Interactive Brokers Lite

This guide explains why Interactive Brokers Lite is currently (as of writing) the best investment account for expats / world travellers. It is completely free and there are even promotions, where you can receive up to 1000 USD as opening bonus (depending on how much you invest). However, these are just additional perks, while the main advantage lies in its flexibility if you move or travel to another country (research visits, job change etc.). In particular, you are able to deposit and withdraw currency via local bank transfers, which are usually completely free, and exchange currency (for investing or international transfers) for a nominal fee of 2 USD at the current exchange rate without markups, making it cheaper than any other currency transfer services (such as TransferWise/Wise, CurrencyFair etc.).

Introduction

Interactive Brokers (ticker symbol IBKR) is the one of the largest brokerage firms in the world with substantial financial backing, advanced technology and the preferred choice of professional traders / small hedge funds / family offices. While there are many excellent brokerage accounts available to US customers (Robinhood, Fidelity, Ameritrade, E*Trade etc.), Interactive Brokers is particularly attractive to people who need to deal with multiple tax residencies, moving between countries and potentially receiving salaries or payments from oversea.

Interactive Brokers offers two main accounts to US customers, namely Interactive Brokers Pro (IBKR Pro) for advanced traders and Interactive Brokers Lite (IBKR Lite) for regular customers. For most international customers, IBKR Lite (as discussed here) is the best choice, but we also compare both types of accounts here.

Advantages of Interactive Brokers Lite

IBKR Lite comes with zero monthly fees, free US market data and zero commission for trading on US exchanges. While this alone would not qualify IBKR Lite as the best choice, as this is offered by many competitors, the true advantage is that IBKR Lite still comes with most of the special benefits of the professional account:

Regarding the opening bonus

Currently, Interactive Brokers runs a promotion* where you receive a bonus equal to 1% of the money that you deposit / stocks that you transfer and keep for one year (maximal bonus is 1000 USD). Please read the terms & conditions (see link) carefully: The bonus is paid out in the form of "award shares" of IBKR, i.e., you receive Interactive Brokers stock. If you withdraw money within the first year, the award shares are reduced. Most importantly, you cannot sell these shares for one year after you received them. In summary, you essentially get a bonus of 1% of the amount that you deposit (up to 1000 USD) as ownership of IBKR stock.

While this may seem cumbersome or complicated at first, it is really just another bonus similar to the one offered by many other firms (such as Chase, Robinhood, WeBull etc.). Interactive Brokers does this to increase its market share among retail investors, as it tries to expand beyond professional traders. There are no hidden fees or a requirement to invest your deposited money in a certain way. It is best to look at it as an additional "nice to have", while not making your decisions based on it!

This bonus is very attractive if you intend to manage your retirement / stock investments with Interactive Brokers. You can transfer your stocks/ETFs/assets from many countries with little to no fees. You can also deposit money in most major currencies (see above) without additional fees. The main advantages of IBKR for expats were already discussed above, namely that it is easy to deposit from different countries (depending on where you currently work / make money), but you can also withdraw money when needed without needing additional transfer services (and with almost zero exchange fees).

If you only intend to use Interactive Brokers to exchange and transfer money internationally, you will probably not benefit from this bonus, as you would likely not leave the required amount in assets and/or currency in the account for one year. You may still benefit from the bonus, in case you keep some funds in the account for later currency conversion or as emergency funds (which can be easily accessed from different countries).

Potential disadvantages

Most of the disadvantages of the IBKR Pro account mentioned here do not apply to IBKR Lite. However, there are still things you should be aware of:

Address requirement for opening an account

Interactive Brokers Lite is only offered to US customers. Therefore, you can only choose Interactive Brokers Lite if you open your account with a "permanent address" in the US. This address is verified in the following way:

People living abroad can still open a IBKR Lite account if they have a US reference address, which they can prove in the opening process. The typical scenario is to own real estate in the US, such as summer house, vacation home or similar, which serves as a permanent long term address. However, people are also successful in opening an IBKR Lite account by providing the address of their parents, relatives or even friends as permanent address. It is easy to provide proof of such an address, because most US banks allow easily to change the address on file, which will then appear on the bank statement that serves as proof of address when opening the account.

