European Investing

[JCD]

I have a friend who currently lives in the UK, but hopes to eventually move back to the EU.  I, as an American investor, know this person well enough to give some level of guidance about general investing concepts, but cannot answer deeper questions around what investing is like in Europe.  They are slowly collecting dollars, in both pounds and euros, with a high savings rate, but not investing that money. I get investing is not required to get to retirement all that early in ERE, but you do need to do some sort of investing eventually. Knowing that they are more fearful of the market (in part because investing in the market is less common in Europe), I have suggested starting with a conservative, PP style investment. However several complexities come up with regards to this strategy, which I have no experience around:

1. What good brokerages in Europe exist? Ideally the brokerage would be low/no cost, full service and support multiple currencies, including converting dividends to either pounds or euros.  For that matter, what brokerages both support the UK and EU more broadly?
2. Can you convert from having holdings denominated in pounds to euros and dividend payouts in pounds to euros without having to sell shares (e.g. taxable events)?
3. Given a personal preference for paper gold, what forms of paper gold have decent protections for Europeans? I know some gold funds allow you to personally pick up the gold, but does that apply to Europeans?
4. Can a EU/UK citizen buy ETFs that originate from the US?  If so, if someone buys an ETF like Vanguard's VT, what risks would a European face that an American wouldn't?  I can see that dividends being paid out in dollars is a risk, but are there others?  For that matter, are taxes and fees impacted by buying an American fund in Europe?
5. What tax risks are involved in UK/Europe for stock investing that don't exist in the US? I get capital gains taxes and roughly how those work, but is there more to it?  I know Europeans often have their taxes so simple they simply "approve" the taxes rather than doing any work on them.  How does investing impact this process?
6. While not currently a concern, I seem to recall European options are different than American options mechanically speaking. Can Europeans buy American options, on American exchanges? Do some brokerages allow more "international" investing than others? What are the limits around this?

I suppose wrapping it up, setting aside portfolio construction criticism, what would be wrong with something like: VT - 25%, ISF - 10%, IAU - 20%, cash - 40%, REET - 5%?  What special issues would a European see in this sort of portfolio?

Lastly, I did do some looking to see if this topic was discussed before, but didn't see anything that deep dive into how investing is different for Europe vs Americans. If someone has covered some of this before, please point me the way.

[ertyu]

the bogleheads have a section on this. uk/europe isn't an uniform entity, each country has its own tax situation. e.g. some have tax-sheltered accounts, some don't; some have agreements with the us, some don't. Afaik both IB and TDA work with clients from most european countries, but within each country there might be a local more suitable option: e.g. degiro is available in some eu countries but not in others.

in general, this question seems better suited to the bogleheads. it will probably get a better response there.

add: european vs american options refer to how they settle, not where they are available. both types of options are available to both americans and europeans.

[JCD]

That actually is pretty helpful. I had assumed UK rules would be different than the EU due to brexit, but I didn't realize that each country had completely different rules around investing. I sort of assumed the four freedoms (freedom of movement of goods, capital, services and people) meant there was a standard set of rules for owning shares. So thanks for clearing up that misconception. I'll go check out bogleheads.

[Seppia]

1/ IB would be the best option if you want to access as broad number of investment vehicles as possible. They don’t “automatically” do your taxes though (usually, banks will pay capital gains and dividend taxes for you).

2/ no

3/ don’t know sorry

4/ yes you can. No risk, just more paperwork and IIRC some tax inefficiency in some country.

5/ in the main big countries ex-UK (Germany France Spain Italy the nordics) taxes are higher than in the USA and the UK.
In Italy for example you pay 0.2% of the value of your holdings each year, plus dividend and capital gain tax is at 26%.
France you pay a “transaction tax” that is meant to discourage speculation, 0.2% IIRC, capital gains and dividends are taxed 30%
Etc

[Seppia]

Addition: it is very inefficient in Europe to own single stocks from another country. You will owe some taxes where the stock is from and obviously some in the country where you reside.
So not only a lot of paperwork but also quite complex because the rules are all over the place.

Example: as I said above, France taxes their dividends and capital gains 30%, plus there’s a transaction fee.
If you are in say Italy and buy a single French stock:

If you use IB:
IB will pay the transaction fee.
At the end of the year you will owe some (reduced) taxes on the dividend (I think it’s 15ish%) to the French government.
Then you will owe the regular Italian 26% to the Italian government.

It’s worse if you use a bank:
You will pay the transaction tax
When the dividend pays, the bank will pay the 30% in France, PLUS on the remaining amount they will pay the Italian 26%.
If you want to recoup the difference from the 30% to the 15-ish%, you need to submit a form to both the Italian and French IRS. Issue: form submission is like €100

It is unbelievable that they haven’t figured a way to fix this but that’s the reality.
The happy exception is UK stocks, as the UK taxes 0% dividends and capital gains if you reside abroad.

Main European index ETFs are what we call “harmonized”, meaning Vanguard /ishares etc already do all the paperwork for you behind the hood so you only have to pay your country’s portion of the tax regardless what stocks are inside the etf.

[Qazwer]

Be careful of estate taxes if you buy US ETF. I second ertyu suggestion of Bogleheads
https://www.bogleheads.org/wiki/Nonresi ... sion_table

Would probably post your question there just be prepared for a thick skin for your investment approach. They have a great international forum - a poster Ted Swippet usually responds and knows this stuff cold