that asset, I will say these are the tax consequences and you decide if you want to deal with that.
Richard:
[00:32:39 – 00:32:42]
It’s not just tax consequences. Right. It’s reporting consequences.
Christine :
[00:32:42 – 00:32:46]
Yeah. The reporting is so complicated, it’s insane.
Richard:
[00:32:46 – 00:34:22]
Yeah. And the cost of that adds up quickly as well. People don’t realize the burden. I think the burden, I think the burden is half the, is half the intention. They want to discourage people from investing in this stuff. And in the UK as well, a lot of times we’ll find that people will, Americans will want to remain invested in America, which I told, which I totally understand. But then, yeah, so we have, so we won’t. Then you potentially have a currency issues because you’re living in dollars or, sorry, you’re living in euros or pounds, but your money’s in dollars. But also you might have. So we’re talking about the PFIC regime, but there might be a similar issue from the other side. So in the UK we have reporting and non reporting funds. So and it’s not quite as draconian as the PFIC regime, but essentially you want to be in, you want to make sure you’re in reporting funds because your British taxes will be lower. So our clients who want to keep money in invested in the US in US because US platforms are better and cheaper and the investment options are generally, are generally cheaper and people just tend to trust the ecosystem a bit more. But then the window of available funds is dramatically smaller because we don’t want you to be going into pfix, we don’t want you to be going into non reporting funds. So you’ve got much, much fewer options. But that you want to be with someone who understands that you need to chart that path. Because if you don’t chart that path, if you step off that path, there’s going to be reporting obligations and tax consequences from it.
Christine :
[00:34:22 – 00:35:26]
Exactly. And you know, I think that the real takeaway is that you can’t do this alone. Yeah, it would, it would just be absolutely crazy to say I’m going to be able to manage my financial situation on my own. It’s not that hard. It’s terrible. You’re going to end up paying so much more in cleanup costs. And I understand that people do not want to pay for planning, I get that. But you really have to be logical and not emotional about these decisions if you’re going to make this significant move abroad. You really need to be logical and say, look, I understand that my life is going to get significantly more complex and I’m going to be an adult about it and I want to plan accordingly because we’re not children anymore. We don’t have mom and dad to take care of us if we’re in trouble. We are, we are the adults that need to, to man up and woman up to, to the challenges that we want to take on in life. And this is just one of them.
Richard:
[00:35:26 – 00:36:29]
It’s an investment. And to your point, you either, if you don’t do it at some point, it’s either going to cost you a, I nearly swore then a lot of money or to the client you were talking about earlier or the potential client you were talking about earlier on, you’re going to live in perpetual fear because you know this problem is there lurking and it will hang over you forever and maybe one day you’ll pay for it dearly. And they are, they are not good situations. Although I would argue that the coming into compliance and just dealing with it is vastly superior. But so, and to your point about you just got to, you’ve got to just grow up and accept that advice is required because even we, you know, we live in the cross border world and even we don’t have all the answers, we will bring in experts sometimes if it’s in a country or an area that we’re unfamiliar with. We talked before. Am I right in thinking you have partners in each jurisdiction where if someone’s moving to Portugal, you can bring in Portuguese council because it’s too much for even us to hold on to before you even get into different languages and all this other stuff?
Christine :
[00:36:29 – 00:37:34]
Yeah, absolutely. Whenever I have a cross border deal, the first person, before I even bring on the client, I call local co counsel and I say I have this set of facts. Let’s talk about how we’re going to collaborate. Let’s spot the issues in my country and in your country. And oftentimes a client wants a range of fees. So I really do need to have that collaboration with local council so that we can drill down on the issues and then give a proper proposal. But this is not something again that’s going to be done alone or, or with just one side of legal counsel. You need to have legal counsel in the United States, legal counsel in the local country, accounting in the U.S. accounting in the local country, financial advisor, at least in the local country. You might want to invest by yourself here in the US but in the local country you really should have a financial advisor. Unless again, you really are comfortable with taking that risk.
Richard:
[00:37:34 – 00:37:58]
You want that financial advisor to be US cognizant. You don’t want him to just be a domestic person who you’re their only American because you are going to end up in some. Well, hopefully if they’ve employed good counsel and good accountants, hopefully they will avoid putting you into something that trips you up. But if you haven’t and you’re trying to piecemeal this and find cheap local. God, you’ll end up with some awful stuff that you will regret.
Christine :
[00:37:58 – 00:38:33]
You know, I have, in France, you have assurance vie. So a life insurance with a cash policy. Guess what, you have a PFIC right there. And you know, it’s something so obscure. You have to have been working with French clients for a long time to understand that if you have an assurance vie, you have a potential problem. So that’s something else that, that we pick up on. And every country has their, their little quirks, but doing this alone is, is just really not advisable.
