How US Citizens Living Abroad Can Invest: The Expat Investment Guide

Investing as a US citizen living abroad is more complicated than for other nationalities. US brokerage accounts are often restricted or closed once you move overseas, while most local investment platforms outside the US decline Americans due to FATCA reporting obligations. The investments available to other expats, such as foreign mutual funds and local ETFs, may trigger punitive US tax treatment for American expat investors through PFIC rules. 

For Americans investing internationally, the right setup depends on circumstances, but it helps to look at how a platform handles US reporting and what professional support to build around it.

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Table of Contents

1. Key Takeaways 

2. The Investment Problem Most US Expats Don't See Coming 

3. Why US Brokerage Accounts Get Restricted When You Move Abroad?

4. Why Can't Americans Living Abroad Simply Invest Locally Instead?

5. What Is PFIC and Why Does It Matter for Expat Portfolios? 

6. What Citizenship-based Taxation Means for Expat Portfolio?

7. What A Workable Investment Structure Looks Like?

8. What US Expats Expect vs What They Actually Face?

9. FAQs

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Key Takeaways 

• US brokerage accounts are frequently restricted or closed when a US citizen moves abroad. Depending on the institution, this can mean sell-only status, fund restrictions, or account closure notices.

• Local investment platforms outside the US typically decline US persons due to FATCA compliance obligations, local licensing requirements, product governance or internal risk appetite, leaving American expats unable to invest domestically or locally.

• Passive Foreign Investment Companies (PFICs) are what most foreign mutual funds, non-US-domiciled ETFs, and pooled investment products are classified as for US holders and come with additional US tax and reporting obligations. What's tax-efficient for other expats can carry a significant additional tax and reporting burden for Americans.

• The US and Eritrea are the only two countries in the world that tax on citizenship rather than residency, meaning a US citizen's IRS obligation follows them regardless of where they live or invest.

• The workable structure combines a US-friendly investment platform and an SEC-registered investment adviser  

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Watch: Financial Challenges Affecting Americans Living Abroad

In this conversation, Michael Garcia, Private Wealth Manager at Melbourne Capital Group, sits down with Emily Goss, Investment Manager at Evelyn Partners, specialising in US-connected clients, to unpack why Americans living overseas often find themselves stuck between two systems. 

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The Investment Problem Most US Expats Don't See Coming

Most expats who move abroad expect their financial lives to move with them. For British, Australian, European, and most other nationalities, that's largely true. For US citizens living abroad, the picture is fundamentally different. 

Americans living outside the United States face a structural bind that sits at the intersection of US securities law, global banking regulations, and the IRS's citizenship-based tax system.  The investment options that work perfectly well for other expat nationalities can expose American expat investors to complex US tax treatment. The accounts that felt straightforward back home can become restricted or closed simply because of the change of address. 

This isn't a niche problem. It affects every US person living abroad who wants to build wealth, and it requires a specific investment strategy rather than simply adapting what worked in the US. 

Why US Brokerage Accounts Get Restricted When You Move Abroad?

When a US citizen moves overseas and updates their address with their US brokerage, the account often changes status. What that looks like in practice varies by institution, but the patterns are consistent. Trading restrictions, an inability to add money or buy new positions, restrictions on holding mutual funds, or, in more extreme cases, a notice to close the entire account within a set window. Michael Garcia, a US-specialist Private Wealth Manager at Melbourne Capital Group and a US citizen himself, describes seeing clients given 60 days to close their entire brokerage account, with no immediate alternative in place. 

The reason isn't arbitrary. US securities firms face compliance obligations regarding servicing non-resident clients, including regulations, reporting requirements, and liability exposure associated with maintaining active accounts for clients living abroad, leading many institutions to restrict or exit those relationships rather than manage them. This doesn't apply to every firm, but the trend is consistent enough that US expats should check their brokerage's residency policy before relocating, rather than after. 

The consequence can be significant. Emily Goss from Evelyn Partners, who specialises in managing portfolios for US-connected clients, notes: a portfolio that becomes frozen or sell-only can leave investors either out of the market entirely or unable to access liquidity when they need it, with no clear path to reinvesting. 

