How Americans in Europe Should Invest in 2026: PFICs, Taxes

Americans living in Europe should invest through a US-regulated broker that still serves their country. They should buy US-domiciled ETFs instead of European UCITS funds, which the IRS treats as PFICs, and claim foreign tax credits correctly on their US return. Get those three things right and you avoid the PFIC trap.

Most problems start when an American in Lisbon or Munich opens a local account and buys the popular local index ETF. For the IRS, that fund is usually a passive foreign investment company (PFIC), and the default PFIC tax is harsh. This guide covers the expat investment options that work, the brokers that still keep US expat accounts as of October 2026, how your European country fits in, and the forms you will file.

Tax rules depend on your own facts and your country of residence, so confirm your case with the IRS website or a qualified cross-border tax adviser.

Key facts at a glance

For most Americans in Europe, the simplest setup on the US side is a US-domiciled ETF portfolio at a broker that legally serves your country. The table sums up the rules as of October 2026.

Question	Short answer (as of October 2026)
Best fund type for US tax purposes	US-domiciled ETFs (such as VTI or VOO) held at a US-regulated broker
European UCITS ETFs (VWCE, CSPX, VUAA)	Generally PFICs for US taxpayers
Default PFIC tax	Section 1291: gains taxed as ordinary income, with an interest charge on the parts allocated to earlier years. Never the lower capital gains rate
Form 8621 de minimis exception	$25,000 or less of total PFIC value at year-end ($50,000 joint). Removes reporting only, not the tax
Brokers opening new accounts for Americans in Europe	Interactive Brokers (most countries). Schwab One International (51 countries and regions, not France or Italy)
Fidelity	No new accounts for customers living abroad. Existing accounts face limits that vary by country
Foreign tax credit shortcut	Skip Form 1116 if all foreign income is passive, on a 1099 or similar, and foreign tax is $300 or less ($600 joint)
Foreign earned income exclusion 2026	$132,900, earned income only. Never dividends, interest or capital gains
FBAR	Required if foreign accounts total more than $10,000 at any time. 2026 FBAR due April 15, 2027 (automatic extension to October 15, 2027)
Form 8938 for Americans abroad	$200,000 at year-end or $300,000 at any time (single). $400,000 or $600,000 (joint)

Why are European ETFs a problem for Americans?

European ETFs are a problem because a UCITS ETF such as VWCE or CSPX is generally a PFIC for a US taxpayer, and PFICs get punitive US tax treatment plus extra paperwork. US-domiciled ETFs avoid PFIC treatment, according to Financial Expert Class.

Your European neighbors can buy VWCE without a second thought. You can't, because the IRS taxes you on worldwide income wherever you live, and it treats a foreign pooled fund very differently from a US one. The fund is fine. The US tax treatment is the trap.

The three PFIC tax regimes

A PFIC is taxed under one of three regimes, and the default is the worst. Under the IRS Instructions for Form 8621 (PDF), a PFIC is a "section 1291 fund" when you have made no QEF or mark-to-market election, or when it is an unpedigreed QEF.

Regime	When it applies	How it is taxed	Practical reality for UCITS ETFs
Section 1291 (default)	No election made	Gains and excess distributions are spread over the holding period. The current-year share is taxed as ordinary income. Shares from earlier PFIC years are taxed at that year's highest ordinary rate plus an interest charge	Where most people end up by accident
QEF election	Fund supplies a PFIC Annual Information Statement	You report your share of the fund's earnings each year	Most UCITS funds do not supply the statement
Mark-to-market (section 1296)	Fund is "marketable stock" (regularly traded)	Yearly gains taxed as ordinary income. Losses are deductible only up to gains you reported in earlier years	Often the only workable election for listed ETFs. A late election does not undo section 1291 treatment for earlier years

When a large part of a gain is allocated to earlier years, one tax firm says effective rates can climb above 50% once the interest charge is added (Universal Tax Professionals). A QEF election would be gentler, but it only works if the fund provides a PFIC Annual Information Statement, and most European UCITS funds do not (OurTaxPartner). The IRS requires a separate QEF election for each PFIC, and mark-to-market is only available for regularly traded stock (IRS Form 8621 instructions).

When you must file Form 8621

You must file Form 8621 for each tax year in which any of five triggers applies. Per the IRS Instructions for Form 8621, they are: you received certain distributions, you recognized a gain on a sale, you report a QEF or mark-to-market election, you make a Part II election, or you must file the annual report under section 1298(f).

The IRS revised these instructions in December 2025. Part V now asks for a three-letter currency code, and new line 15e(2) requires you to convert the line 15e(1) amount to US dollars if it is in a foreign currency (IRS).

