Buying US-domiciled ETFs from Europe (Austria)

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tradri
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Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

There is an article suggesting that it's possible to open an account at Tastyworks from Europe and just buy regular US-domiciled ETFs: https://europoor.com/open-a-tastyworks- ... om-europe/

My question is: Is this is a good way to access US ETFs that are normally not allowed in Europe? And why would the EU go to such great lengths to hinder people from buying US funds, when they can just bypass that regulation through Tastyworks?
liksah
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by liksah »

It could be a nice way to access them but beware of the US Estate Tax issue when buying anything that is US domiciled. Most people here recommend buying US securities through Irish domiciled funds to avoid that whole issue.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

liksah wrote: Mon Apr 05, 2021 7:55 am It could be a nice way to access them but beware of the US Estate Tax issue when buying anything that is US domiciled. Most people here recommend buying US securities through Irish domiciled funds to avoid that whole issue.
Thanks. Didn't know that. What exactly does that mean? Do I have to pay higher taxes when I sell the funds? How much?
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by TedSwippet »

tradri wrote: Mon Apr 05, 2021 9:16 am
liksah wrote: Mon Apr 05, 2021 7:55 am It could be a nice way to access them but beware of the US Estate Tax issue when buying anything that is US domiciled. Most people here recommend buying US securities through Irish domiciled funds to avoid that whole issue.
Thanks. Didn't know that. What exactly does that mean? Do I have to pay higher taxes when I sell the funds? How much?
The US tax issues with US domiciled ETFs are laid out in this wiki page:

Nonresident alien taxation - Bogleheads

The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.

As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

TedSwippet wrote: Mon Apr 05, 2021 9:54 am The US tax issues with US domiciled ETFs are laid out in this wiki page:

Nonresident alien taxation - Bogleheads

The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.

As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
Thank you for the explanation.

I just want to have a backup plan in case the WisdomTree 3x ETPs close down in the future. :beer
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by Tylenol Jones »

Since when Europeans cannot buy US ETFs? They are not allowed to own them at all or they can keep what they bought before?
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by TedSwippet »

Tylenol Jones wrote: Mon Apr 05, 2021 12:51 pm Since when Europeans cannot buy US ETFs? They are not allowed to own them at all or they can keep what they bought before?
Since 2018. It is new purchases that are problematic; holding and selling are okay.

EU investing - EU legislation : UCITS, MiFID II and PRIIPs
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

TedSwippet wrote: Mon Apr 05, 2021 1:08 pm Since 2018. It is new purchases that are problematic; holding and selling are okay.

EU investing - EU legislation : UCITS, MiFID II and PRIIPs
Is there any hope that US ETFs will produce such Key Information Documents in the future? How hard can it be for them to publish a PDF?
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by TedSwippet »

tradri wrote: Mon Apr 05, 2021 1:14 pm
TedSwippet wrote: Mon Apr 05, 2021 1:08 pm Since 2018. It is new purchases that are problematic; holding and selling are okay.

EU investing - EU legislation : UCITS, MiFID II and PRIIPs
Is there any hope that US ETFs will produce such Key Information Documents in the future? How hard can it be for them to publish a PDF?
It has been more than three years, and none has yet done so. That seems like a reasonably strong signal that they plan not to bother. Or at least, not worth waiting to see if they do. Given that a good range of UCITS equivalent ETFs exists, I imagine there is also not much motivation.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

TedSwippet wrote: Mon Apr 05, 2021 1:35 pm It has been more than three years, and none has yet done so. That seems like a reasonably strong signal that they plan not to bother. Or at least, not worth waiting to see if they do. Given that a good range of UCITS equivalent ETFs exists, I imagine there is also not much motivation.
Yes, so far all of my investment needs are met by European funds, so I don't complain.

In case things change, it's good to know that there is a loophole available through Tastyworks.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by 1squirrel »

TedSwippet wrote: Mon Apr 05, 2021 1:08 pm
Tylenol Jones wrote: Mon Apr 05, 2021 12:51 pm Since when Europeans cannot buy US ETFs? They are not allowed to own them at all or they can keep what they bought before?
Since 2018. It is new purchases that are problematic; holding and selling are okay.

