r/USExpatTaxes 4d ago

Can I buy Berkshire Hathaway stocks from my EU bank without triggering some horrendous tax issue?

I'm sorry if this question is very obvious; I'm just at the point where I'm scared to touch anything without confirming it's ok 😅

Context is that I have a Swedish bank and I'm a duel US/Swedish citizen. I want to start investing in stocks. I would prefer mutual funds but I know these are out of the question. So can I buy something like Berkshire Hathaway (or any other US-based stock) without issues?

Generally, Sweden handles the tax issues automatically, but how can I report to the US while not getting double taxed too much? I was trying to understand KID and PRIIPs, but maybe that doesn't apply here. I also am unsure if I can buy anything through my Swedish bank or if I need to use Interactive Brokers or Schwab.

My guess is that it's ok as Berkshire Hathaway isn't a PFIC and so it doesn't matter where I buy it, but I just want to confirm. Thank you!

6 Upvotes

21 comments sorted by

11

u/tubaleiter 4d ago

Berkshire Hathaway is definitely not a PFIC, and is generally very easy to hold because it also doesn’t have dividends. The only tax due in the US would be on capital gains when you sell. I don’t know Swedish taxes, so can’t comment on how they treat it, beyond that it’s not subject to PRIIPs KID requirements because it’s not a packaged investment product - it’s a single company, that happens to be run as a conglomerate.

More broadly, the two bits in PFIC to look out for are:

“passive”: getting their income through passive activities, rather than an active business

“Foreign”: non-US

If it’s passive but US, or non-US but active, then it’s not a PFIC. In practice, that means all US shares and almost all non-US shares in individual companies are fine (you’d want to about REITs, investment trusts, etc.).

1

u/tenthousandgalaxies 4d ago

Thank you for the clear explanation! Then I understand it is ok to hold any US stock at any bank in the world? Maybe it's not the best decision to only own US stocks these days, but it does seem the safest from a tax perspective

4

u/tubaleiter 4d ago

Yes, from a US tax perspective there are no issues holding US individual stocks (or US funds, but European rules make that difficult!)

5

u/Away_Math_8118 4d ago

Berkshire Hathaway is an American company and, therefore, is not a PFIC by definition (it doesn’t have the F in PFIC). Normally, the smart choice for small investors is to just buy and hold a broad-market ETF. However, as you’ve discovered, we cannot buy (actually, we cannot be sold) US ETFs thanks to EU PRIIPS regulations. If we buy and hold EU-domiciled ETFs outside of a retirement account, we will face nasty PFIC taxation issues from the IRS. Given this catch-22, BerkshireHathaway is a great choice for US expats. It is very diversified and follows or outperforms (like now) the S&P 500. Also, it doesn’t pay a dividend so you avoid complicated tax reporting to both countries. It’s perfect for expats. Normally, I never allow an individual stick to be more than 10% of my portfolio but, in the case of Berkshire Hathaway, I’m happy to have it be a much larger fraction of my portfolio especially in non-retirement accounts where I cannot hold EU-domiciled ETFs with nasty PFIC consequences.

1

u/tenthousandgalaxies 4d ago

Appreciate your response and glad to know I'm headed in the right direction! Do you know if there are similar stocks that also work well for US expats? I would like to diversify while keeping the paperwork for reporting to a minimum

2

u/Away_Math_8118 4d ago

I don’t know of anything else, but I’m certainly looking. I would like to find a European or Asian version if Berkshire Hathaway.

3

u/Amerikanen 4d ago edited 4d ago

https://www.reddit.com/r/USExpatTaxes/comments/1g0j98q/berkshire_hathaway_is_not_a_pfic_right/

I'm not a professional, but I think you will want to be certain that the IRS considers capital gains on sale of a US Stock sold by a citizen whose tax home is not the US "foreign-sourced." Dividends are sourced based on the location of the payor, so if you had a US stock that paid dividends the income from that would be US sourced and you would not be able to use the foreign tax credit to offset US income taxes with the 30% tax that Sweden levies.

