You can reinvest in U.S.-domiciled ETFs, direct securities, or a properly elected foreign fund—the deciding fact is whether Germany or the United States is your 2026 .
“I am a German citizen currently on assignment in the US. I will avoid the substantial presence test for 2025, but will likely become a US tax resident in 2026. I currently have around 250k in non-US ETFs, which I understand I should sell to avoid US PFIC rules. If I sell them, how can I reinvest the money? I have read that investing in US-based ETFs can also cause issues since I am still fully taxable in Germany. What are my options?”
Summary
You do not have to leave the proceeds in cash, and German tax residence does not create a blanket ban on U.S.-domiciled ETFs. The manageable part is fixing your 2026 treaty-residence branch and first U.S.-resident day before trading.
Your first fork is for 2026; if the United States wins, you then have three practical investment-wrapper choices.
Apply Treaty Article 4 in order: permanent home, center of vital interests, habitual abode, nationality, then mutual agreement. If Germany wins and you claim that position, file Form 1040-NR with Form 8833. The IRS then computes income tax as for a nonresident, and 26 CFR 1.1298-1 generally removes annual Form 8621 reporting for the treaty-nonresident portion, subject to its exceptions. German InvStG taxation continues.
If the U.S. is your , a U.S.-domiciled ETF is a straightforward non-PFIC fund wrapper because PFIC applies to a foreign corporation. Germany still taxes distributions, , and gains. If Germany remains treaty residence, Treaty Article 10 generally limits U.S. tax on ordinary dividends to 15%, while Article 13(5) generally assigns residual sale gains to the residence country and Article 23 supplies double-tax relief.
Use direct U.S. company shares, U.S. Treasury securities, individual bonds, CDs, or cash instead of a foreign fund wrapper. Screen any direct non-U.S. company share separately because a foreign company can itself meet the PFIC income or asset test.
A timely election works only when the fund supplies the annual PFIC information needed to calculate ordinary earnings and net capital gain. For marketable PFIC stock, a instead includes annual unrealized appreciation in income and allows losses only within the rule's limit. Each PFIC generally needs a separate Form 8621.
German domestic unlimited tax liability does not by itself decide treaty residence or prohibit a U.S.-domiciled ETF.
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Next steps
These steps determine the legal deadline first, then the investment wrapper, then the reporting duties.
Before selling or buying
Determine your 2026 treaty residence
Apply Treaty Article 4 in this order: permanent home; center of vital interests; habitual abode; nationality; then competent-authority agreement. If Germany wins and you claim it, use Form 1040-NR with Form 8833. If the U.S. wins or you do not claim treaty treatment, follow the U.S.-resident branch.
Requirements
Before your first U.S.-resident day
Fix the last pre-residency trade date
For the substantial-presence branch, use the first day you are physically present in the United States in 2026 as the general residency start date—not day 183. Close a clean-exit sale before that date.
Requirements
Before placing the sale
Classify and document every current ETF
For each fund, determine whether its issuer is a foreign corporation meeting the 75% passive-income or 50% passive-asset test. If selling, retain the final broker confirmation and German gain records. If keeping it, determine whether it can support a timely QEF election or is marketable stock eligible for mark-to-market.
Requirements
After the clean-exit sale settles
Choose and buy the replacement holdings
Choose among U.S.-domiciled ETFs, direct securities, or a foreign marketable fund supported by a timely QEF or mark-to-market election. Germany still applies InvStG to a fund. PRIIPs can block an in-scope retail purchase without a KID, but it does not prohibit ownership.
Requirements
With the 2026 reporting cycle
File each foreign-asset report separately
File FBAR electronically when aggregate foreign financial accounts exceed $10,000. If living in the U.S., attach Form 8938 above $50,000 year-end/$75,000 anytime if unmarried or filing separately, or $100,000/$150,000 jointly. The treaty-nonresident portion is excluded from Form 8938 only when the Form 1040-NR and Form 8833 conditions are met; Form 8938 never replaces FBAR.
Requirements
Legal sources
This answer rests on IRS publications and form instructions, the U.S.–Germany income-tax convention, Treasury regulations, Germany's Investment Tax Act, FinCEN rules, and the EU PRIIPs Regulation.
IRS Publication 519 (2025)
Waiting until day 183 can be too late because the resident period generally starts on the first U.S. day of the qualifying year.
Residency Starting Date Under the Substantial Presence Test
If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year.
U.S.–Germany Income Tax Convention, Article 4
This is the treaty's controlling sequence for resolving dual residence.
Article 4(2)
Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determine as follows: a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (center of vital interests); b) if the State in which he has his center of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode; c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national; and d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
IRS Publication 519 (2025)
A dual resident claiming German treaty residence uses the nonresident return and treaty disclosure route.