The $25,000 de minimis exception and a worked example

The de minimis exception lets you skip only the annual section 1298(f) report if your total PFIC value at year-end is $25,000 or less ($50,000 on a joint return, $5,000 for certain indirectly held PFIC stock). It applies only if you had no excess distribution, no gain on a sale and no QEF election, and it never removes the PFIC tax (Ed Parsons CPA). The rule sits in Treasury Regulation 26 CFR §1.1298-1(c)(2), not in the general exceptions section of the Form 8621 instructions (US Expat).

Here is how it plays out. For easy math, assume €1 = $1.10 (an illustrative rate only, so use the actual rate for your return).

You are a single filer living in the Netherlands. In year one you buy €20,000 of CSPX.
On December 31 the holding is worth €21,000, about $23,100. You sold nothing and received no distribution.
Your total PFIC value is $25,000 or less, so the de minimis exception can relieve the annual 1298(f) report for that year.
In year two you sell when the holding is worth €22,000 (about $24,200). You are still under $25,000, but you now have a gain.
The exception is gone. The sale must be reported on Form 8621. With no election in place, the gain falls under section 1291. It is spread over your holding period. The year-two share is taxed as ordinary income, and the year-one share is taxed at the highest ordinary rate for that year plus interest. You do not get the long-term capital gains rate.

The lesson: being "small" protects you from a form, not from the tax.

Which brokers accept US expats?

As of October 2026, Interactive Brokers accepts residents of almost every country except sanctioned or higher-risk ones, with no account minimum (YourTaxBase). Schwab One International accepts online applications from residents of 51 countries and regions, but not France, Italy, Canada or Japan (YourTaxBase).

Broker	New accounts for Americans in Europe?	Existing accounts after you move	What to watch
Interactive Brokers	Yes, in almost every country	Generally kept	Confirm which IBKR entity holds your account. IRAs offered to US citizens living anywhere except six countries
Schwab One International	Yes, if your country is on the list of 51	France: no new accounts. Sources differ on whether old accounts are hold-and-sell only	France and Italy not on the online list as of October 2026
Fidelity	No new accounts for customers living abroad	Kept with limits, such as no mutual fund purchases, sell-only in some countries	Restrictions vary by country
EU retail brokers (DEGIRO, Trade Republic)	Yes, as local retail clients	Not applicable	Generally cannot sell US ETFs to retail clients, which pushes you toward PFICs
Other US brokers	Policies vary	Policies vary	Check each broker's terms for your country

Why Interactive Brokers keeps showing up

Interactive Brokers is a US-registered broker that also holds EU regulatory authorizations. Expat guides cite this as the reason it can keep serving US clients in countries such as France without the compliance conflict that makes other US brokers restrict or exit (Easy France Now).

One honest caveat. Guides about buying VOO from Europe say IBKR blocks US ETFs for EU retail clients, while expat guides say IBKR's US entity lets Americans in Europe hold US-listed securities. The likely difference is which IBKR entity opens your account, so confirm that before you fund it.

Can I keep my Fidelity or Schwab account if I move to Europe?

Often you can keep it, but with limits. Forbes Finance Council says Americans in France can retain a Schwab account but not open a new one. Existing Fidelity customers may keep accounts, but some report sell-only status or being nudged to leave (YourTaxBase). For a wider look at platforms, see our guide to expat investment brokers in Europe.

Can Americans in Europe buy VOO or VTI?

Yes, through a US broker that still serves you, but usually not through a European retail broker. EU PRIIPs rules, in force since January 2018, require a Key Information Document (KID) for retail products, and US-domiciled ETFs such as VOO, VTI and QQQ do not produce one (Buy US ETFs From Europe).

A US broker that follows SEC and FINRA rules has no obligation to publish an EU KID, so it can let a European-resident retail client buy US-listed ETFs directly (Financial Expert Class). That is the legal route for most Americans in Europe.

Is the EU changing the KID rules?

A change is coming, but not soon. The EU Retail Investment Strategy would redesign the PRIIPs KID into a "Product at a Glance" dashboard and move UCITS onto the KID. Political agreement came on December 18, 2025, the ECON committee approved the agreed texts on June 23, 2026, and November 11, 2026 was listed as an indicative plenary date (Licentium). If the vote happens, the KID changes would still not apply until roughly 30 months after entry into force, so current PRIIPs rules control as of October 2026. The Council's March 2026 note on the PRIIPs amending regulation tracks the file.

