Dual citizen (USA+Slovakia) - tax advice

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luko18
Posts: 1
Joined: Wed Mar 24, 2021 2:45 pm

Dual citizen (USA+Slovakia) - tax advice

Post by luko18 »

Hello!

I would like to start investing into stocks and ETFs. I am an American and a Slovak citizen. My tax residence is in Slovakia and all my life I live in Slovakia. I have created an account with Interactive Brokers, but I am not allowed to have a W8 form there, because I also have US citizenship, so they gave me a W9 form. They wrote to me from the helpdesk that I would actually have to pay taxes both in Slovakia and in the USA, so I have to pay double taxes. It seems like a lot of nonsense to me, so I want to ask: Does anyone know, how to avoid this double taxation as in my case? I don´t want to give up citizenship or to invest with other broker.

Thank you!
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Dual citizen (USA+Slovakia) - tax advice

Post by TedSwippet »

Welcome.
luko18 wrote: Wed Mar 24, 2021 2:56 pm I would like to start investing into stocks and ETFs. I am an American and a Slovak citizen. My tax residence is in Slovakia and all my life I live in Slovakia. I have created an account with Interactive Brokers, but I am not allowed to have a W8 form there, because I also have US citizenship, so they gave me a W9 form. They wrote to me from the helpdesk that I would actually have to pay taxes both in Slovakia and in the USA, so I have to pay double taxes. It seems like a lot of nonsense to me, so I want to ask: Does anyone know, how to avoid this double taxation as in my case? I don´t want to give up citizenship or to invest with other broker.
Unfortunately for you, this is real. Because you are a US citizen the US seeks to tax your worldwide income, even though you do not live there, and perhaps never have. The US is more or less unique in this respect; besides Eritrea, virtually no other country does this. The form for you is W9. As a US citizen, you cannot use a W-8BEN. Using another broker will not change these facts.

At the same time, of course, you are subject to tax in Slovakia because you live there.

Now, as a general rule, US foreign tax credits and the FEIE should mean that you will not usually pay full double tax on your income. You will however find areas where these credits do not fully compensate for non-US tax, perhaps because there is no non-US tax on some types of income. And you will always pay at least the higher of the two countries' rates and with the lower of the two tax-free allowances. So some level of double tax, or if not then 'top-up tax', is quite possible. In addition, there are some large US tax traps that it is easy for US citizens living outside the US to fall into (for example, PFICs, FBAR reporting, non-US pensions, and so on).

You can find full details in this section of the wiki:

Outline of non-US domiciles - Tax issues specific to US persons living outside the US

The bottom line is that for you, investing will be much more complicated -- and because of US tax, probably less rewarding -- than for your non-US citizen friends, peers, colleagues and family.
Johnfmh
Posts: 67
Joined: Thu Apr 04, 2019 6:59 pm

Re: Dual citizen (USA+Slovakia) - tax advice

Post by Johnfmh »

The US and the Slovak Republic have a tax treaty, so that also should help you avoid double taxation:

https://www.irs.gov/businesses/internat ... -documents

A couple of pitfalls for the long haul, include retirement accounts (401K, IRA, etc.), which are taxed somewhat differently in the two countries; Social Security; and inheritance. Inheritance in Slovakia is very different from the U.S. Proceeds are typically divided equally between the spouse and children. It’s not like the US where a spouse generally receives 50% or more.

On the positive side, Slovakia has a flat tax, which can be beneficial for high earners.
TedSwippet
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Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Dual citizen (USA+Slovakia) - tax advice

Post by TedSwippet »

Johnfmh wrote: Fri Mar 26, 2021 4:31 am The US and the Slovak Republic have a tax treaty, so that also should help you avoid double taxation:

https://www.irs.gov/businesses/internat ... -documents
Worth noting though that the US uses a 'saving clause' to negate most treaty benefits for US citizens living in the treaty partner country. In this treaty, it is Article 1 paragraph 3:
3. A Contracting State may tax its residents (as determined under Article 4 (Resident)) and its citizens, including former citizens, according to the laws of that State as if the Convention had not come into effect.
Paragraph 4 lists a handful of other treaty articles as exceptions to the above, but overall, the effect of a 'saving clause' is that US citizens cannot use the treaty to protect against most types of US tax. For these cases, the only remedy is imperfect foreign tax credits.
lukas
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Joined: Fri Apr 02, 2021 5:50 am

Re: Dual citizen (USA+Slovakia) - tax advice

Post by lukas »

In Slovak tax code there is an exception, where you dont pay taxes from income made from price difference on regulated market (i.e. stock exchange) if time period between buying and seling is longer than one year.

