First time investor,Based in UAE, Staring USA immigration proccess

For residents of the United Arab Emirates.
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Topic Author
mramy
Posts: 4
Joined: Tue Oct 20, 2020 5:36 am

First time investor,Based in UAE, Staring USA immigration proccess

Post by mramy »

Hello,

I'm new to this forum and to ETF investing in general, I went through the whole wiki and read a lots of threads. I want to thank all of you for such useful information

Country of Residence: United Arab Emirates
Currency: USD
Emergency funds: Yes, 2+ years of emergency expenses available
Debt: No debt.
Age: 30
Desired Asset allocation: 80% stocks,20% bonds

I am an expat (Non-US, Non-EU) living in the UAE,so the best ETFs for me will be Ireland domiciled ETFs however, I’m already engaged to an American and we are planning to get married in next year and start the USA immigration proccess. I have read that there are a lot of tax pitfalls when becoming a US citizen (https://www.bogleheads.org/wiki/US_tax_ ... _to_the_US)

I have two plans in mind

Plan#A Invest now in be Ireland domiciled ETFs and then sell everything before becoming a US citizen and shifting my portfolio to USA domiciled ETFs

Plan#B Invest from now in USA domiciled ETFs although their high dividends taxes

So my question is should one should I go with? Taking into consideration that I have a lump sum of 200k USD that I’m planning to invest with (mainly on 4 phases each of 50K)

Thank you for supporting and I really appreciate any input you may have
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by TedSwippet »

Welcome.
mramy wrote: Tue Oct 20, 2020 6:12 am I have two plans in mind

Plan#A Invest now in be Ireland domiciled ETFs and then sell everything before becoming a US citizen taxable person and shifting my portfolio to USA domiciled ETFs

Plan#B Invest from now in USA domiciled ETFs although their high dividends taxes
Nolo suggests that spousal visas are taking somewhere between about five months and two years to approve, so it could be as little as seven months or as long as three years (or more, the USCIS is slow) before you become a 'US taxable person'. Given this, and that you live in a country with no dividend or capital gains taxes, Plan A seems to me highly likely to be the better one. It is certainly the one I would pick if I had to make this decision.

In your circumstance, the only possible reason I can think of for pursuing Plan B would be if you expect that you could have capital losses by the time you become a 'US taxable person', in which case you could use them against any future US capital gains taxes. Of course, if you really expect stocks to fall, you would not be investing in them in the first place.
mramy wrote: Tue Oct 20, 2020 6:12 am I have read that there are a lot of tax pitfalls when becoming a US citizen ...
One quick note on this. You hit these pitfalls as soon as you become a 'US taxable person' under either the 'substantial presence test' or the 'green card test'. It is not at all necessary to be a US citizen to run into them.

Temporary US residents ('substantial presence test') can rid themselves of US tax hassles by simply moving out of the US. Permanent US residents ('green card test'), must both leave the US and formally surrender their green card (cheap, quick and easy, may subject to a soviet-style US 'exit tax') to rid themselves of US tax hassles. US citizens must leave the US and renounce their US citizenship (expensive, slow and somewhat complicated, may subject to a soviet-style US 'exit tax') to rid themselves of US tax hassles.
bogledogle
Posts: 656
Joined: Wed May 07, 2014 4:34 pm

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by bogledogle »

TedSwippet wrote: Tue Oct 20, 2020 11:17 am One quick note on this. You hit these pitfalls as soon as you become a 'US taxable person' under either the 'substantial presence test' or the 'green card test'. It is not at all necessary to be a US citizen to run into them.
This!

You move to the US and live here long enough to pass the substantial presence on any visa, you will owe taxes.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by TedSwippet »

bogledogle wrote: Tue Oct 20, 2020 1:31 pm You move to the US and live here long enough to pass the substantial presence on any visa, you will owe taxes.
Or even on no visa.

https://www.irs.gov/individuals/interna ... -performed
Illegal Aliens (Undocumented Aliens)
Foreign workers who are illegal aliens (undocumented aliens) are subject to U.S. taxes in spite of their illegal status. U.S. employers or payers who hire illegal aliens (undocumented aliens) may be subject to various fines, penalties, and sanctions imposed by the U.S. Department of Homeland Security. If such employers or payers choose to hire illegal aliens (undocumented aliens), the payments made to those aliens are subject to the same tax withholding and reporting obligations that apply to other classes of aliens. Illegal aliens (undocumented aliens) who are nonresident aliens and who receive income from performing independent personal services are subject to 30 percent withholding unless exempt under some provision of law or a tax treaty. Illegal aliens (undocumented aliens) who are resident aliens and who receive income from performing dependent personal services are subject to the same reporting and withholding obligations which apply to U.S. citizens who receive the same kind of income.
Topic Author
mramy
Posts: 4
Joined: Tue Oct 20, 2020 5:36 am

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by mramy »

TedSwippet wrote: Tue Oct 20, 2020 11:17 am Welcome.
mramy wrote: Tue Oct 20, 2020 6:12 am I have two plans in mind

Plan#A Invest now in be Ireland domiciled ETFs and then sell everything before becoming a US citizen taxable person and shifting my portfolio to USA domiciled ETFs

Plan#B Invest from now in USA domiciled ETFs although their high dividends taxes
Nolo suggests that spousal visas are taking somewhere between about five months and two years to approve, so it could be as little as seven months or as long as three years (or more, the USCIS is slow) before you become a 'US taxable person'. Given this, and that you live in a country with no dividend or capital gains taxes, Plan A seems to me highly likely to be the better one. It is certainly the one I would pick if I had to make this decision.

