The Importance of QROPS to Those Exposed to US Taxation

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Written By Mostafa Moradi

The Importance of QROPS to Those Exposed to USIn a world where investment returns can be hit and miss, exchange rates are volatile, and across the globe we wait with baited breath for the next bubble to burst or financial institution to collapse, it is of critical importance to make full use of beneficial schemes such as QROPS.

The common misconception is that as a US citizen, green card holder, or tax resident there is very little room for manoeuvre when it comes to making savings work in a tax-efficient, flexible way. The truth is, this has never been further from the truth.


With the arguably heavy-handed nature of the financial regulations currently being imposed on US nationals across the globe, more savers are looking for ways to try and get the most out of their savings.

Qualifying Recognised Overseas Pension Schemes (QROPS) are one of the key ways in which an individual with a UK pension can make their savings work in a way they would never previously have thought possible if they have ties to the US. However, the popularity of these UK approved, offshore pension schemes, has doubled in the last year within the States, a trend which looks set to continue.

As a rule, it is widely acknowledged that foreign pension schemes are not recognised by the Internal Revenue Code. What that means, is that as a US taxpayer, any contributions paid to a plan held in a foreign jurisdiction are not deductible, and if the contributions are made by the employer, they are included as income.

How to Benefit

It is also the case in many scenarios that any income generated from an overseas plan, could be taxable. So what to do? Any transfer of a UK pension into an American scheme is unavailable for those with ties to the US, although QROPS are available within the country for those living elsewhere.QROPS USA

The answer comes specifically within a certain EU member-state jurisdiction – Malta. America dislikes the generousity it perceives as excessive from the UK in terms of the benefits offered to its workforce, so if any UK pension is transfer into the USA, it is taxed heavily on the way in, and on the way out.

Malta however has within its Double Taxation Agreement with the US (see page 30, article 17) a recent addition stating that Maltese-held pensions are recognised by the Federal Reserve as not being liable for taxation by the IRS, but only Malta. This is particularly beneficial because any income or capital gains derived from a licensed retirement scheme established within Malta is exempt from income tax.

Of course there are many other considerations, namely the size of the pension fund, and the plans for retirement. However, there aren’t many scenarios which spring to mind where a QROPS transfer for somebody living in the US, but with a UK pension, wouldn’t be beneficial.

It is advisable to speak with a fully qualified, and well regarded professional financial advisor with experience of US regulatory demands, before any decision is made.