EU investing - EU legislation : UCITS, MiFID II and PRIIPs
Mifid regulates the broker - not the customer.
So any non EU regulated broker or bank which lets you open an account should be sufficient.
Being classified as professional client also removes the handicap.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by Tylenol Jones »

TedSwippet wrote: Mon Apr 05, 2021 9:54 am
tradri wrote: Mon Apr 05, 2021 9:16 am
liksah wrote: Mon Apr 05, 2021 7:55 am It could be a nice way to access them but beware of the US Estate Tax issue when buying anything that is US domiciled. Most people here recommend buying US securities through Irish domiciled funds to avoid that whole issue.
Thanks. Didn't know that. What exactly does that mean? Do I have to pay higher taxes when I sell the funds? How much?
The US tax issues with US domiciled ETFs are laid out in this wiki page:

Nonresident alien taxation - Bogleheads

The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.

As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
Ted, can you please clarify how he could come ahead with US-based ETFs?
TedSwippet
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by TedSwippet »

Tylenol Jones wrote: Tue Apr 06, 2021 4:59 am
TedSwippet wrote: Mon Apr 05, 2021 9:54 am
tradri wrote: Mon Apr 05, 2021 9:16 am
liksah wrote: Mon Apr 05, 2021 7:55 am It could be a nice way to access them but beware of the US Estate Tax issue when buying anything that is US domiciled. Most people here recommend buying US securities through Irish domiciled funds to avoid that whole issue.
Thanks. Didn't know that. What exactly does that mean? Do I have to pay higher taxes when I sell the funds? How much?
The US tax issues with US domiciled ETFs are laid out in this wiki page:

Nonresident alien taxation - Bogleheads

The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.

As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
Ted, can you please clarify how he could come ahead with US-based ETFs?
At least two potential ways.

Suppose a 15% US treaty rate and a 20% local rate. For a US domiciled ETF, the investor receives 85% of the dividends, 15% broker withholding, but if they can gain a local tax credit for the 15% paid then they pay just 5% locally and their overall tax drag is 20%, so equivalent to the local marginal rate. For an Ireland domiciled ETF, the ETF pays 15% to the US internally (on US stocks held), then pays the remaining 85% to the investor. However, (and unlike the US), many countries do not let the investor take a credit for indirect tax paid by a fund or ETF. So here the investor pays 20% local tax on an effectively post-US tax 85% dividend, for an overall tax drag of 32.5%. Worse than the US domiciled ETF, then.

Secondly, and more simply, the TER on the US domiciled ETF is usually lower. So that if a full foreign tax credit is available (see above), then the investor benefits from this lower TER.

Note however that this is all highly dependent on US tax treaty rates, how a country taxes -- or does not tax -- foreign (to it) dividends, whether it allows foreign tax credits, local marginal tax rates, if the ETF is or is not held in a locally tax-advantaged or tax-deferred account, whether there is a usable US estate tax treaty, and any TER differences. And perhaps, special rules or not for accumulating rather than distributing ETFs.

Also, from the above you can see that the main tax benefit, if any, comes from ETFs that hold US stocks. For ETFs that hold non-US stocks or bonds, the tax position for US domiciled ETFs is at best only neutral relative to non-US domiciled ones.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by Tylenol Jones »

TedSwippet wrote: Tue Apr 06, 2021 5:33 am At least two potential ways.

Suppose a 15% US treaty rate and a 20% local rate. For a US domiciled ETF, the investor receives 85% of the dividends, 15% broker withholding, but if they can gain a local tax credit for the 15% paid then they pay just 5% locally and their overall tax drag is 20%, so equivalent to the local marginal rate. For an Ireland domiciled ETF, the ETF pays 15% to the US internally (on US stocks held), then pays the remaining 85% to the investor. However, (and unlike the US), many countries do not let the investor take a credit for indirect tax paid by a fund or ETF. So here the investor pays 20% local tax on an effectively post-US tax 85% dividend, for an overall tax drag of 32.5%. Worse than the US domiciled ETF, then.

Secondly, and more simply, the TER on the US domiciled ETF is usually lower. So that if a full foreign tax credit is available (see above), then the investor benefits from this lower TER.

Note however that this is all highly dependent on US tax treaty rates, how a country taxes -- or does not tax -- foreign (to it) dividends, whether it allows foreign tax credits, local marginal tax rates, if the ETF is or is not held in a locally tax-advantaged or tax-deferred account, whether there is a usable US estate tax treaty, and any TER differences. And perhaps, special rules or not for accumulating rather than distributing ETFs.