Richard:
[00:38:34 – 00:39:58]
This is just a reality. You know, there will be people listening to this, Christine, who are thinking, oh, you just talk in your book, you know, you, you’re, you’re fit, you’re, you’re trying to instill fear in us so that we, we’ll, we’ll, we’ll pay all these fees to you guys. And you know what, there will always be people who, who think that. But this is just the reality of being an American. Now look, cross border challenges exist for all nationalities all over the world. But being an American is uniquely challenging and comes with a raft of additional idiosyncratic, unique requirements, pitfalls, landmines. What I see is that most of the Americans moving into Europe have done extremely well in America, you know, and they’re going and they have the resources to invest in this and that’s great. And now I know, I know there’s a whole subset who don’t and maybe younger Americans. And unfortunately they are also saddled with these challenges. Now if there’s smaller numbers involved, hopefully that means a smaller repercussions, but hopefully those numbers will grow. And again, if you don’t tend to this, that this problem will just explode. But it is just the reality of if you are attached to the American system, if you’re an American, a green card holder, whatever, it is uniquely challenging and potentially punitive. And you just have to accept that and know that is part of the deal of being an American, unfortunately.
Christine :
[00:39:58 – 00:42:37]
And you know, I have a lot of clients that say, well, should I give up my citizenship? And when we discuss the consequences of giving up your citizenship, tax isn’t, isn’t the only factor. I understand that a lot of people think, oh, the taxes, it’s crazy and I’m just going to give up my citizenship. But when I say, well, you know what, you are significantly invested in the US Capital markets, do you think that you’re going to be able to get the same Returns in the United States abroad as you do in the U.S. the access to capital, the access to capital in the US is, is far greater than in, I think any European country. You can get a loan here by just showing, you know, a portfolio. You get a line of credit off of your portfolio. And to what extent do other countries have the, the number of options that we have? I don’t think that that’s possible. For example, I had one client say, oh, I’m going to buy an apartment in Spain. I know that it’s worth this amount and I’m able to purchase at half the amount. This person went to the bank in, to a bank in Madrid and said, I want to be able to take out the equity, I’m going to pay for it and I’m going to, I want to take out that balance of the equity so I could do xyz. I think they were going to do like a cash out refi so to, to purchase the, another apartment with that balance. And the bank said that just doesn’t exist in this country. What do you mean you’re going to do what we call a cash out refi and buy another property. You can only do a cash out refi to pay for remodeling expenses. And that completely blew away that client’s mind. That, that capital that she owns, she could not tap into that capital. And in the US you talk about cash out refi left and right. I mean, when we had that, when we had the COVID peak of real estate that people were doing cash out refis, I mean, my neighbor who had no education was able to do a cash out refi. And so it’s just anyone can do it. So when you give up your citizenship, you give up access to that capital. That’s one of the biggest factors that clients say, you know what, I don’t want to give that up. I’ve had accidental Americans come into compliance and I said, okay, so we’re going to give up your citizenship. You have no connection here. They’re like, absolutely not. I’m American. How dare you say that, that I want to give up my, my, I want the benefit of, of my American citizenship no matter what.
Richard:
[00:42:37 – 00:42:52]
Yeah. And you’re not just giving up access to capital, you’re giving up the, the 15 million exemption. Of course, you got, you got, you got, you got, you got to, you’ve got a good chunk of money in the US and suddenly your exemption goes down to $60,000. Is that right? $60,000.
Christine :
[00:42:52 – 00:42:52]
60,000.
Richard:
[00:42:54 – 00:43:12]
So you know, along with a Part of your identity. Right. This is why it’s much more dangerous. Green card, green card, all. Giving up your green card is one thing. Giving up your citizenship is a whole different thing. And it’s one of those things I think people throw around, but very few actually go through with it.
Christine :
[00:43:12 – 00:43:12]
Agreed.
Richard:
[00:43:12 – 00:43:38]
And that’s even before we get into the conversation about exit tax. People don’t realize, yeah, you can do that, by the way, but, but you have to go through an exit tax. And also, if you have US Citizen children, they’ve got lifelong consequences of getting money from you. So it, there is just no, there is no clean way other than just trying to deal with it upfront and ongoing. And that does take a bit of investment because you’ve got to pay different people.
Christine :
[00:43:38 – 00:43:51]
Absolutely. And it’s ongoing compliance. You might be a covered expatriate and you will always be dealing with a U.S. tax attorney. So it’s almost easier to deal with the compliance.
Richard:
[00:43:53 – 00:44:06]
If you’re a covered expat. That’s just a, if you’re a covered expat, which for people, when you give up, even if you give up a green card, if you hit certain criteria, but if you give a up your US Citizenship, are you always a covered expat?
