The number of US citizens relocating to the EU is growing and in the last two years the number of Americans settling in the Netherlands specifically has doubled. With this increase there is also an increase of ‘accidental Americans’ or US–connected people.
Whilst knowing your citizenship is straightforward, even if you have more than one passport, it can be much more complex to know if you are an accidental American. It can have important and potentially expensive implications though, due to the complexity of US tax reporting and asset management requirements.
Arisaig Wealth Management has deep expertise and considerable experience in helping US citizens and connected individuals manage the complexities of living in the EU and managing their finances in a manner that is compliant with the EU, their country of residence, and the US, and which helps them to stay on track with their financial objectives. If this is you, you should reach out to the team at Arisaig Wealth Management today.
How do you know if you are US-connected?
Before we go into this, it’s important to note that the term has different interpretations between immigration law and financial law. When it comes to your investments and tax status, the definition is quite broad and could mean that you have a responsibility to report your assets and income to the IRS (the US tax office). This could also have a knock-on effect on the types of investments and accounts you can own or control which is where we can add real value.
By birth
The first example of a US-connected person might seem obvious, but it has still caught out some high-profile individuals in recent years. If you are born in the States, you automatically become an American citizen. Regardless of where you are resident after that or other nationalities that you might hold, this means that you are obliged to report to the IRS every year for the rest of your life, unless you officially renounce your citizenship. Even if you choose to do this, you will normally need to pay a fee and continue to pay US taxes for the following 7 years.
By residency
Again, this might seem self-evident, but many international professionals fall foul of the rules governing how many consecutive days or how many days in total spent in the United States per year are permitted before it is necessary to file taxes as a resident. The ‘substantial presence test’ determines whether you are liable for taxes in the USA. If you spend 183 days in the US over a three-year period or 31 days in any given year, then you could be required to file with the IRS. Bear in mind that if you become a resident under these criteria, it may affect your direct family as in discussed below.
Green Card holder (even if expired)
Here’s where it starts to be a bit tricky. If you currently have a green card, whether working in the United States or not, it stands to reason that you should be reporting for US taxes. However, the responsibility to file your taxes with the IRS each year continues until such time as your green card is either revoked or ‘properly surrendered.’ Many non-citizens are unaware that they should still be filing (and maybe paying) taxes because their green card has expired or was returned and they failed to notify the Department of Homeland Security.
By relation (family)
If your spouse, legally registered partner, child or at least one of your parents is American or a tax resident of the USA, you may be an accidental American. This does not necessarily mean that you will have to pay additional taxes, but you will almost certainly need to file with the IRS and your assets, income and investments may be taken into consideration for the tax treatment of the American citizen in your life. Furthermore, being US-connected because of a family member will influence the types of investment and banking accounts you can access. If there is any possibility that your international holdings are benefiting an American and, not being declared, the penalties can be severe. If your assets are being declared but are not compliant with US rules regarding overseas investments, you may be suffering a much higher tax rate than if your portfolio was correctly structured.
By relation (business)
In some cases, you may be required to file with the IRS if your business partner or co-owner is an American citizen or resident. In a similar way to the family relationship test, it will come down to whether a US taxpayer could conceivably benefit from your assets and investments.
I am US-connected, what’s next?
If you have found you might be US-connected (an ‘accidental American’), then you need to ensure you are compliant. That starts with speaking with experts in the field.
When it comes to managing your assets, both here in Europe and back in the US, you need expert advice and specialist knowledge both in relation to US requirements and in your country of residence. This is where the team at Arisaig Wealth Management can help. We work with US citizens, and US-connected individuals living in the EU and help them to compliantly manage their assets, whilst staying on track with their financial goals.
You can contact us for an introductory discussion about your situation, reach out to us at info@arisaigwealth.eu.