In the UK, the Consumer Composite Investments regime replaced PRIIPs on April 6, 2026, with an optional transition until June 7, 2027 and the full regime in force from June 8, 2027 (FCA PS25/20). The FCA says the new rules do not themselves block US ETFs, but an overseas fund can only be marketed to UK retail investors if it is a recognised scheme, so most UK platforms still do not offer US-domiciled ETFs to retail clients.

US ETFs solve the US side, not always the local side

A US-domiciled ETF avoids PFIC rules, but your country of residence taxes it under its own fund rules. In the UK, gains on a non-reporting offshore fund are taxed as income, and many US ETFs do not have reporting status, so check whether your specific ETF appears on HMRC's reporting funds list. Other countries have their own fund-tax rules. Check how your country taxes US-domiciled funds before you switch, ideally with an adviser who knows both systems.

Foreign tax credits on your brokerage income (2026 rules)

The foreign tax credit reduces your US tax by foreign tax paid on the same income, up to a limit. For investment income it is your main tool against double tax, because the foreign earned income exclusion never covers dividends, interest or gains.

How does the foreign tax credit work on investments?

Form 1116 is filed separately for each income category: passive, general, foreign branch, section 951A, section 901(j), re-sourced by treaty and lump-sum. Dividends and interest from investments fall in the passive category, wages fall in the general category, and unused credits carry back 1 year and forward 10 years within the same category (Tax Expert Today). The IRS VITA Form 1116 sample shows the category boxes at the top of the form.

The practical point: excess credit from tax on your salary (general category) does not offset US tax on your dividends (passive category). People in high-tax countries are often surprised by this.

What about tax I pay to my European country on US ETF income?

Dividends from US-domiciled ETFs are US-source income, so the normal Form 1116 limit usually will not allow a credit for tax your European country charges on them. Capital gains work differently. If your tax home is abroad and your country actually taxes the gain at 10% or more, IRC section 865(g) treats the gain as foreign source, so you can generally claim a foreign tax credit for that tax in the passive category. If your country taxes the gain at less than 10%, or not at all, the gain stays US-source (IRS Publication 514).

For dividends, relief usually comes through the US tax treaty with your country. Under many treaties, your country of residence credits the US tax at the treaty rate, and the US lets you re-source the income and claim the credit on a separate Form 1116 in the "re-sourced by treaty" category (IRS Publication 514). Treaty rules differ by country, so confirm with the treaty text on IRS.gov or a cross-border preparer.

The $300 / $600 shortcut

You can skip Form 1116 and claim the credit directly on Schedule 3 only if all your foreign-source gross income is passive, all of it is reported on a qualified payee statement (1099-DIV, 1099-INT, K-1, K-3), and your creditable foreign taxes are $300 or less, or $600 on a joint return (TSCPA Tax).

Worked example: a married couple retired in Spain holds an international US ETF at a US broker. Their 1099-DIV shows $450 of foreign tax passed through by the fund. All of it is passive and on a 1099, and $450 is under $600, so they can claim it on Schedule 3. If the box showed $750, they would need Form 1116 in the passive category. The shortcut only covers that pass-through tax. Tax they pay to Spain on the ETF dividends is a treaty question, and Spanish tax on gains may be creditable under section 865(g). That is where a cross-border preparer earns the fee.

Why is my foreign tax credit smaller than the foreign tax I paid?

Qualified dividends and long-term gains taxed at lower US rates require a section 904(b)(2) rate-differential adjustment, which shrinks the foreign tax credit limit for most passive-category investors (TSCPA Tax).

Does the FEIE cover dividends and capital gains?

No. The 2026 foreign earned income exclusion is $132,900 (up from $130,000 for 2025) and covers earned income only, so investment income depends on the foreign tax credit and your regular US return (Jupid). If you have a salary and a portfolio, run the wage side through our FEIE calculator and treat the investment side separately.

FBAR and Form 8938 for your brokerage accounts

You must file an FBAR (FinCEN Form 114) when your foreign financial accounts total more than $10,000 at any point in the year, and foreign brokerage accounts count. The threshold is the same for people living abroad, and the FBAR is filed electronically with FinCEN, not with Form 1040 (Taxes for Expats).

In general, an account held at a US financial institution, such as IBKR LLC, Schwab or Fidelity in the US, is not a foreign account for FBAR or Form 8938, while an account with a European IBKR entity or a European broker generally is (IRS Instructions for Form 8938). Ask your broker which legal entity holds your account.

Worked example: you are a 62-year-old retiree in Portugal with €6,000 in a checking account and €4,000 in savings. At the illustrative rate of €1 = $1.10, that is about $6,600 plus $4,400, or $11,000. Neither account alone crosses $10,000, but the total does, so you file an FBAR. The FBAR for calendar year 2026 is due April 15, 2027, with an automatic extension to October 15, 2027. Our guide to FBAR for Americans in Europe walks through the filing.

