US Person

A “US person” is a broad legal and regulatory classification used by the United States government, primarily for tax and securities law purposes. So, you think you’re not a US person just because you live in Lisbon and drink espresso for breakfast? Think again! This term is notoriously more expansive than simply being a “U.S. citizen.” It can include green card holders, individuals who spend a significant amount of time in the U.S. (even on a visa), and even certain legal entities. For global investors, understanding this definition is not just a matter of tedious paperwork; it's a fundamental hurdle that can dictate which investment doors are open to you and which are firmly shut. Failing to understand your status can lead to compliance headaches with the Internal Revenue Service (IRS) and, more importantly, missed opportunities to compound your wealth.

The number one reason this dry, legal term should matter to you is a powerful piece of legislation called FATCA (Foreign Account Tax Compliance Act). This US law effectively deputizes the world's financial institutions, forcing foreign banks, brokerages, and funds to report on the accounts held by their US person clients directly to the IRS. The compliance costs and legal risks associated with this reporting are so high that many non-US institutions have made a simple business decision: they refuse to serve US persons altogether. This means your US person status, even if you're an American living in Frankfurt, could prevent you from opening a simple brokerage account locally or investing in a promising European mutual fund. It’s a classic example of how regulation can create practical moats, not for businesses, but around investors themselves, limiting their options and complicating their financial lives.

The definition of a US person is not a one-size-fits-all concept; it depends on whether you're looking through the lens of the taxman (the IRS) or the securities regulator (the SEC).

This is the most common and impactful definition you will encounter. You're generally considered a US person for tax purposes if you meet any of the following criteria:

• U.S. Citizen: This applies even if you were born outside the U.S. to American parents or if you have dual citizenship and have never lived in the States. Once a citizen, always a US person in the eyes of the IRS (unless you formally renounce your citizenship).
• U.S. Resident Alien: This category includes two main groups:
  • Green Card Holder: If you hold a lawful permanent resident card (a “green card”), you are a US person for tax purposes, period. It doesn't matter where in the world you live.
  • The Substantial Presence Test: This is a mathematical test based on counting days. You meet it if you were physically present in the U.S. for at least 31 days during the current year and 183 days during the 3-year period that includes the current year and the two years immediately before. The calculation is weighted, but the core idea is simple: spend too much time on U.S. soil, and you become a US person for tax purposes.
• U.S. Entities: Various domestic entities, such as U.S. corporations, partnerships, estates, and trusts, are also considered US persons.

The Securities and Exchange Commission (SEC) uses a slightly different definition, particularly under its Regulation S, which governs securities offerings outside the United States. While there's a lot of overlap with the IRS definition, the SEC's version is often more focused on your residency at the time of the investment transaction. The key takeaway is that there isn't one single, universal definition. The specific rules of the institution or investment you're dealing with will determine which standard applies. Always check the fine print!

Being classified as a US person creates a distinct set of challenges and administrative tasks. It's a crucial part of knowing your personal “investment constitution” before you even start analyzing a company's intrinsic value.

• Limited Investment Universe: As noted, many non-US brokerages and funds will not accept US persons. This can make it difficult to diversify geographically with local, on-the-ground investment vehicles and may force you into less optimal, US-based alternatives.
• The Paperwork Gauntlet: Get ready for forms. If you're a US person, you'll be filling out a W-9 form for financial institutions to certify your tax status. If you are not a US person, you'll typically provide a W-8BEN form (for individuals) or another from the W-8 series. This paperwork is non-negotiable and is the primary way institutions sort their clients for FATCA reporting.
• A Value Investing Perspective: A core tenet of value investing is to know your “circle of competence.” A crucial, often overlooked, part of that circle is understanding the regulatory landscape you operate in. Your status as a US person (or not) is a fundamental constraint that defines the borders of your investment playground. Ignoring it is like trying to play baseball without knowing where the foul lines are. It’s a boring, technical detail, but mastering it is essential for executing a successful long-term investment strategy on the global stage.