In your circumstance, the only possible reason I can think of for pursuing Plan B would be if you expect that you could have capital losses by the time you become a 'US taxable person', in which case you could use them against any future US capital gains taxes. Of course, if you really expect stocks to fall, you would not be investing in them in the first place.
mramy wrote: Tue Oct 20, 2020 6:12 am I have read that there are a lot of tax pitfalls when becoming a US citizen ...
One quick note on this. You hit these pitfalls as soon as you become a 'US taxable person' under either the 'substantial presence test' or the 'green card test'. It is not at all necessary to be a US citizen to run into them.

Temporary US residents ('substantial presence test') can rid themselves of US tax hassles by simply moving out of the US. Permanent US residents ('green card test'), must both leave the US and formally surrender their green card (cheap, quick and easy, may subject to a soviet-style US 'exit tax') to rid themselves of US tax hassles. US citizens must leave the US and renounce their US citizenship (expensive, slow and somewhat complicated, may subject to a soviet-style US 'exit tax') to rid themselves of US tax hassles.

Thanks a lot for your feedback, I was also more into Plan#A however, I wasn't sure if there was maybe another better option. In summary from what I have read and learned so far, the US tax system is full of traps and I guess you don’t have a lot of options/workarounds once you are a US taxable person
Topic Author
mramy
Posts: 4
Joined: Tue Oct 20, 2020 5:36 am

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by mramy »

TedSwippet wrote: Tue Oct 20, 2020 2:59 pm
bogledogle wrote: Tue Oct 20, 2020 1:31 pm You move to the US and live here long enough to pass the substantial presence on any visa, you will owe taxes.
Or even on no visa.

https://www.irs.gov/individuals/interna ... -performed
Illegal Aliens (Undocumented Aliens)
Foreign workers who are illegal aliens (undocumented aliens) are subject to U.S. taxes in spite of their illegal status. U.S. employers or payers who hire illegal aliens (undocumented aliens) may be subject to various fines, penalties, and sanctions imposed by the U.S. Department of Homeland Security. If such employers or payers choose to hire illegal aliens (undocumented aliens), the payments made to those aliens are subject to the same tax withholding and reporting obligations that apply to other classes of aliens. Illegal aliens (undocumented aliens) who are nonresident aliens and who receive income from performing independent personal services are subject to 30 percent withholding unless exempt under some provision of law or a tax treaty. Illegal aliens (undocumented aliens) who are resident aliens and who receive income from performing dependent personal services are subject to the same reporting and withholding obligations which apply to U.S. citizens who receive the same kind of income.
yeah, totally agree. I wouldn't take that risk
Topic Author
mramy
Posts: 4
Joined: Tue Oct 20, 2020 5:36 am

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by mramy »

On the other hand since I will hold my investing portfolio for a short period (5 month – 2 years) do you think I should focus on ETFs like “Vanguard S&P 500 UCITS ETF” or “SPDR MSCI World Technology UCITS” instead for a broad world ETFs like “Vanguard FTSE All-World UCITS” since they will have better growth in such short term?

What is your thoughts about that ? also if you have any recommendation I will really appreciate it

Sorry if my questions are basic ones, I’m a newbie who just started learning about these stuff recently
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by TedSwippet »

mramy wrote: Wed Oct 21, 2020 3:19 am On the other hand since I will hold my investing portfolio for a short period (5 month – 2 years) do you think I should focus on ETFs like “Vanguard S&P 500 UCITS ETF” or “SPDR MSCI World Technology UCITS” instead for a broad world ETFs like “Vanguard FTSE All-World UCITS” since they will have better growth in such short term?
Who is to say they will have "better growth in such short term"? They have had better growth -- past tense -- over recent periods, but extrapolating this into the future is a cognitive bias:

Behavioral pitfalls - Bogleheads
Recency bias: The tendency to draw conclusions about the future behavior of an investment from only the recent past. This leads to investors chasing performance and then buying high and selling low. “When funds go on a streak of high returns, investors tend to get in right before the peak; then, when the hot streak goes cold, too many shareholders bail out at the bottom,” explains Jason Zweig.
And in practice, you will not be holding your investing portfolio for a "short period". You will be holding these particular funds for a relatively short period, but switching out of Ireland domiciled ETFs and into US domiciled ones that hold the exact same underlying assets is not short-term investing at all. It is merely a minor reorganisation of the vehicles used to access those assets. Changing investment wrappers does not change your actual investments; your investing portfolio is the underlying assets, not the funds or ETFs through which you hold them.

If you are certain you will move to the US, you should create an asset allocation now that is the one you will be happy with when you become a 'US taxable person'. The only difference is that you will implement this asset allocation using non-US domiciled ETFs at first, and then (have to, thanks to ridiculous US tax rules) switch to US domiciled ones when the time comes.
Mkaza
Posts: 1
Joined: Tue Aug 09, 2022 2:12 am

Re: First time investor,Based in UAE, Staring USA immigration proccess

Post by Mkaza »

Hey! I'm in your exact same situation now. Wanted to ask what you ended up doing, which option you opted for and how it worked out!

Appreciate any input!
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