By Liz Zitzow - One problem that faces Americans living abroad is how and where to invest their money. The foreign country may not recognize a US-tax-free vehicle like an ISA, and the US likewise is not going to confer tax-free status on other countries’ tax-free vehicles. The biggest concern is the local country's equivalent of mutual funds. Investing in Ireland-based unit trusts and investment trusts (equivalent to our mutual funds) results in Passive Foreign Investment Company (PFIC) taxation. The benefits of the 15% rate on dividends and capital gains is lost, and there are penalty charges that can result in a 100% effective net tax on any dividends and capital gains.
That’s why I’m so thrilled about this recent news story: http://www.aiaworldwide.com/database/news/fullStory.php?id=51908. If the US and European governments can agree that these investments, when formed within a financially reputable country, are not actually tax-avoidance vehicles, Americans will be more comfortable investing in their country of residence. Mutual recognition will allow Americans abroad to invest competitively in Europe, something they currently can not do efficiently except through direct share-holdings.