Form 8938 thresholds for Americans living abroad are $200,000 at year-end or $300,000 at any time for single filers, and $400,000 or $600,000 for joint filers. They were unchanged for the 2025 tax year, filed in 2026 (Taxes for Expats).

A simple investing setup for Americans in Europe

For most people, a workable expat investing account is a US-regulated broker that serves your country, holding US-domiciled ETFs, checked against your local fund-tax rules. These steps get you there with the fewest surprises.

Before you move, read your current broker's rules for your new country. Fidelity, Schwab and others treat countries differently.
Update your address honestly. If your broker restricts the account, you want to know before a forced sale, not after.
If your broker will not serve your country, open an account with Interactive Brokers (confirm the entity) or Schwab One International if your country is on its list.
Ask the new broker about transferring positions rather than selling, so you do not trigger unplanned gains.
Check how your country of residence taxes US-domiciled funds, then build the portfolio from US-domiciled ETFs. Avoid UCITS ETFs and local mutual funds.
If you already own UCITS ETFs, check your year-end value against the de minimis limit and ask a preparer whether a mark-to-market election makes sense.
Keep every 1099 and foreign tax statement for Form 1116 or the Schedule 3 shortcut.
Add up your foreign account balances each year and file the FBAR and Form 8938 if you cross the thresholds.

If you are still planning the move itself, start with how to move to Europe as an American, then come back to the brokerage side.

Common mistakes Americans make when investing in Europe

Most costly mistakes come from following local investment advice written for Europeans, not for US taxpayers.

Buying the local favorite ETF. VWCE, CSPX and VUAA work for Europeans and are generally PFICs for you.
Thinking de minimis means no tax. The $25,000 exception removes a report, not the section 1291 tax, and a gain on sale removes the exception.
Assuming you can pick a PFIC election later. QEF needs a statement most UCITS funds never publish, and a late mark-to-market election does not fix earlier years.
Assuming US ETFs are a clean fix everywhere. In the UK, gains on non-reporting funds are taxed as income, so check HMRC's list. Other countries have their own rules.
Ignoring treaty re-sourcing. Tax your country charges on US ETF dividends usually needs the "re-sourced by treaty" category, not the normal passive limit.
Missing the FBAR on small accounts. The $10,000 test is the combined total, at any point in the year.

Frequently asked questions

Can I keep my Fidelity, Schwab or Vanguard account if I move to Europe?

Sometimes, but expect limits such as sell-only status or no new mutual fund purchases, and policies vary by broker and country. Check your broker's terms for your new country before you move, and see the broker section above for which firms still open accounts for Americans in Europe.

Is a UCITS ETF such as VWCE or CSPX a PFIC for a US citizen?

Generally yes. A UCITS ETF is usually a PFIC for a US taxpayer, which means Form 8621 filing and, without an election, section 1291 tax at ordinary income rates. US-domiciled ETFs such as VOO or VTI avoid PFIC treatment. The PFIC section above explains the three tax regimes.

Do I have to file Form 8621 if my PFIC holdings are under $25,000?

Not always. The de minimis exception can relieve the annual report if your year-end PFIC value is $25,000 or less ($50,000 joint) and you had no sale gain or excess distribution, but it never removes PFIC tax. The worked example above shows how a small sale ends the exception.

Can I still contribute to an IRA or Roth IRA from Europe?

Often yes, if you have taxable compensation that is not excluded under the FEIE. Income you exclude on Form 2555 does not count (IRS Publication 590-A), so people who claim the foreign tax credit on wages instead often can contribute. Interactive Brokers offers IRAs to US citizens living anywhere except six countries, so the account itself is usually not the barrier.

What about US estate tax if my spouse is not a US citizen?

A non-US-citizen, non-resident spouse who holds US-situs assets such as US-domiciled ETFs in their own name can face US estate tax on amounts above $60,000, unless an estate tax treaty gives more relief (IRS). Get cross-border advice before putting US ETFs in their name, because the right structure depends on your country and any treaty.

Do I have to report a European bank account on the FBAR if I only have a few thousand euros?

Possibly. The test is whether all your foreign accounts together exceeded $10,000 at any point in the year, not whether one did. The FBAR section above shows how two small accounts can cross the line once converted to dollars.

References

Filed under Expat Finance & Investing Expat Investment Strategies

Muhammad Sahil

Founder and editor of EU Info Hub. Digital marketer with over seven years of freelance experience, now studying economics and business in Europe. He has been through the residence permit process himself. This article is general information, not legal or financial advice. Always confirm details with the relevant consulate or authority.