How to Invest in Spain as a US Expat: PFIC, Vanguard, ETFs & Tax Rules Explained

The most misunderstood (and financially dangerous) part of moving to Spain as a US expat

When most Americans think about moving to Spain, they focus on visa paperwork and healthcare — not the tax traps hidden inside their investment accounts.

But during our webinar, Rob (cross-border financial advisor, SJB US) emphasized a point that shocks nearly everyone:

“When you move abroad without planning, you might lose access to your US investment platforms, can't buy ETFs, and face severe PFIC penalties in the US — all while Spain taxes worldwide gains.”

This isn't a theoretical problem — it's something I see weekly in consultations with Americans already living in Spain who realize too late that:

• Vanguard froze their account

• Wealthfront closed it entirely

• Their new Spanish address triggered trading restrictions

• They unknowingly bought PFIC-classified funds

• They owe US tax on gains they didn’t even withdraw

• Spanish wealth tax applies to brokerage balances

• Capital gains tax timing rules differ drastically

Let’s go deep — because this is where expat financial planning either protects your future or destroys years of investment work.

✅ US Brokerage Platforms: Which Ones Still Work When You Live in Spain

Many Americans assume that once they open an account in the US, they can keep trading normally from abroad.

Not true.

Rob explained:

“If you remove your US address, many custodians will no longer allow you to buy ETFs or mutual funds — some force a full closure.”

Here’s what actually happens:

US Brokerages When Living in Spain

Brokerage	When living in Spain	Risks
Vanguard	Often closes non-US accounts	Forced liquidation possible
Wealthfront / Betterment	Cannot legally serve Spain residents	Accounts closed
Fidelity	Usually allows continued access	Confirm address strategy
Charles Schwab	Generally expat-friendly	Spain-compatible platform
Robinhood / similar apps	Not available abroad	Trading blocked
Merrill / Wells Fargo, etc.	Case-by-case	Trading often frozen

What catches Americans off-guard is that losing the ability to buy ETFs means your long-term investment strategy breaks instantly.

No more rebalancing. No more dollar-cost averaging.

And if you held REIT or international ETFs — PFIC rules may turn your tax return into a nightmare.

(Breathe. We’ll fix it.)

What Is PFIC — And Why It’s a “Silent Tax Bomb” for US Expats

PFIC = Passive Foreign Investment Company
(the most punitive tax rule US expats face)

This applies to:

• EU-domiciled ETFs (very common for expats)

• Non-US mutual funds

• Foreign REIT funds

• Some Spanish investment products & robo-advisors

• Many EU-compliant index products

If you buy these after moving to Spain, the IRS views them as foreign opaque structures, and you can be taxed:

• Up to 50–60% of yearly gains

• Even if you never sold

• With interest penalties

• With mandatory Form 8621 filing per holding

Rob said it bluntly:

“PFIC can wipe out years of investment growth. Americans in Spain should never buy non-US ETFs without planning.”

Meanwhile...

Spain also taxes worldwide investment income, including dividends & gains, at roughly:

• 19% up to €6,000

• 21% €6,000–€50,000

• 23–28% €50,000+

And yes — Spain and the US can both tax the same investment in the same year unless structured correctly.

✅ PRIIPs / UCITS Rule — The OTHER Trap

Even if you avoid PFIC, you still face the PRIIPs regulation in Europe, which stops Americans from buying US ETFs from Europe because the EU requires special disclosure forms US funds don’t provide.

So the situation becomes:

Problem	Result
PFIC rules (IRS)	EU ETFs/mutual funds trigger punitive US taxation
PRIIPs regulation (EU)	Blocks buying US ETFs from Europe (missing KID docs)
Brokerage platform policies	Freeze or close accounts; block ETF/mutual fund purchases

This is where many Americans panic — or worse, make a “DIY fix” that accidentally violates IRS rules.

Don't worry — there are legal workarounds.

We just need to build the right bridge before you cross the ocean.

