Reviewed by Abbey Zheng, CFA, CPA
For many Americans living in or connected to Europe, investing locally can feel like a natural choice. You bank in Europe, live and perhaps earn in Euros, and you may want to have investments close to home.
However, there’s a little-known issue that can make tax reporting in the US far more complicated than expected for Americans investing in Europe relating to reporting your investments and US taxes – European investment firms don’t provide a 1099.
What is a 1099 and why does it matter?
In the United States, investment firms issue a form called a 1099 each year. This document summarizes the financial activity relating to your investments, including:
- Dividends and interest earned
- Sales of investments (stocks, funds, etc.)
- Crucially: when an investment was bought and sold
That last detail, the purchase date, is essential, as it lets the IRS determine whether any gain on your sale is taxed at short-term capital gains rates (higher, like ordinary income), or long-term capital gains rates, which are typically lower, and paid on gains on investments held for over a year.
So if you held an investment for more than a year, you usually qualify for the lower tax rate, but to prove that, the IRS needs clear records, otherwise you are likely to be taxed at potentially much higher rates.
Note that as a US citizen, you are still liable to US taxation on your global income and must report your global assets. While you can claim tax credits to offset double taxation, paying income tax rates on assumed short term capital gains in the US is likely to result in a much higher overall tax bill compared to paying preferential long term capital gains rates.
An unexpected issue when investing abroad
European financial institutions don’t provide the same level of detail as US firms. In particular, annual statements don’t include the original purchase date of investments.
This creates an issue when as an American you sell an investment held at a European institution. As the IRS needs clear documentation showing how long you held it, without that proof, the IRS tends to treat the gain as short-term by default, even if the investment was actually held long-term.
Note also that Americans have additional US reporting relating to holding non-US investments, under FATCA and FBAR rules, and there are extra obligations and taxes due to PFIC rules if you invest in non-US mutual funds or ETFs.
Why don’t European firms provide this information?
It’s not an oversight; it’s just a difference in systems.
European reporting standards are designed around local tax rules, which typically don’t rely on holding periods in the same way, don’t require standardized forms like the US 1099, and focus less on tracking “cost basis” and acquisition dates in client-facing summaries.
In other words, European institutions are meeting their own regulatory requirements, but these don’t align with US tax needs.
What this means for American investors
If you’re an American investing through a European platform, you may need to:
- Keep your own detailed proof of purchase dates and prices
- Reconstruct transaction histories manually
- Work with a tax advisor to ensure accurate reporting
Without this, you risk overpaying taxes or facing complications during filing.
How EuroAmerican Financial Advisors is addressing the issue
At EuroAmerican Financial Advisors (EAFA), we’ve seen countless expats caught out by this challenge.
As a result, we are actively engaging in conversations with European financial institutions to encourage a simple but impactful change, that of including the original purchase date of assets on their annual statements.
This small addition would significantly improve transparency and help American citizens simplify their reporting and avoid defaulting to higher US tax bills when investing abroad, by:
- Making it easy to prove holding periods to the IRS
- Avoid unnecessary short-term tax treatment
- Simplify cross-border financial planning
Furthermore, we have developed US and EU compliant all stock/bond portfolios in Europe that don’t create PFIC issues with a firm that does provide the right information for US tax reporting. Get in touch if you’d like to find out more.
A step toward better cross-border investing
As more and more Americans live and invest internationally, awareness and aligning of reporting standards become increasingly important.
Until broader changes are adopted, it’s important to be aware, though. Understanding the gap between US and European reporting can help you take proactive steps and avoid unpleasant surprises at tax time.
It’s also important to understand the broader consequences of investing abroad before investing though, both in terms of US reporting and tax implications and how an investment fits with your wider portfolio and financial plan.
If you have questions about managing investments across borders, get in touch and we’ll be happy to help.
If you have any questions about financial planning or investing as an American living in the EU, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