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Why Americans Living Abroad Can't Simply Invest Locally Instead

The natural response to a restricted US brokerage account is to open an investment account locally, wherever the expat is now based. For most expat nationalities, that's straightforward. For US citizens, it typically isn't.

Many financial institutions outside the United States decline to accept American clients. One reason is FATCA, the Foreign Account Tax Compliance Act, which requires foreign financial institutions to report the accounts of US persons to the IRS, or face significant withholding penalties on US-sourced income. The compliance infrastructure required to meet those obligations is substantial, and many institutions, local banks, investment platforms, and wealth managers have concluded that the cost and complexity of servicing US persons outweighs the commercial benefit.

The result, as Michael describes it, is a grey area: unable to invest in the US because you no longer live there, and unable to invest where you're living because you're American. The same investment account that a British or European expat opens without difficulty may simply be unavailable to a US citizen in the same city, earning the same salary, at the same stage of life.

What is PFIC and Why Does It Matter For Expat Portfolios? 

Even where investment products are technically accessible to US persons abroad, that accessibility doesn't mean they are suitable. This is where the Passive Foreign Investment Companies (PFICs) create one of the most consequential pitfalls in expat investing and financial planning. The IRS uses this classification to describe foreign corporations whose at least 75% of gross income is passive; such companies are considered PFIC. Secondly, if 50% or more of the company's assets are held for the purpose of generating passive income, the company may also be classified as a PFIC. 

In plain terms, the unit trust at a Malaysian bank, the locally listed ETF on Bursa, and the foreign mutual fund recommended by a local adviser are standard investment products for any European or British expat. For a US citizen in the same city, holding the same account, the IRS may classify them as PFICs.

The tax consequences are specific. Under the default PFIC regime, gains and certain distributions may be taxed at higher ordinary income rates rather than long-term capital gains rates, with an interest charge added on top for what the IRS calls "excess distributions". A separate Form 8621 filing may be required for individual PFIC holdings, subject to the applicable filing rules and exceptions . For a portfolio with several foreign funds, the annual compliance costs in time and professional fees can add up quickly.

The greatest risk, as Emily Goss of Evelyn Partners puts it, is the surprise. Many US citizens living abroad only find out they own a PFIC when they try to sell an investment, switch advisers, or finally hire a US tax professional and discover years of unreported holdings. Given the complexity of PFIC rules and the severe penalties for non-compliance, consulting a qualified US tax professional is not just advisable, it's almost a necessity.

One approach that many US persons abroad consider is investing through  US-domiciled stocks, US-registered ETFs and US Treasuries, since these generally sit outside the PFIC regime and typically qualify for standard long-term capital gains treatment. Whether this approach is appropriate depends on individual circumstances and should be discussed with a suitably qualified adviser. Accessing these instruments from outside the US brings its own challenges, which is where the choice of investment platform and adviser comes back into focus, and why the investment structure matters as much as the asset selection.

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What Citizenship-Based Taxation Means for American Expats

The PFIC problem is a product of a broader structural reality: the US taxes its citizens on worldwide income regardless of where they live. This is citizenship-based taxation, and the US and Eritrea are widely cited as the only two countries in the world that operate this way. Every other country uses residency-based taxation: once you leave, your local tax obligation ends or diminishes substantially.

For American expat investors, this has a specific consequence. Moving to a low-tax or zero-tax jurisdiction, as many expats do, doesn't eliminate a US citizen's US tax obligation. The IRS follows Americans everywhere. A US citizen living in Malaysia, for example, files a US tax return each year on worldwide income. Whether any additional US tax is actually payable depends on income levels, applicable exclusions, foreign tax credits, deductions, and the individual's wider tax position. Higher earners may find they owe additional US tax on top of their Malaysian tax. The investment product that is genuinely tax-efficient for a British, Australian, or European expat in the same city can carry a significant additional US tax burden for an American in identical circumstances.

Emily Goss describes this dynamic directly: what looks like a tax-efficient investment for any other nationality "works the opposite" for Americans, coming with additional tax rather than the benefit the product was designed to provide, unless the specific US tax implications of that product have been accounted for in advance.

