In this post we will analyze new financial opportunities for America Citizens living abroad, and in particular in Italy.
We already know that there are some limitations for US Citizens in Europe on the financial markets, but there are also new possibilities.
Let's see these alternatives in detail!
1. THE STARTING POINT: THE DOUBLE-FACED PROBLEM WITH ETF AND MUTUAL FUNDS.
Let's start this article by analyzing what is the state of the art in March 2026 for an American Citizen who lives in Italy in terms of financial investment opportunities.
We are already consider these topics in previous posts:
See the Section: Financial Investments
Now, let's make a summary of the taxation of financial investments in Italy for a US Citizen who moves to Italy.
Hypothesis 1: The US individual keeps his/her financial investments in the US.
In this case, let's go through the Italian taxation on US financial investments:
BONDS
US Municipal Bonds: Italy taxes the interests at a flat tax rate of 12,5%;
US Treasury Bonds: Italy taxes the interests at a flat tax rate of 12,5%;
Other Bonds, held in a US account: Italy taxes the interests at a flat tax rate of 26%.
Capital gains on the sale of these bonds are taxed in the same way as the interests.
STOCKS
Private Stocks, held in a US account: Italy taxes the dividends and the capital gains at a flat tax rate of 26%.
ETF, MUTUAL FUNDS AND HEDGE FUNDS
US ETF and US Mutual Funds: Italy taxes the dividends and the capital gains with PROGRESSIVE TAX RATES.
On this point, we have to make two important considerations:
1) Progressive taxation in Italy has a maximum tax rate of 43%.
2) This progressive taxation is not triggered by the mere fact that the ETF and the Mutual Funds are held in a US brokerage account: progressive taxation is due to the fact that the US ETF and US Mutual Funds are not harmonized with the EU Regulations.
We have already studied this case deeply in this post (you can use the tool on the right to translate the post):
Now, considering this point, let's see if investing in European ETF could solve this progressive taxation problem:
Hypothesis 2: the US individual moves some financial investments in italy.
Let's see what happens if the US individual decides to move some of his/her ETFs from the US to Italy (or Europe in general):
Italian taxation (based on tax residence of the US individual):
ETF, MUTUAL FUNDS AND HEDGE FUNDS
EU ETF and EU Mutual Funds: Italy taxes the dividends and the capital gains with flat tax rate of 26%. Progressive taxation is avoided.
So, by investing in EU ETF and Mutual Funds, the problem seems solved.
But there is an important consequence: the US Taxation on the European ETF.
US taxation (based on US Citizenship):
EU ETF and EU Mutual Funds: the US applies to NON-US ETF and Mutual Funds a very punitive taxation, described into the PFIC regulations.
PFIC is an acronym for Passive Foreign Investment Companies: we have already studied the case in this post (you can use the tool on the right to translate the post):
So, in summary, we have a double-faced problem:
- if the US Citizens who has moved to Italy keeps his financial investments in the US, he will have a progressive taxation in Italy on dividends and capital gains that derive from US ETFs and Mutual Funds.
- if, instead, the US individual decides to switch some investments in Italy, the taxation in the US of NON-EU ETFs and Mutual Funds is again progressive and even more punitive.
2. OTHER TECHNICAL LIMITATIONS
The double-faced problems on ETF and Mutual Funds is not the only one we have to face in helping our US Citizen who has moved to Italy.
In Italy, and in most EU Countries, financial investments for US Citizens are quite problematic and there are often several limitations on the kind of financial products that can be offered to US Citizens.
We have already talked about this problem in a previous article, that you can find here (you can use the tool on the right to translate the post):
The main reason for this limitation is that the majority of EU ETFs and Mutual Funds are not registered into SEC - Securities and Exchange Commission: withour this registration, they cannot held investments by US Citizens.
Considering that this registration into SEC is quite complex, many ETFs and Mutual Funds on the EU market simply skip this passage: the effect is that there is a problem in handling US Persons as clients.
Technically, all other kind of investments, Treasury Bonds, Private Bonds Stocks, etc. are allowed to US Citizens.
3. TRIVIAL SOLUTIONS: STATIC PORTFOLIOS
The most simple solution to these lkind of problem is just getting rid of the ETF and Mutual Funds: if a US Citizens only invests in Stocks and Bonds, all the problems that have emerged so far are completely gone: taxation is 26% in Italy, and, for long-term capital gains and qualified dividends, taxation in the US is at maximum 20%.
This solution is an oversimplificartion of the problem: clearly switching on Stocks from ETF and Mutual Funds have the effects of reducing the efficiency of the portfolio and also its protection. The financial portfolio becomes more static and this cannot be a good solution for the problems we are facing.
4. NEW OPPORTUNITY N. 1 TO SOLVE OUR PROBLEM: DIRECT INDEXING.
The first opportunity we have to avoid these taxation problems is something new called "DIRECT INDEXING".
We will not enter into the details of this financial tecnique as we don't give financial suggestions to anyone (you must seek financial advise from Financial Advisors) and we are not interested into the "tax loss harvesting" characteristic of this type of investment.
The taxation characteristics that are interesting for the purpose of this article are the following ones:
1) The investment in DIRECT INDEXING is done directly in stocks and thus this investment will completely avoid the two tax problems we have discussed so far:
- The US punitive taxment treatment due to the PFIC regulations is completely avoided as the DIRECT INDEXING investment made in Italy is only on stocks and not on NON-US companies.
- The Italian progressive taxation on the ETF is avoided as the DIRECT INDEXING investment made in the US is taxed in the same way as US stocks, with the 26% tax rate.
The DIRECT INDEXING solution can be applied in the US as well as in Italy.
5. NEW OPPORTUNITY N. 2 TO SOLVE OUR PROBLEM: PERSONALIZED ASSET MANAGEMENT.
This second opportunity is probably more interesting for High Net Worth Individuals, as it consists in building a team of Financial Advisors who will create a personalized Italian Asset Wealth management.
In this way, it is possible to avoid all the financial instruments that trigger the application of the punitive US law on PFIC.
This solution can be applied in Italy: please contact us for more information on this point.
YOU CAN BE ALSO INTERESTED IN:
1) Our section dedicated to Tax Residence:
2) Our section dedicated to US Citizens who want to move to Italy:
3) Our section dedicated to taxation in Italy:
4) Our section dedicated to taxation in the US:
5) Our section dedicated to Tax Break in Italy:
6) Our section dedicated to US Trusts:
The following posts:
CONTACT US FOR MORE INFORMATION
If you need more information, you can send an email to:
enrico.povolo@dottcomm.net
or make a phone call to the following number:
+39 0444 322987
Enrico Povolo