Should non-US citizens purchase US or offshore-listed ETFs?

[mhenders]

Hi everybody,

My wife is a citizen of Spain and has a brokerage account in Europe. When purchasing ETFs to implement the PP in this account, we can choose US-listed iShares ETFs or equivalent ETFs listed offshore (some in Ireland) and traded on foreign exchanges.

All things being equal (assuming equal expense ratios), I've long wondered what are the trade-offs for a European in buying US-listed ETFs vs offshore-listed ETFs? In order to monitor her portfolio with the same software as I track my own US-based portfolio, it would be convenient if we bought US-listed ETFs in her European account.

Whereas in the US, it's quite common to find individuals managing their own investments, in Europe I found it to be quite rare. The few who do invest here do so through financial advisers. So I guess it's not too surprising that the European ETF websites (even by companies like iShares) don't seem to offer the same level of educational material as their counterparts in the US.

I put the question to iShares, and got this cryptic reply:

US listed iShares ETFs are primarily designed for U.S citizens because they are subect to US ( IRS) regulations.

Offhsore ETFs ( listed in the UK or in other European countries ) are primarily designed for non- US residents or foreign citizens because of their tax status.

Unfortunatley we are unable to provide further guidance or suggestion beyond this.

Has anyone in this forum spent time looking into this question?

Thanks so much, in advance.

[Thomas Hoog]

I think you have to check 2 things:
1) currency. US-listed is in $ ? / ETFs listed offshore in €. Spain still has the € so you don't have currency risk with ETFs listed offshore
2) taxes on divident: Taxes are withdraw at the source country. US is 35 % (?) Ierland is 20 % (?). Some times you can acquit them with your Spanish taxes but that it always difficult.

[LazyInvestor]

Fees for European ETFs are much higher than for US ETFs. There are some new from Vanguard ETFs but I don't think they are that liquid as of yet.

The main concern you should have is the US estate tax for her as a foreigner (I think it's 60% on everything above 60K), but it shouldn't be a concern for you since you're American. All income is tax free and capital gains too, only dividends are taxed at 30% unless there is a treaty. Given solid legal system and low taxes, I think US is an excellent offshore heaven for non-USians.

If you are running US PP, then just buy it all (except gold) in US.

[CA PP]

"Given solid legal system and low taxes, I think US is an excellent offshore heaven for non-USians." 

Well, well. I would strongly object to that.  Given the recent scandals in the US I would lean towards jurisdictions like Switzerland and liechtenstein for non-usians. Much more solid financial system and .... More fRiendly taxes albeit fees a somewhat higher.

[LazyInvestor]

I think US legal system is sufficiently solid for whatever troubles you could face with your investments properly diversified over few major brokerages, such as Vanguard, Schwab, TD, Fidelity,...,  and few providers of ETFs, such as, Vanguard, iShares, Schwab,...

In Switzerland, you'd probably open an account with some small broker since major banks there are probably a ripoff in terms of fees, and then you'd buy ETFs with high commissions and MERs at various EU exchanges. Given the mess EU is, I'm not sure how it would be better than US version. Implementing a pure Swiss PP is out of question due to their small size. I'd say the same for Canada, Australia, UK,... Switzerland should be good for storing gold and keeping any money that justifies higher expenses, but I don't think it's the money invested in ETFs and government bonds.