Also, from the above you can see that the main tax benefit, if any, comes from ETFs that hold US stocks. For ETFs that hold non-US stocks or bonds, the tax position for US domiciled ETFs is at best only neutral relative to non-US domiciled ones.
Thanks for the detailed explanation. I think I managed to find the US-Austria estate tax treaty (https://www.ris.bka.gv.at/Dokumente/Bgb ... _269_0.pdf; the English description starts on the second page), and it doesn't mention any upper amount limits. I guess this means that the US does not apply any estate or gift tax on Austrian residents, and it seems Austria doesn't have the estate tax, so it might be really worth the effort for Austrians to obtain US-based ETFs.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by casually average »

Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
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Re: Buying US-domiciled ETFs from Europe (Austria)

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casually average wrote: Sat Apr 10, 2021 1:24 am Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
+1
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

1squirrel wrote: Mon Apr 05, 2021 8:15 pm
Mifid regulates the broker - not the customer.
So any non EU regulated broker or bank which lets you open an account should be sufficient.
Being classified as professional client also removes the handicap.
This is good news. I am glad they aren't eliminating every possibility to buy US ETFs.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

casually average wrote: Sat Apr 10, 2021 1:24 am Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
Yes, but this same problem exists when you go with other popular brokers such as Trade Republic. Maybe the extra effort in generating your tax returns is worth it, if you can't execute the investment strategy with an Austrian broker. (plus you may pay lower transaction costs & fees)

I am looking to follow a UPRO/TMF strategy, and while there is a 3x S&P 500 from WisdomTree, there is only a 3x 10 Year US Treasury, and no 20+ Year US Treasury, so I am forced to use a US broker like Tastyworks.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by tradri »

TedSwippet wrote: Tue Apr 06, 2021 5:33 am At least two potential ways.

Suppose a 15% US treaty rate and a 20% local rate. For a US domiciled ETF, the investor receives 85% of the dividends, 15% broker withholding, but if they can gain a local tax credit for the 15% paid then they pay just 5% locally and their overall tax drag is 20%, so equivalent to the local marginal rate. For an Ireland domiciled ETF, the ETF pays 15% to the US internally (on US stocks held), then pays the remaining 85% to the investor. However, (and unlike the US), many countries do not let the investor take a credit for indirect tax paid by a fund or ETF. So here the investor pays 20% local tax on an effectively post-US tax 85% dividend, for an overall tax drag of 32.5%. Worse than the US domiciled ETF, then.

Secondly, and more simply, the TER on the US domiciled ETF is usually lower. So that if a full foreign tax credit is available (see above), then the investor benefits from this lower TER.

Note however that this is all highly dependent on US tax treaty rates, how a country taxes -- or does not tax -- foreign (to it) dividends, whether it allows foreign tax credits, local marginal tax rates, if the ETF is or is not held in a locally tax-advantaged or tax-deferred account, whether there is a usable US estate tax treaty, and any TER differences. And perhaps, special rules or not for accumulating rather than distributing ETFs.

Also, from the above you can see that the main tax benefit, if any, comes from ETFs that hold US stocks. For ETFs that hold non-US stocks or bonds, the tax position for US domiciled ETFs is at best only neutral relative to non-US domiciled ones.
Isn't there a problem that US ETFs aren't tax-reporting funds in Austria? (Meldefonds)

From what I can tell, these non-tax-reporting funds are taxed at either 90% of the capital gains from the beginning of the year to the end of the year, or at 10% of the last asset value of the fund, whichever is higher. https://www.konsument.at/geld-recht/inv ... s-und-kest

Doesn't this extreme taxation for these funds make them completely useless?
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by Tylenol Jones »

tradri wrote: Sat Apr 10, 2021 5:55 am
Isn't there a problem that US ETFs aren't tax-reporting funds in Austria? (Meldefonds)

From what I can tell, these non-tax-reporting funds are taxed at either 90% of the capital gains from the beginning of the year to the end of the year, or at 10% of the last asset value of the fund, whichever is higher. https://www.konsument.at/geld-recht/inv ... s-und-kest

Doesn't this extreme taxation for these funds make them completely useless?
It seems you're right. This looks very bad. No clue why they would do that but it seems they did. I guess only UCITS are OK.
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Re: Buying US-domiciled ETFs from Europe (Austria)

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Tylenol Jones wrote: Mon Apr 12, 2021 4:22 am
It seems you're right. This looks very bad. No clue why they would do that but it seems they did. I guess only UCITS are OK.
Yes, it is very strange indeed. Doesn't seem to be a problem in other European countries.