There is also an exception in (public) healthcare insurance act, where you dont pay insurance from incomes that are not taxable by tax code.

But you need to pay taxes and insurance from dividends.

Combine all three paragraphs above into this simple rule: buy and hold accumulating ETF at least 366 days and you dont need to care about Slovak tax office or healthcare payments.
Johnfmh wrote: Fri Mar 26, 2021 4:31 am Inheritance in Slovakia is very different from the U.S. Proceeds are typically divided equally between the spouse and children. It’s not like the US where a spouse generally receives 50% or more.
You need first end spouse coownership, which means spouse will get 50% of all property aqcuired during marriage (except for inherited property or gifts). What remains is equally divided between spouse and children (if spouse or children are not living, property can be inherited by other relatives or persons).
Johnfmh
Posts: 67
Joined: Thu Apr 04, 2019 6:59 pm

Re: Dual citizen (USA+Slovakia) - tax advice

Post by Johnfmh »

lukas wrote: Fri Apr 02, 2021 6:57 am In Slovak tax code there is an exception, where you dont pay taxes from income made from price difference on regulated market (i.e. stock exchange) if time period between buying and seling is longer than one year.

There is also an exception in (public) healthcare insurance act, where you dont pay insurance from incomes that are not taxable by tax code.

But you need to pay taxes and insurance from dividends.

Combine all three paragraphs above into this simple rule: buy and hold accumulating ETF at least 366 days and you dont need to care about Slovak tax office or healthcare payments.
Johnfmh wrote: Fri Mar 26, 2021 4:31 am Inheritance in Slovakia is very different from the U.S. Proceeds are typically divided equally between the spouse and children. It’s not like the US where a spouse generally receives 50% or more.
You need first end spouse coownership, which means spouse will get 50% of all property aqcuired during marriage (except for inherited property or gifts). What remains is equally divided between spouse and children (if spouse or children are not living, property can be inherited by other relatives or persons).
Good to know. Thank you for the information. How does inheritance tax work in Slovakia, both for a spouse and other heirs? I have read conflicting accounts of how it is taxed.
lukas
Posts: 3
Joined: Fri Apr 02, 2021 5:50 am

Re: Dual citizen (USA+Slovakia) - tax advice

Post by lukas »

Johnfmh wrote: Sat Apr 03, 2021 3:51 am
lukas wrote: Fri Apr 02, 2021 6:57 am ...
Good to know. Thank you for the information. How does inheritance tax work in Slovakia, both for a spouse and other heirs? I have read conflicting accounts of how it is taxed.
There is no inheritance tax in Slovakia since 2004. But you pay tax from income when selling inherited property.
And there are exceptions from taxing income if selling inherited real estate - you dont pay income tax from selling inherited real estate if owned at least 5 years:
- by deceased if you are spouse or lineal descendant or antecessor (for example childrens, parents, grand parents),
- by heir who is not direct relative (for example sibling, uncle, nephew) from the date of acquirement by inheritance (i.e. date when decision on inheritance was validated by court, not the date when it was written in land registry/cadastre).

Use google translate on tax office website:
https://podpora.financnasprava.sk/48098 ... den%C3%ADm
https://podpora.financnasprava.sk/55563 ... den%C3%ADm
ivgrivchuck
Posts: 1670
Joined: Sun Sep 27, 2020 6:20 pm

Re: Dual citizen (USA+Slovakia) - tax advice

Post by ivgrivchuck »

luko18 wrote: Wed Mar 24, 2021 2:56 pm They wrote to me from the helpdesk that I would actually have to pay taxes both in Slovakia and in the USA, so I have to pay double taxes. It seems like a lot of nonsense to me, so I want to ask: Does anyone know, how to avoid this double taxation as in my case? I don´t want to give up citizenship or to invest with other broker.

