In Europe, an ETF savings plan is the obvious way to invest. With a US passport, Washington sees it very differently.
Brokerage Accounts for US Citizens in Europe: Banks, ETF Savings Plans and PFICs
Part of the guide US tax obligations abroad: what your US passport demands every year
For most Europeans it's simple: open a brokerage account with your bank or an online broker, pick a broadly diversified ETF, set up a monthly savings plan, done. With a US passport, you hit resistance at two points. The first is the bank, which has to report US clients under FATCA and sometimes would rather not take them on at all. The second is US tax, which treats exactly the European ETF so many people recommend particularly harshly. This guide walks through both problems in turn: where US citizens in Europe can get a brokerage account, what they can demand, why European funds count as PFICs, why US funds often can't be bought through European banks and what a brokerage account in the US means. We don't name banks or brokers; this is about rules, not providers.
1Why banks hesitate with US clients
That reporting takes effort, and not every bank wants to carry it. What this means for you: before opening an account, ask explicitly whether the bank holds brokerage accounts for US persons, and state your US status correctly from the start. If you hide it and are later flagged through a US place of birth, you risk having the account closed at a bad moment.
3The tax problem: European funds as PFICs
The bigger problem isn't the bank, it's US tax law. A foreign corporation is a Passive Foreign Investment Company if at least 75 percent of its gross income is passive, or if on average over the year at least 50 percent of its assets produce passive income or are held to produce it. Passive income here means what the law calls Foreign Personal Holding Company Income, including dividends, interest and gains from selling securities. An investment fund set up in Europe that holds stocks or bonds therefore typically meets both tests. That applies to an accumulating ETF from Ireland just as much as to a distributing fund from Luxembourg or Germany.
3.1What happens without an election
If the US investor makes no election, the default rules of Section 1291 apply. Distributions exceeding 125 percent of the average of the three prior years, and any gain on a sale, are treated as an excess distribution. That amount is spread day by day over the entire holding period. The current year's share is ordinary income. The shares allocated to earlier years are taxed at the highest rate in effect in each of those years, plus an interest charge, as if the tax had been paid late back then. The longer the holding period, the heavier the interest charge.
3.2The elections
Two elections soften this. With a Qualified Electing Fund, you pay tax each year on your share of the fund's earnings; this requires the fund to provide an annual information statement that meets US requirements. With Mark-to-Market, you pay tax each year on the increase in value, even without selling; this requires the shares to be regularly traded on a qualifying exchange. Made in time, both routes avoid the interest charge of the default rules; in exchange, both mean paying tax every year without receiving any cash.
3.3Form 8621
As a rule, Form 8621 must be filed for every PFIC. There is an exception if the total value of all your PFIC shares at year end is no more than $25,000 ($50,000 if filing jointly) and you neither received an excess distribution nor sold shares that year. Our guide to ETFs and funds as PFICs explains in detail how each regime works and what happens with funds you've held for years.
| Regime | Condition | What is taxed |
|---|---|---|
| Section 1291 (default) | no election made | excess distributions and sale gains are spread over the holding period; amounts for earlier years taxed at that year's highest rate plus an interest charge |
| Qualified Electing Fund (Section 1295) | election by the investor and an annual information statement from the fund | each year, your share of the fund's ordinary earnings and capital gains, even without a distribution |
| Mark-to-Market (Section 1296) | election by the investor; the shares must be regularly traded on a qualifying exchange | each year, the increase in value, even without a sale |
Source: IRS, Instructions for Form 8621 (Qualified Electing Fund, Section 1291 Fund, Mark-to-Market Election); 26 U.S.C. § 1291(c).
Form 1040, FBAR and Streamlined for US citizens living in Europe.
4US funds through a European bank: the key information document
The obvious fix would be a fund from the US. A US fund isn't a foreign corporation, so it isn't a PFIC. At a bank in the EU, however, the purchase usually fails because of European law. Under the EU PRIIPs Regulation, a retail client must receive a key information document before buying a packaged investment product. It is prepared by the product's manufacturer, and banks generally won't execute purchases of products for which the manufacturer hasn't provided one. Since 1 January 2023, management companies of investment funds sold to retail investors must also prepare such a document.
The EU regulation doesn't apply in Switzerland. Whether a Swiss institution offers US funds to retail clients depends on Swiss law and on the institution's own decision. If you live in Switzerland, ask your bank directly.
5Individual stocks instead of funds
Many US citizens in Europe switch to individual stocks. A share in a company with a genuine operating business, whether European or American, generally doesn't fall under the PFIC rules, because the company earns its income from production, trade or services rather than mainly from investments. US stocks aren't foreign corporations in any case. Be careful with investment companies, holding companies with mostly financial assets, and companies that hold a lot of capital but have little revenue: the tests can apply to them.
6A brokerage account in the US
The other route is an account with a broker in the US. As a US citizen, you're not a foreign client there but a US person, and you provide your tax number on Form W-9. Whether a broker opens or keeps an account for a client living in Europe is its own decision under its own rules; there is no law that bars US citizens from holding a brokerage account in the US. Before opening, ask explicitly whether the broker accepts clients with a foreign address.
Your US tax question, answered by people who know both sides.
8Step by step to the right brokerage account
- Work out which funds you already hold and check which of them count as PFICs.
- Find out whether you need to catch up on Form 8621, FBARs or entire tax returns for past years; that is what the Streamlined procedure is for.
- Decide whether to invest in Europe with individual stocks and a PFIC election, or to use a brokerage account in the USA.
- Before opening an account, ask the bank or broker whether they accept US persons or clients living in Europe.
- State your US status correctly from day one and keep the paperwork.
- Plan the tax on both sides: withholding or a tax return in Europe, foreign tax credits and forms in the USA.
For an overview of what a US citizen in Europe has to file, see our page on US tax obligations for Americans abroad. If you have years without a return behind you, read our article on the Streamlined Procedure.
- European banks must report accounts held by US persons under FATCA; some turn US clients away, and there is no right to a brokerage account.
- European funds and ETFs almost always count as PFICs on a US return: without an election they are taxed at the top rate plus an interest charge, and each fund needs its own Form 8621.
- US funds are not PFICs, but European banks usually can't offer them because they lack the key information document required by the PRIIPs Regulation.
- Individual stocks in companies with a real operating business generally fall outside the PFIC rules.
- A brokerage account in the USA is not a foreign account for FBAR purposes.
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