Special situation for Individual Retirement Accounts (IRA)

While IBKR Lite accounts are not offered for people with a non-US address on file, it appears that in the case of an Individual Retirement Account (IRA), it is possible to change the address on file to a foreign address without being required to move/close the account. This is likely related to the fact that IRAs are US-specific products and specifically intended for US customers. Note, however, that such policies may change in the future, so even for an IRA account it might be wise to keep a US address on file, provided that you have a permanent US address, while you are abroad.

Low risk of account closure

If you only live in the US, there is no risk of getting your account closed, but even when you live temporarily abroad Interactive Brokers will usually allow you to continue to use the account.

Opening an investment account as expat is always a bit difficult, as banks and brokerage firms regularly changes their rules and evaluate their risk. Many US brokerage firms (such as Charles Schwab, Fidelity etc.) are known for suddenly closing the account of US permanent residents or citizens who currently live abroad, as soon as the firm becomes aware that the respective individual is not fully based in the US. Interactive Brokers is known to be much more relaxed and typically allows customers to keep their US based account, even if they move temporarily or longer term abroad (as long as they can keep a US reference address on file). Moreover, even if Interactive Brokers would restrict IBKR Lite accounts for such customers, it will be easy to just convert the account to an IBKR Pro account of another jurisdiction, i.e., technically the customer would open an IBKR Pro account in the country of their current residence (EU, UK, Australia etc.) and then transfer the assets across. While this may mean that some of the IBKR Lite benefits may be lost, it is much less dramatic than if the account would be directly liquidated and closed (potentially with dramatic tax implications).

Tax residency

A key advantage of Interactive Brokers is that it is made for people who may have complicated tax situations. While most US brokerage firms (such as Robinhood etc.) will just refuse to deal with customers who are tax residents of several countries, Interactive Brokers allows customers to transparently declare their individual situation and even take advantage of tax treaties. In particular, your tax residency is treated independently from your reference address, when opening the account.

For example, a US customer who temporarily lives outside of the US, but is not a US person anymore (i.e., somebody who is neither US permanent resident / citizen) can declare that they are only a tax resident in a foreign country. The same applies for foreign nationals who work for international or foreign institutions (UN, World Bank, foreign diplomatic services), as they may not be residents for tax purposes despite living in the US.

Moreover, customers can take full advantage of tax treaties. For example, a German customer who opened their Interactive Brokers Lite account, while studying/working in the US and who still have a US reference address (owned real estate, relatives etc.), can move back to Germany and declare that they are now only tax resident of Germany, where they can take advantage of the US-German tax treaty with a reduced US tax on US dividends of only 15%. Most other US brokerage firms would not allow this and either tax at 30% or not tax at all, which would imply that the customer needed to file US taxes to pay the correct amount (or otherwise committed tax evasion).

How to update your tax information in IBKR

It is easy to provide provide up-to-date tax information to Interactive Brokers. For this, you should follow these steps:

If you provided a US address, but only list tax residences outside of the US, Interactive Brokers requires further information from you. This should not be the case for most Americans abroad, as they continue to be taxable in the US (i.e., you should always list the US as your tax residency), as explained here.

The following scenarios do not apply to US citizens or permanent residents, as they always count as residents for tax purposes (US persons). In certain situations, you may have a US address, but are not a tax resident in the US:

As non-resident you will also need to provide the IRS form W-8BEN regarding backup withholding. In particular, you will be able to claim tax treaty benefits, which typically leads to a reduced tax rate of only 15% US tax on dividends rather than 30%, depending on the country you live in. Note that this ensures that you are not required to file US taxes if this is your only US sourced income, as Interactive Brokers will directly deduct the required tax amounts. In order to claim tax treaty benefits Interactive Brokers may also require you to prove that you have a foreign address (e.g., by providing a bank statement). You will need to answer the respective questions truthfully and describe your situation. If Interactive Brokers is not satisfied with your answers, you might need to talk some representative directly to provide further information.