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What a Workable Investment Structure Looks Like

The path that works for American expats investing abroad isn't complicated in principle, though it requires getting the right combination of elements in place:

A US-friendly investment platform

US-domiciled funds, including US-registered, globally diversified ETFs, provide international investment exposure without triggering PFIC classification. Platforms designed to serve US persons abroad, including some SEC-registered investment managers and specialist expat brokerage services, can hold these positions compliantly and service clients living outside the US.

An SEC-registered investment adviser

The SEC registration matters specifically because it establishes the adviser's authority to manage US-domiciled investments in a compliant structure. This is distinct from a local financial adviser in Malaysia or elsewhere, who may have no visibility into the US tax implications of their recommendations.

A separate qualified US tax adviser for the reporting side

The tax reporting obligation for US persons abroad rests entirely with the individual, not the financial adviser or the bank or platform holding the investment. Many advisers and institutions that accept American clients don't consider it their responsibility to flag or assist with US tax reporting. Ensuring there is a qualified US expat tax adviser handling the FBAR reporting, PFIC-related forms, and other filings is a non-negotiable part of the structure. Michael Garcia puts it plainly:  

"When it comes to tax, that's a whole separate ordeal, and we partner with tax advisers to help you understand your full financial picture. When it comes to investments, you can speak with us, and we'll work with our SEC-registered partners."

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What US Expats Expect vs What They Actually Face

FAQs

1. Can I keep my US brokerage account when I move abroad?  
   Some US brokerages allow accounts to remain open for non-resident clients; others restrict trading or require closure. The position varies by institution and destination country. Checking the brokerage's policy before relocating, rather than after, avoids being forced into a decision under time pressure.

2. What is FATCA and why does it affect which platforms will accept me?  
   The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report the accounts of US persons to the IRS or face withholding penalties. Many non-US institutions decline US clients because the compliance infrastructure required to meet those obligations isn't commercially viable for them.

3. What types of investments are typically classified as PFICs?  
   Foreign mutual funds, including index funds and actively managed funds such as foreign ETFs listed on non-US exchanges, non-US unit trusts, and certain foreign insurance or pension products commonly qualify as PFICs. Individual foreign stocks in active companies generally do not. The platform where investments are held also matters, in some cases the platform itself may be classified as a PFIC. Determining the US tax status of specific holdings generally requires the assistance of a qualified US tax professional.

4. I haven't been reporting my international investments correctly. What can I do?  
   Speaking with a qualified tax professional is the first step, they can identify how the investments should have been reported and help rectify missed years of reporting and any associated tax. Where an honest mistake is admitted and corrected proactively, penalties are often lower compared to the consequences of being found non-compliant. 

5. Does working with a local financial adviser protect me from US tax obligations?  
   Reporting and tax obligations rest with the individual, not the adviser. A local adviser who recommends a product without flagging its US tax treatment doesn't transfer that liability. Working with advisers who understand US cross-border obligations from the outset and have access to SEC-registered investment partners, can help clients navigate the pitfalls that international advisers without US expertise may miss.

6. Does holding US stocks or ETFs expose me to US estate tax as a non-American?
   Yes. Non-resident aliens who own US-situs assets, including US-listed stocks and ETFs face a US estate tax threshold of just USD 60,000, with tax of up to 40% applying on the value above that threshold. This is significantly lower than the exemption available to US citizens, and no country in Southeast Asia currently has an estate tax treaty with the US that would provide relief. Read more: US Estate Tax for Non-Americans.

Ready to Review Your Investment Options?

If you're a US citizen living or planning to live outside the United States, it's worth reviewing your existing accounts, reporting and structure with appropriately qualified professionals before making new investment decisions. . If you'd like a second pair of eyes on where things stand, you can reach Michael Garcia at michaelgarcia@melbournecapitalgroup.com or connect with him on LinkediIn.

Melbourne Capital Group are not a tax adviser. This article is general information and does not constitute financial, tax, or investment advice specific to your circumstances. US tax rules are complex and subject to change. Speak with a qualified US tax adviser regarding your specific tax position before making investment decisions.

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