Christine :
[00:44:06 – 00:44:52]
It depends. There’s, there’s certain criteria. One of them, if you’re not compliant with your taxes for five years, for the most immediate five years, and you give up your citizenship or green card, you are a covered expat. So you have to continue filing tax returns. But then again, if you haven’t been filing tax returns or you, you, you’re not accurate. A lot of times it’s just that they’re not filing their, reporting their international assets, then what’s the likelihood of you continuing, of you starting to be compliant later? Well, that’s beside the point. So the other requirement is if you have paid a certain amount of tax over the last three years, I think, and then a net worth test. So if you meet one of the three, you’re going to be a covered expatriate.
Richard:
[00:44:52 – 00:44:54]
And if you cover expat, you’ve got.
Christine :
[00:44:54 – 00:45:15]
Lifelong consequences to a certain extent. I mean, lifelong. If you have US Citizen children, then you’re always going to have to be thinking about the US Tax consequences. But you know, I think that we could do another podcast just on, on expatriating and covered expats, because that’s a, that’s a whole other world to, to discuss. It’s another section of the tax code.
Richard:
[00:45:16 – 00:45:27]
Totally. Well, look, so is There anything as we wrap up this, is there anything else that springs to mind immediately that you want to message, you want to get out there to people, to Americans who are already abroad or thinking of leaving?
Christine :
[00:45:28 – 00:46:08]
Yeah, I think everyone who is considering leaving or already abroad really should do like a diagnostic of their tax returns and their organization chart so what they have invested. Because a lot of times there’s just something missing there. There could be missing compliance or missing tax opportunities to optimize your global estate. And so I think it’s just worth looking over what you have currently to see if you can fix it or if you haven’t been doing something correct. And you need to fix that too.
Richard:
[00:46:09 – 00:47:01]
Here’s a point, actually. You just triggered something. So inevitably, because of what we do and the people we deal with and the situations we encounter, we’re often faced with challenges to fix. In my poems, we talk about landmines, but there’s also, there are opportunities, right? There is arbitrage. There is often opportunities contained within double taxation agreements that Americans can take advantage of. I mean, I think, look, we’ve intentionally kept this podcast kind of generic Europe focused, but, but not country specific. And you know, I’d love for you to come back and we can maybe explore some specific country planning. And a great example I understand is France. Like, I think the way France treats retirement account withdrawals can be very beneficial to Americans. So there are opportunities, right?
Christine :
[00:47:01 – 00:47:51]
There’s opportunities. And especially for individuals who are mobile and deciding what country to pick from, I mean, the, the world really becomes your oyster. Because what we can do is we can analyze the income tax, gift tax and estate tax consequences of each each country, compare them with your set of facts and say, look, this is the information. Where do you want to move to? And I’ve had another client very similar to that set of facts. Let’s say, you know, we’re considering these three countries. Can you run an analysis? These are our assets. Go hire local council in each country and return with a report. And I love those types of projects because we’re really designing someone’s, someone’s life, future, lifestyle. And then the client is going to make an informed decision.
Richard:
[00:47:52 – 00:48:10]
We should do that. If you work for Christine, we should do like a deep dive on a couple of countries and just compare and control. Say you don’t know France compared to Spain and just say, like, if you have this mix of assets, France will be better. If you have this, maybe you should consider Spain. I’m plugging out of thin air there. But like, that would be I think that’d be a useful exercise as well.
Christine :
[00:48:10 – 00:48:12]
That’d be great. Absolutely.
Richard:
[00:48:13 – 00:48:14]
Everyone, you heard that?
Christine :
[00:48:16 – 00:48:17]
We’ll do that.
Richard:
[00:48:17 – 00:48:20]
Right. Well, Christine, thank you so much for that. Where can people find you?
Christine :
[00:48:20 – 00:48:46]
You can visit me at my website, concepcionglobal.com again, I’m Christine Concepcion and you will find my profile page there. I’m also on LinkedIn. You can find me, I think it’s LinkedIn.com Christina Concepcion, and I’m sure a quick Google search or you could find me on chatgpt or Copilot. I have no doubt about that. So you can google my name and you will find me everywhere, of course.
Richard:
[00:48:46 – 00:48:54]
And obviously anyone can come by me and I’ll send you her way as well. So thank you very much for coming on. I’d love to have you on again. And thank you.
Christine :
[00:48:54 – 00:48:55]
Thank you very much.
Richard:
[00:48:56 – 00:49:54]
All right, folks, that’s another episode of expat wealth under our belts. Thank you for listening. I appreciate it and I appreciate you. If you’re enjoying the show and would like to support the mission, which is to help ambitious expats thrive in America and ask you to subscribe to the POD wherever you listen and also consider leaving a rating and review, this stuff really does matter. Please help us get this information, information to the people who need it, that is, to your fellow expats. Just a quick reminder that this show is brought to you by Plan First Wealth. We are a U S. Based financial planner and wealth manager and we help successful American and international families living across the US to make the most of their opportunity and ultimately to retire happier. If you’d like to know more about how we might be able to help you, you can find us on our website, www.planfirstwealth.com or. Or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to the podcast guys for their help producing this episode and the entire show. See you next week.
Production