Whatever, guess I'll have to stick to the WisdomTree ETPs. These are treated as ETCs, so I think they are only taxed when I sell them.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by TedSwippet »

tradri wrote: Sat Apr 10, 2021 5:55 am
TedSwippet wrote: Tue Apr 06, 2021 5:33 am At least two potential ways.
...
Isn't there a problem that US ETFs aren't tax-reporting funds in Austria? (Meldefonds)

From what I can tell, these non-tax-reporting funds are taxed at either 90% of the capital gains from the beginning of the year to the end of the year, or at 10% of the last asset value of the fund, whichever is higher. https://www.konsument.at/geld-recht/inv ... s-und-kest
If so, then "potential" but seemingly not "real". How annoying. :-(
tradri wrote: Mon Apr 12, 2021 4:24 am Yes, it is very strange indeed. Doesn't seem to be a problem in other European countries.
The UK punitively taxes offshore (to it) funds held by UK residents -- capital gains taxed at income tax rates. The treatment is nowhere near as nasty as the US PFIC tax, and might perhaps be a bit less nasty than what Austria apparently does.
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Re: Buying US-domiciled ETFs from Europe (Austria)

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TedSwippet wrote: Mon Apr 12, 2021 4:52 am The UK punitively taxes offshore (to it) funds held by UK residents -- capital gains taxed at income tax rates. The treatment is nowhere near as nasty as the US PFIC tax, and might perhaps be a bit less nasty than what Austria apparently does.
Oh ok, didn't know that. Seems like every government wants to control its citizen's money very tightly.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by Tylenol Jones »

tradri wrote: Mon Apr 12, 2021 4:24 am
Tylenol Jones wrote: Mon Apr 12, 2021 4:22 am
It seems you're right. This looks very bad. No clue why they would do that but it seems they did. I guess only UCITS are OK.
Yes, it is very strange indeed. Doesn't seem to be a problem in other European countries.

Whatever, guess I'll have to stick to the WisdomTree ETPs. These are treated as ETCs, so I think they are only taxed when I sell them.
What are these WisdomTree ETPs? How come they are taxed only when you sell? What about the dividends?
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Re: Buying US-domiciled ETFs from Europe (Austria)

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Tylenol Jones wrote: Mon Apr 12, 2021 8:50 am
What are these WisdomTree ETPs? How come they are taxed only when you sell? What about the dividends?
They are leveraged ETPs, so they deliver the 2x or 3x daily performance through swaps.

Because a "fund" is only allowed to be 2x leveraged under UCITS regulations, they are set up as fully collateralized ETN/ETCs, to overcome that restriction. These ETNs and ETCs are only taxed when you sell them, since they aren't normal funds that pay dividends.
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Re: Buying US-domiciled ETFs from Europe (Austria)

Post by casually average »

tradri wrote: Sat Apr 10, 2021 3:54 am
casually average wrote: Sat Apr 10, 2021 1:24 am Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
Yes, but this same problem exists when you go with other popular brokers such as Trade Republic. Maybe the extra effort in generating your tax returns is worth it, if you can't execute the investment strategy with an Austrian broker. (plus you may pay lower transaction costs & fees)

I am looking to follow a UPRO/TMF strategy, and while there is a 3x S&P 500 from WisdomTree, there is only a 3x 10 Year US Treasury, and no 20+ Year US Treasury, so I am forced to use a US broker like Tastyworks.
I would suggest that you don't copy American investment strategies with American products if you are Austrian tax resident. Many neo brokers aren't Austrian brokers and therefore a wicked choice for Austrian tax residents. Please make sure that you buy "Meldefonds" (registered with the OeKB) and use an Austrian broker unless you want to spend money, time and energy on tax issues.
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Re: Buying US-domiciled ETFs from Europe (Austria)

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casually average wrote: Wed Apr 14, 2021 6:19 am
I would suggest that you don't copy American investment strategies with American products if you are Austrian tax resident. Many neo brokers aren't Austrian brokers and therefore a wicked choice for Austrian tax residents. Please make sure that you buy "Meldefonds" (registered with the OeKB) and use an Austrian broker unless you want to spend money, time and energy on tax issues.
I agree, it's better to use the European alternatives with Austrian brokers for these strategies. (like WisdomTree and DADAT)
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