✅ The Approved Playbook for Americans Investing From Spain

There are three compliant pathways:

1) Keep a US Brokerage (Correctly Managed)

High-level plan:

• Keep a US mailing address

• Convert ETF strategy into direct stock + bond ETF allocations

• Switch to Fidelity or Schwab

• Avoid robo-advisors and automated ETFs

• Consider dividend-focused portfolios (Spain taxes dividends differently than US capital gains timing)

2) Build a PFIC-Safe Portfolio

This typically means:

• US-listed stocks

• US-listed bond funds

• US-listed REIT alternatives

• Individual stock dividend strategies

• PFIC-compliant international exposure via SMA structures (done through advisors like SJB)

Rob emphasized:

“For Americans in Spain, direct stock portfolios are often the cleanest path.”

3) Time Your Restructuring Before You Move

Critical mistake:
Waiting to sell/buy after you're already a Spain tax resident.

Why?
Spain taxes worldwide gains based on when the gain occurred, not only when you sell.

So if you sell large gains after arriving?

Spain taxes years of growth you earned in the US — unless structured before arrival.

Smart expats do this:

✅ Sell ETFs / funds prior to relocation
✅ Harvest gains in the US tax system
✅ Rebuild portfolio in PFIC-safe structure
✅ Land in Spain with clean positions

This is tax sorcery when done right. Sudden six-figure mistake when not.

Capital Gains: US vs Spain (Quick Matrix)

Event	US Tax	Spain Tax
Sell US stock	Taxed on gain	Taxed if you are Spanish tax resident
Rebalance ETF	May be non-taxable	Taxable rebalancing event
Roth growth	Tax-free	May be taxed if withdrawn in Spain
HSA growth	Tax-free	Fully taxable in Spain
Realizing gains before move	Often ideal (US timing)	Avoid doing after move (Spain taxes worldwide)

This is why the “I’ll figure it out when I get there” crowd ends up furious.

✅ Spanish Wealth Tax & Modelo 720 Reporting

Even if you do everything right, you still face:

Requirement	Trigger
Spanish Wealth Tax	Net assets typically > €1M (region dependent thresholds)
Modelo 720 (foreign asset declaration)	> €50,000 in assets abroad across reportable categories

If you forget Modelo 720, penalties used to be massive — now reduced after EU court rulings — but still serious.

Spain wants transparency.
You must report.

✅ Real Expats, Real Impacts

Case: “Mark, retired engineer”

• Moved without planning

• Vanguard froze ETF purchases

• Bought European index fund in Spanish bank — PFIC explosion

• First Spanish tax bill triggered capital gains on past US growth

• Paid IRS Form 8621 prep: €2,200/year CPA fees

• Now restructuring everything after paying unnecessary tax

Case: “Elizabeth, tech exec”

• Did portfolio cleanup before leaving US

• Switched to Schwab

• Roth conversions pre-move

• Dividend equity strategy + municipal bond sleeve

• Wealth tax reviewed by region

• Total cost avoided: estimated $84,000+ in tax & penalties

Same dream. Very different outcomes.

✅ Quick Checklist Before Moving (Non-Exhaustive)

Before leaving the US:

• ☐ Convert ETFs → US stock portfolio or PFIC-safe model

• ☐ Move to Schwab/Fidelity if needed

• ☐ Consider Roth conversions

• ☐ Harvest gains in US timing window

• ☐ Document basis values for Spain

• ☐ Review dividend vs withdrawal tax strategy

• ☐ Decide address strategy with legal compliance

• ☐ Prepare wealth tax forecast (Madrid vs Valencia vs Catalonia matters)

After arrival in Spain:

• ☐ Register tax residency timing

• ☐ File Modelo 720 (report foreign accounts)

• ☐ File Spanish income tax return (April–June)

• ☐ Avoid any EU investment funds unless vetted

• ☐ Coordinate US CPA + Spain tax advisor annually

This is why I always say:

Don’t move countries with a “retirement portfolio.” You need a “cross-border portfolio.”

✅ Key Takeaways

• Brokerage choice matters before you move

• Vanguard / Wealthfront often unusable abroad

• ETFs & index funds become a tax landmine

• PFIC rules are real — and brutal

• Spain also taxes annual gains & dividends

• Wealth tax planning depends on region

• Model 720 is mandatory foreign asset reporting

• Fix it before you land — not after