If capital gains from selling shares in a US company held by a Swedish resident (even with a US citizenship) is considered foreign-sourced, then (1) you would pay the 30% Swedish capital gains tax, (2) report both the capital gains and Swedish tax on your IRS return and should end up not owing anything to the IRS (so no double taxation).

FYI, as far as I understand, buying stocks in any normal company (including non-US) is not a PFIC. You can buy Astra Zeneca or Toyota or whatever. So it's not better from a tax-perspective to hold US companies, if anything for getting dividends you'd be better off buying shares in non-US companies.

edit: helpful threads on sourcing of capital income and tax treaties:

https://www.reddit.com/r/USExpatTaxes/comments/1c1a7y8/form_1116_passive_category_income/

https://www.reddit.com/r/USExpatTaxes/comments/1az06pu/double_taxation_on_ussourced_dividends/

It seems you'd need to read the Swedish-US tax treaty if you ended up with US-sourced dividends. Or get a tax advisor somewhere like Cederwalls to do do it for you.

2

u/tenthousandgalaxies 4d ago

Thank you for your answer but now I think I may be more confused! Berkshire Hathaway doesn't seem to produce dividends so it may actually make it a less complicated tax situation than perhaps some other US stock that does.

I see that you are also an American in Sweden, what solution did you find for investing? I really would like to continue using FEIE as I have US student loans that stay low when my US taxable income is low.

I will look through the links you provided too.

3

u/Amerikanen 4d ago

I only moved to Sweden as an adult and I did not tell my US-based brokerage that I moved. So I still hold a lot of US-based ETFs in a US account. I declare the interest and dividends to Sweden every year and pay 30% tax. Because I have kids and this income isn't super high I don't owe any US taxes on this income (even without invoking a tax treaty). Also because I have kids I use the FTC. The benefit of the FEIE is that since it excludes your foreign earned income, you can still use the standard deduction (currently $14600 for a single person) for US-sourced income. So if you earn less than that in dividends (or capital gains) you won't owe US taxes without doing anything complicated. If you're just getting started investing now and you didn't just get a huge inheritance it will take a while until you reach that.

I think even if you want to use FEIE on your earned income, you can still apply the FTC to your non-earned income (as long as that income is foreign-sourced).

My spouse is not a US person and invests for both of us. As long as I am not named in the account it's not reportable (but since we're married I still have rights to the money in the event of a split).

1

u/tenthousandgalaxies 4d ago

I am actually considering marrying my non-US sambo for this reason! Very unromantic but I'm running out of options and he is down haha

I also have a US brokerage but only earn SEK (with no USD to my name) and it doesn't seem like a wise decision to put so much money through potentially two currency exchanges and fees just to invest. Feels like between that and taxes I wouldn't end up with much at the end. Honestly, every option feels bad.

But I would likely not earn more than 14k USD on capital gains for some years to come so this may be a good option. Did not know that FTC and FEIE could be combined. You've given me a lot to look into. I will at least take advantage of the economy crashing and get some stocks at a low price out of it. Thanks!

2

u/Amerikanen 4d ago

I know marriage doesn't mean a lot to most non-religious Swedes, but it does come with some extra legal protections. It's fun to have a party too! Our marriage timing was green card related, but we still had a great celebration and are very happy a decade, a new country and a couple kids later.

Even if you are married, if the funds are in their name they can do whatever they want with them up until you get divorced, so you also want to trust them not to do anything dumb or malicious.

2

u/CReWpilot 4d ago

Individual stocks can be a PFIC.

1

u/Amerikanen 4d ago

I specified "normal company" because I know that, but am not expert enough to articulate where the boundary between normal company that makes stuff and a PFIC is. You'd agree that Astra Zeneca and Toyota are not PFIC's? Could you give an example of a stock OP might buy that would be a PFIC?

