At these times, when the global financial system is in turmoil, an internationally trained financial adviser is a solid asset for those newcomers who come to Israel from the US and have financial assets in the States.

Is it advisable to transfer one’s financial assets to Israel or to leave them in the US? To answer this and other questions, we interviewed Douglas Goldstein, CFP®, the owner and director of Profile Investment Services, Ltd.

He is a licensed financial professional in the US and Israel and author of the book Building Wealth in Israel. Goldstein can be reached toll-free at 888-327-6179 or in Jerusalem at (02) 624-2788 (doug@profile-financial.com, www.profile-financial.com).

Goldstein says, “When making aliya, many olim move their financial assets to Israel and convert all their dollars to shekels. While I am a staunch Zionist, there is a strong case to be made for olim to leave their dollars in America.”

There are many reasons, aside from tax and compliance considerations, to maintain a US investment account, even if you live in Israel, he explains.

“US securities markets may still be the most efficient and individual-investor friendly in the world. You can have a diversified basket of global assets within a ‘regular’ US brokerage account and do it cost effectively. While emerging markets and Third World countries may have their time in the spotlight, there is something to be said for an established market with steady government regulations and investor protection programs like SIPC. Governmental regulatory oversight strives to protect the investor and his assets,” he says.

How would you advise an oleh from the US to hold his financial assets?

I would start by helping him open a brokerage account. Then I would spend time explaining the benefits of diversification. A US brokerage account can host a variety of investment vehicles such as stocks, bonds and mutual funds of either US or global companies. Furthermore, you can use checks and debit cards to have other easy access to your funds, even if you are an ocean away.

One example of an investment vehicle is an FDIC insured CD (certificate of deposit in a bank), which is similar to closed deposits in Israeli banks (pakam in Hebrew), where there isn’t the same level of investor protection on cash deposits. FDIC stands for ‘Federal Deposit Insurance Corporation,’ which, since 1933 has been the US Government’s way of protecting the money that people deposit in banks.

Currently, the FDIC insures each depositor for up to $250,000 per bank.

On the other hand, for those who want more risk, there are other investments available: stocks and bonds, for example. While individual stocks and bonds may appeal to some, mutual funds are an easy way to spread the risk among different securities. Mutual funds are one of the most popular investment vehicles, both for beginning and professional investors, but there are risks.

In Israel, mutual funds can be purchased through a bank or a brokerage firm. However, non-American mutual funds may be considered as passive foreign investment companies (PFIC), since almost all income generated in a mutual fund is passive in nature. US nationals who have PFIC investments must fill in IRS Form 8621, which is a complicated form called ‘Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.’ If a person thinks he’d like to complete this document for the IRS, he should ask his accountant what he thinks. In fact, he should check with his accountant regarding the tax implications of all his investments.

People should not just rely on this, or any other newspaper article, for tax or legal advice, and they should always be sure to have their own professionals. They may avoid this tax-filing procedure if the mutual fund they purchase is registered in the US. If they are US nationals, holding non-US domiciled investment products can have other implications, aside from reporting requirements. Tax brackets may be different, and capital losses in a PFIC can’t be carried forward or be used to offset other capital gains.

While the potential profits of foreign-held funds may be alluring, any profits earned by foreign funds may be canceled out by the accountant’s fees in preparing the lengthy form, or penalties and fines for not filing.

What regulations are in force for American citizens from dividend income?

American tax laws require reporting dividend income on worldwide investments. Often, foreign brokerage companies and banks won’t produce an IRS Form 1099 with a concise summary of dividend income. Even without a clear form, American investors are required to report, so it can be a time consuming nightmare to look at statements (which may be in a foreign language) and calculate the figures on their own.

Over the years, America’s reporting requirements for foreign accounts have become more time consuming, and penalties for non-compliance are severe. Several American accountants working in Israel have told me that in recent years, the number of IRS audits of Americans living in Israel is increasing.

Because of the complexity of US tax requirements, working with a financial services company that is savvy in both Israeli and US strategies is essential.

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