Thank you!
Actually it is even worse. If you invest in any non-U.S. based etfs or mutual funds, you are likely subject PFIC rules.
For PFICs U.S. tax reporting is extremely complex (you need to hire a professional to help you) and tax rates are punitive.

I advice extreme caution before proceeding.

As long as you are a U.S. citizen, you need to report all your income to the IRS. This does not include only investment income, but all other income as well, like wages.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Johnfmh
Posts: 67
Joined: Thu Apr 04, 2019 6:59 pm

Re: Dual citizen (USA+Slovakia) - tax advice

Post by Johnfmh »

lukas wrote: Sat Apr 03, 2021 9:20 am
Johnfmh wrote: Sat Apr 03, 2021 3:51 am
lukas wrote: Fri Apr 02, 2021 6:57 am ...
Good to know. Thank you for the information. How does inheritance tax work in Slovakia, both for a spouse and other heirs? I have read conflicting accounts of how it is taxed.
There is no inheritance tax in Slovakia since 2004. But you pay tax from income when selling inherited property.
And there are exceptions from taxing income if selling inherited real estate - you dont pay income tax from selling inherited real estate if owned at least 5 years:
- by deceased if you are spouse or lineal descendant or antecessor (for example childrens, parents, grand parents),
- by heir who is not direct relative (for example sibling, uncle, nephew) from the date of acquirement by inheritance (i.e. date when decision on inheritance was validated by court, not the date when it was written in land registry/cadastre).

Use google translate on tax office website:
https://podpora.financnasprava.sk/48098 ... den%C3%ADm
https://podpora.financnasprava.sk/55563 ... den%C3%ADm
By income, do you mean capital appreciation on the house?

I should add that like many other EU countries, banking is expensive in Slovakia—lots of fees and low interest. We got rid of our SK bank account through VUB while ago and now rely on Transferwise—now just WISE—for all of our banking needs there, which mainly involve gifting money to relatives. There are some new internet banks on the scene now, which may be a better deal.

One really good deal in Slovakia are mortgages for Slovak citizens. However, you have to put down quite a bit of money, which shuts many Slovaks out of the housing market. Still, housing is a good investment there. It’s a beautiful country with lots of outdoor activities and is quite safe, especially compared to the United States.
lukas
Posts: 3
Joined: Fri Apr 02, 2021 5:50 am

Re: Dual citizen (USA+Slovakia) - tax advice

Post by lukas »

Johnfmh wrote: Tue Apr 06, 2021 4:25 am
By income, do you mean capital appreciation on the house?
Yes. However, in case of inheritance it is not buying price, but price written in decision on inheritance. Dont ask me how notary or court calculate these prices.

I am not used to tax/law-related english language, so I am using a lot of not appropriate words for this context.
Johnfmh wrote: Tue Apr 06, 2021 4:25 am I should add that like many other EU countries, banking is expensive in Slovakia—lots of fees and low interest. We got rid of our SK bank account through VUB while ago and now rely on Transferwise—now just WISE—for all of our banking needs there, which mainly involve gifting money to relatives. There are some new internet banks on the scene now, which may be a better deal.
I have account at VUB, because I have mortgage there and this (i.e. debt) is one of conditions to have a free account. Otherwise I would pay 6€/month flat fee.
Johnfmh wrote: Tue Apr 06, 2021 4:25 am One really good deal in Slovakia are mortgages for Slovak citizens. However, you have to put down quite a bit of money, which shuts many Slovaks out of the housing market. Still, housing is a good investment there. It’s a beautiful country with lots of outdoor activities and is quite safe, especially compared to the United States.
I think, currently it is 20% own money and 80% mortgage. Though you can have consumer debt for those 20%.

As for outdoor, yes - freedom to roam.
As for safety, again yes. But then, there is a lot of places with unpleasantly high level of petty crime.
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