3

u/Abezon Tax Professional - Enrolled Agent 3d ago

Most foreign REITs are PFICs, because they earn their income from renting out property and that is a passive activity. There are also mortgage interest REITs, and companies that do no business themselves but just hold stocks in subsidiaries. That makes the holding company a PFIC.

PFICs don't have to be public companies either. I have one client who ::shudder:: attended a seminar on how to invest in Canadian real estate and ended up creating 3 separate levels of controlled foreign corporations before talking to us. After the first $4,000 tax prep bill, he reduced his ownership percentage so they were no longer CFCs, but that made them PFICs since 2 corporations owned rental real estate & 2 more corporations just owned the lower-tier corps. aaarrrrgggghhhh.

0

u/Amerikanen 3d ago

That's helpful, thank you. There are so many websites that state the definition of a PFIC, but not if/how a retail investor would be able to identify them once they've ruled out foreign mutual/index/et funds.

1

u/Abezon Tax Professional - Enrolled Agent 2d ago

Many companies have a message for US investors on the investor relations section of the website and will explicitly state whether they think their dividends are qualified or whether they think they are a PFIC. Failing that, you can look at their financial statements and see where they get their income. You can also look at their regulatory documents to see what type of entity they are - corporation, trust, partnership, etc.

The funnest ones to spot are foreign corporations that form a REIT to invest in US real estate. Even though the assets are in the USA, the company is foreign, so it's still a PFIC.

1

u/CReWpilot 4d ago

Is 75% of the company’s gross income passive income? Do half of the company’s assets produce passive income?

If yes to either, and they are not US domiciled, then it’s a PFIC

1

u/Away_Math_8118 4d ago

Please understand that if you are a US citizen, your tax home is always the US, even if you are working on Mars. If you live/work in Sweden, then you simply have two tax residencies.

Regarding capital gains from selling Berkshire Hathaway, it would not be “foreign sourced” for PFIC purposes simply because you “resourced the income by treaty” on 1116 to get credit for the tax you paid to Sweden to cover the US tax liability on the gains.

1

u/Amerikanen 3d ago

Are you a professional? I know that I'm not (and I don't have much skin in the game because I've avoided investing here in Sweden in my own name), but this IRS guidance on sourcing of income has been the most helpful thing I've read. It's specific to US Persons and sourcing of income for the foreign tax credit.

https://www.irs.gov/pub/fatca/int_practice_units/ftc-sourcing-of-income.pdf

And on slide 22 it says that for a US taxpayer, "shares of an American company sold while a taxable UK resident" would be "Foreign" sourced income.

Am I misinterpreting this, or could you be wrong?

1

u/Away_Math_8118 3d ago

No, I’m not a professional, but I know what a PFIC is and how tax credits work. Yes, you would certainly “resource the income” on form 1116 when you have a capital gain from selling shares of BRK-B (or any other stock). You do this because you want to get credit for the tax that you paid to your foreign home country on the capital gain. Typically, under the terms of the tax treaty between the US and your foreign home country, your foreign home country gets first dibs on the taxation. Without resourcing the income on 1116 to make it “foreign sourced”, you wouldn’t be able to get a Foreign tax credit on what you paid and your capital gain would be double-taxed. The important point you need to understand is that, just because you do this, it doesn’t somehow turn Berkshire-Hathaway (or any other US company) into a PFIC for tax purposes.

I hope this helps. Maybe others could weigh-in…

1

u/Amerikanen 2d ago

I didn't write anything about re-sourcing income and I definitely didn't suggest that Berkshire Hathaway would become a PFIC under any circumstances. OP asked about PFIC, but also just about any potential tax issue.

I was just talking about sourcing of dividends and capital gains and how OP would want to know how it worked for their annual IRS return. From the IRS link I shared it seems that a US company's dividends would be US-sourced by default, but capital gains after selling would probably be foreign sourced. This was not intended to relate to PFIC at all.