Effect of Tax Treaties
If you are a dual-resident taxpayer and you claim treaty benefits, you must file a return using Form 1040-NR with Form 8833 attached, and compute your tax as a nonresident alien.
Instructions for Form 8621 (12/2025)
This defines when a foreign corporation falls under PFIC rules.
PFIC Definition
A foreign corporation is a PFIC if it meets either the income or asset test described next. Income test. 75% or more of the corporation's gross income for its tax year is passive income (as defined in section 1297(b)). Asset test. At least 50% of the average percentage of assets (determined under section 1297(e)) held by the foreign corporation during the tax year are assets that produce passive income or that are held for the production of passive income.
Instructions for Form 8621 (12/2025)
These are the principal election-based routes for retaining qualifying foreign funds.
QEF Election; Mark-to-Market Election
For each year of the PFIC ending in a tax year of a shareholder to which the QEF election applies, the PFIC must provide the shareholders with a PFIC Annual Information Statement. Generally, an election to mark to market PFIC stock under section 1296 may be made by a U.S. person who owns, or is treated as owning, marketable stock in a PFIC at the close of such person's tax year, or by a RIC that meets the requirements of section 1296(e)(2).
26 CFR 1.1298-1(c)(4)
Treaty-nonresident periods generally receive a specific Form 8621 annual-reporting exception.
(c)(4), Dual-resident taxpayers
Subject to the provisions of paragraphs (c)(5)(ii) and (iii) of this section, a shareholder is not required under section 1298(f) and these regulations to file Form 8621 (or successor form) with respect to a PFIC for a taxable year, or the portion of a taxable year, in which the shareholder is a dual resident taxpayer (within the meaning of § 301.7701(b)-7(a)(1) of this chapter) who is treated as a nonresident alien of the United States for purposes of computing his or her United States income tax liability pursuant to § 301.7701(b)-7 of this chapter.
InvStG § 16(1)
Germany taxes distributions, the advance lump sum, and sale gains as fund income.
§ 16(1)
Erträge aus Investmentfonds (Investmenterträge) sind 1. Ausschüttungen des Investmentfonds nach § 2 Absatz 11, 2. Vorabpauschalen nach § 18 und 3. Gewinne aus der Veräußerung von Investmentanteilen nach § 19.
InvStG § 20
A qualifying equity fund receives a 30% exemption for an individual; a mixed fund receives half that exemption.
§ 20(1) and (2)
Steuerfrei sind bei Aktienfonds 30 Prozent der Erträge (Aktienteilfreistellung). Bei Mischfonds ist die Hälfte der für Aktienfonds geltenden Aktienteilfreistellung anzusetzen.
Regulation (EU) No 1286/2014
PRIIPs regulates retail distribution and disclosure rather than prohibiting ownership.
Articles 5(1) and 13(1)
Before a PRIIP is made available to retail investors, the PRIIP manufacturer shall draw up for that product a key information document in accordance with the requirements of this Regulation and shall publish the document on its website. A person advising on, or selling, a PRIIP shall provide retail investors with the key information document in good time before those retail investors are bound by any contract or offer relating to that PRIIP.
FinCEN Form 114 (FBAR)
This is the FBAR trigger for foreign financial accounts.
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
Form 8938 / FBAR comparison
A $250,000 foreign portfolio exceeds the domestic Form 8938 thresholds, and Form 8938 remains separate from FBAR.
Reporting thresholds; comparison with FBAR
Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year. Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year. The Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts).
Instructions for Form 8938
The Form 8938 instructions exclude the treaty-nonresident portion when the return and disclosure conditions are satisfied.
Special rule for dual resident taxpayers
You are not required to report specified foreign financial assets on Form 8938 for the part of your tax year covered by Form 1040-NR, provided you comply with the filing requirements of Regulations section 301.7701(b)-7(b) and (c), including the requirement to timely file Form 1040-NR, as applicable, and attach Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).
26 CFR 20.2104-1(a)(5)
Domestic-corporation shares remain U.S.-situated for a nonresident noncitizen's estate.
(a)(5)
Shares of stock issued by a domestic corporation, irrespective of the location of the certificates.
Form 706-NA filing rule
This is the current Form 706-NA filing threshold stated by the IRS.
If the date of death value of the decedent's U.S.-situated assets, together with the gift tax specific exemption and the amount of the adjusted taxable gifts, exceeds the filing threshold of $60,000, the executor must file a Form 706-NA for the decedent's estate.
These are the official rules as published on the cited dates; tax rules and treaty administration can change.
This is general information about official tax processes, not legal advice, and SettleKit is not a law firm.
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