The trap closes in two moves
The sequence is remarkably consistent. An American moves to Europe. Within a year the US brokerage restricts or closes the account, because serving a client resident abroad brings obligations the firm would rather not carry. The money has to go somewhere.
So it goes into what the local bank offers, which is a European fund. That decision, taken in good faith to solve a real problem, frequently creates a larger one.
The first move is covered in Your US Brokerage Account After Moving to Europe. This page is about the second.
This page describes a structural problem. It is not tax advice and does not attempt to be. The tax treatment of any particular holding is technical and depends entirely on individual circumstances. Amberlake Partners works alongside specialist US tax advisers, and that analysis is done case by case, on your actual portfolio, not from a general rule.
Why a European fund is a problem for an American
US tax rules contain a category called the passive foreign investment company. It covers corporations organised outside the United States that mainly earn passive income or mainly hold assets producing it.
Read that with a European mutual fund in mind. A fund is a corporation, it is organised outside the United States, and its whole purpose is to hold assets generating passive income. It falls squarely inside the definition.
The rules date from 1986 and were aimed at offshore deferral structures. They were not designed with the ordinary expatriate in mind, but they reach that person all the same, and the treatment that follows is markedly less favourable than for an equivalent US investment.
Yes, this includes UCITS
The usual objection is that UCITS funds are transparent, well supervised and sold across Europe under a rigorous framework. All true, and none of it changes the outcome. UCITS is a European regulatory standard. The US category is a matter of US tax law. Standing well under the first confers nothing under the second.
The same applies to a French SICAV, a Luxembourg SICAV, an Irish domiciled ETF and a UK OEIC. Non US domicile plus passive assets brings you inside the definition, whatever the local label says.
How much it matters depends on your situation
There are several possible treatments, some considerably better than others, and which applies turns on the specific fund, the timing of your holding and elections that may or may not be available to you. There are also annual reporting obligations that add real cost, on top of the reporting an American abroad already carries.
We are deliberately not going further than that here. The detail is genuinely technical, the outcomes differ widely between two people holding what looks like the same fund, and a general article is the wrong instrument. What matters for the decision in front of you is simpler: buying a local fund is rarely the neutral, obvious step it appears to be, and it is worth establishing the position before you act rather than afterwards.
Amberlake works with specialist US tax advisers who do that analysis properly, on your holdings, alongside the investment side.
The part nobody explains: the pincer
Here is what makes the position genuinely difficult rather than merely inconvenient, and it is the piece most articles leave out.
Having learned that European funds are penalised, the logical response is to buy US domiciled funds instead. For an American resident in the European Union, that door is usually closed too. European investor protection rules require that a packaged retail investment product be sold with a key information document in a prescribed European format. US fund providers generally do not produce one, because they are not distributing into Europe. A European broker therefore cannot offer you the US fund you want.
So US rules disadvantage European funds, and European rules block American ones. The ordinary American living in Europe is caught between two regulators, neither of whom was thinking about them. This is not a loophole to exploit. It is a structural gap, and it explains why so many otherwise well organised people end up sitting in cash for years.
What actually remains open
The gap is narrower than it looks, provided you stop thinking in funds.
Directly held securities are not pooled foreign funds. An individual share in a listed company is an operating business, not a passive holding vehicle, and it sits outside the problem entirely. A portfolio of individual equities and bonds therefore avoids the issue by construction. It requires actual management rather than a fund selection, which is precisely the point.
US domiciled holdings remain available through the right custodian. The European distribution restriction applies to retail sales within the European Union. It is not a prohibition on Americans owning US assets. Where the relationship runs through a custodian and an adviser able to serve a US person resident abroad, access is generally preserved.
An advised relationship changes the analysis. Several restrictions that bind retail distribution operate differently where an authorised intermediary manages the portfolio under mandate.
The common thread is that the answer is structural. It is about who holds the assets and under which registration, not about finding a clever product.
Common questions
What is a PFIC in simple terms?
A passive foreign investment company is a non US corporation that mostly earns passive income or mostly holds passive assets. Almost any pooled investment fund organised outside the United States meets that description, which is why an ordinary European fund generally falls into the category.
Are UCITS funds affected?
Generally yes. UCITS is a European regulatory standard, not a US tax category. A UCITS fund is still a corporation organised outside the United States holding passive assets, so its excellent standing in Europe does not change how it is categorised under US rules.
I already hold European funds. What now?
That depends entirely on what you hold, when you acquired it and your wider circumstances. It is not a question an article can answer, and acting quickly on a general rule is often the expensive path. Amberlake Partners works alongside specialist US tax advisers and will review the actual holdings with them before anything is decided.
Why can I not simply buy a US fund instead?
Because a second rule closes the other door. European investor protection rules require a key information document in a prescribed format, and US fund providers generally do not produce one because they are not distributing into Europe. Retail investors resident in the European Union are therefore usually unable to buy US domiciled funds.
So what is actually left?
Directly held individual securities are not pooled foreign funds and fall outside the problem entirely. The practical answer is usually a portfolio of direct holdings managed by an adviser registered with the US Securities and Exchange Commission, rather than any fund bought locally.
Where Amberlake Partners fits
Amberlake Partners is registered with the US Securities and Exchange Commission and regulated in Monaco by the Commission de Contrôle des Activités Financières. That combination is uncommon in Europe, and it is what allows the firm to manage portfolios for American citizens and green card holders living in France, Spain, Italy, Portugal, Monaco and elsewhere in Europe.
In practice that means direct holdings rather than local funds, custody in Europe or the United States according to what suits the client, and an investment structure built so the tax position is straightforward rather than something to unpick later.
On the tax side, Amberlake does not advise. The firm works alongside specialist US tax advisers who examine each situation individually, and coordinates with your own preparer where you already have one. The two sides of the problem, how the portfolio is held and how it is taxed, are handled together rather than in isolation.
Amberlake is independent, works on open architecture and has no in house products to place, so there is no incentive to steer you into a fund at all.