Potential EU Tax Residency and Ownership of US ETFs

Question

I'm currently considering the possibility of obtaining EU tax residency in the future, and I'm aware of the restrictions that EU tax residents face when it comes to purchasing US-based ETFs due to regulatory constraints. However, I currently own some US ETFs.

I'm curious about what would happen to my existing US ETF holdings if I were to obtain EU tax residency in the future:

Could I retain my current US ETF holdings and continue to collect dividends from them, or would I be required to sell them immediately upon becoming an EU tax resident?

Answer 1

According to the Interactive Brokers support, IB is required to provide Key Information Documents to retail customers in the European Economic Area and the United Kingdom for certain financial instruments. However, US ETFs typically do not provide KIDs, so trading of US ETFs is blocked for EEA and UK retail customers.

Orders from retail investors in the EEA or the UK related to products not complying with the EU's PRIIPS Regulation will be rejected. This regulation aims to improve understanding of financial products by providing KIDs with information on product description, costs, risks, and performance.

These rules apply to all retail clients in the EEA or the UK and to corporate accounts classified as MiFID Retail, but not to MiFID Professional customers.

One can still hold or close existing positions subject to PRIIPs regulation, but opening new positions or increasing existing ones in these instruments is not allowed.

Answer 2

I'll summarize the discussion we had in the comments.

The European Union regulations require that any fund marketed to the EU citizens through EU-regulated brokers would provide a KID (Key Investor Document), which among other things should provide some expectations (speculations?) about future performance. You linked to and quoted from a EU parliament member's question, here's what the answer says:

Directive 2011/61/EU[4] qualifies non-EU investment funds as alternative investment funds (AIFs). Under that directive, non-EU AIFs may be offered to retail investors provided a given Member State allows (i) marketing of such funds in its territory and (ii) marketing of such funds to retail investors.

In accordance with Regulation 1286/2014, AIFs offered to retail investors must either draw up the Undertakings for the Collective Investment in Transferable Securities (UCITS) key investor information document[5] or the Packaged Retail Investment and Insurance-Based Products (PRIIPs) Key Information Document.

It appears that the US funds cannot comply with the requirements of neither PRIIPs nor UCITS due to the US regulation, and as such are not available through EU-regulated brokers.

But, neither the question nor the answer say or imply that EU citizens are required to only invest through EU-regulated brokers, or in EU-regulated funds. Thus, if you already have holdings in US ETFs - there's nothing, at least in the links you provided, that prevents you from keeping it. Similarly, if you have access to a US broker and you invest in US ETFs there - you can continue doing so (tax and reporting compliance aside).

You may have troubles transferring that holding into a EU-regulated brokerage. In some countries you may end up not being allowed to have foreign accounts or have additional reporting requirements about them (check the country you're interested in). But as a general rule, there's no prohibition for any EU tax resident (i.e.: tax resident of any EU member country) to hold US ETFs, the prohibition is only on the funds and brokers to sell them.