A new investor has appeared! [Portugal]

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DrBlues
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Joined: Sun Jul 08, 2018 6:07 am

A new investor has appeared! [Portugal]

Post by DrBlues » Sun Jul 08, 2018 6:23 am

Good day fellow bogleheads! I am a portuguese 29 year-old who became attracted to investing after 2017's Cryptocurrency craze. I was lucky enough to lose the "earn money fast!" mentality and come across "The Intelligent Investor", a book which I absolutely loved and decided to put into practice after reading it twice.

Although I do not have much savings, I am determined to save up to 20% of my after-tax income to put into stocks monthly (DCA). I also have my emergency fund set up, meaning I am finally free to invest in a low-cost index fund for years to come. However, as a first-timer, there are two main questions I would like to ask the more seasoned investors:

1) As an european, I am thinking of using DeGiro's platform to invest in low-cost Vanguard funds (like VUSA). Is this the right way to go about, or is there a cheaper approach?

2) I read a lot of S&P 500 vs Total Stock discussions because of low/mid-caps; I am honestly not that interested on the differences between those due to how similarly they perform. However, I *am* interested in US vs non-US funds - I heard J. Bogle and W. Buffet mention "S&P 500" over and over again as if it is the only thing worth holding; how would theoretically an All-World fund such as VWRD compare? (specially considering the ER is 0.25 vs 0.07 on the SP500).

3) Considering I'm an european, what kind of worries do I have to have regarding currency fluctiations, tax traps, etc?

Thank you for your time!

RadAudit
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Re: A new investor has appeared! [Portugal]

Post by RadAudit » Sun Jul 08, 2018 7:03 pm

Welcome to the forum. Others, more knowledgeable than I, will be along shortly to answer more of your questions.

Can't help with questions 1 and 3.

As for question 2, I don't believe the difference between 0.07 and 0.25 percent in ER will have that serious of an impact at this stage. What is more important is the savings rate. 20% of your after tax income on a regular basis is an excellent start. As for Mr. Bogle's emphasis on the the S&P 500, a number of folks on the forum disagree with that approach. Some advocate a total world portfolio such as the one you mention. Others slightly overweight investments in their home country due to any number of reasons - home country bias, the desire to have more of their investments in the country they'll retire in, etc.

The more important takeaways from the forum are to find a portfolio asset allocation that matches your need, willingness, and ability to take the risks necessary to meet your financial goals. And the most important insight comes from Mr. Bogle - stay the course.

And all world fund is a good place to start. Best of luck.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

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danielc
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Re: A new investor has appeared! [Portugal]

Post by danielc » Sun Jul 08, 2018 7:57 pm

DrBlues wrote:
Sun Jul 08, 2018 6:23 am
1) As an european, I am thinking of using DeGiro's platform to invest in low-cost Vanguard funds (like VUSA). Is this the right way to go about, or is there a cheaper approach?
I am not familiar with their service. Sorry.

DrBlues wrote:
Sun Jul 08, 2018 6:23 am
2) I read a lot of S&P 500 vs Total Stock discussions because of low/mid-caps; I am honestly not that interested on the differences between those due to how similarly they perform. However, I *am* interested in US vs non-US funds - I heard J. Bogle and W. Buffet mention "S&P 500" over and over again as if it is the only thing worth holding; how would theoretically an All-World fund such as VWRD compare? (specially considering the ER is 0.25 vs 0.07 on the SP500).
Bogle and Buffet are American investors. From their point of view, non-US equities are a currency risk. From your point of view, US equities are a curency risk. You should mentally adjust for that fact. Second, most American investors think that it is important to hold international equities for diversification. Vanguard research suggests that an American investor should have 30-40% in non-US equities. Since you are European, your non-US equity should probably be much larger than that.

I think an ER of 0.25% is not terrible, but you might be able to do a bit better than that. The iShares IXUS ETF has an ER of 0.10%. There is a risk that you might end up paying extra taxes if you get a US-domiciled ETF. So you might want to look at the Ireland-domiciled ETFs from Vanguard instead. For example, the FTSE Developed Europe ETF has an ER of 0.12%.

DrBlues wrote:
Sun Jul 08, 2018 6:23 am
3) Considering I'm an european, what kind of worries do I have to have regarding currency fluctiations, tax traps, etc?
You should definitely consider currency fluctuations and tax traps. Have a look at these pages on the wiki:

https://www.bogleheads.org/wiki/EU_investing
https://www.bogleheads.org/wiki/Non-US_ ... _tax_traps

I suspect that the best way to avoid US tax traps is to use the Ireland-domiciled ETFs. As for currency fluctuations, just like American investors overweigh on the US, you might want to overweigh in Europe. Having said that, I think that US investors should hold non-US equities, I think that Europeans should hold non-European equities. This is just for diversification.

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 09, 2018 1:47 am

RadAudit wrote:
Sun Jul 08, 2018 7:03 pm
As for question 2, I don't believe the difference between 0.07 and 0.25 percent in ER will have that serious of an impact at this stage. What is more important is the savings rate. 20% of your after tax income on a regular basis is an excellent start. As for Mr. Bogle's emphasis on the the S&P 500, a number of folks on the forum disagree with that approach. Some advocate a total world portfolio such as the one you mention. Others slightly overweight investments in their home country due to any number of reasons - home country bias, the desire to have more of their investments in the country they'll retire in, etc.
danielc wrote:
Sun Jul 08, 2018 7:57 pm
Bogle and Buffet are American investors. From their point of view, non-US equities are a currency risk. From your point of view, US equities are a curency risk. You should mentally adjust for that fact. Second, most American investors think that it is important to hold international equities for diversification. Vanguard research suggests that an American investor should have 30-40% in non-US equities. Since you are European, your non-US equity should probably be much larger than that.

I think an ER of 0.25% is not terrible, but you might be able to do a bit better than that. The iShares IXUS ETF has an ER of 0.10%. There is a risk that you might end up paying extra taxes if you get a US-domiciled ETF. So you might want to look at the Ireland-domiciled ETFs from Vanguard instead. For example, the FTSE Developed Europe ETF has an ER of 0.12%.
Thank you so much for your input guys! :sharebeer

Firstly, danielc, I am looking simply at Vanguard funds because of tax advantages ;) Being domiciled in ireland and reinvesting before distributing dividends should be a huge advantage! :mrgreen:

I searched a bit online yesterday, and I discovered there is not a Total International Stock Fund or any equivalent fund available in Europe, at least by Vanguard. The best I have is the Vanguard FTSE All-World UCITS ETF (VWRL). Given this in consideration, I was thinking of dividing it 50/50 among Vanguard S&P 500 UCITS ETF (VUSA) and VWRL, giving me a total US weight on my portfolio of around 75%. This sounds reasonable to me, considering Bogle says "no more than 20% on Intl" and Vanguard now aims at 40 or 50%.

I did think about putting an a bit of the Euro STOXX 50 UCITS ETF (VX5E, ER 0.1%) to the mixture so I could weigh it a bit more on Europe, but I'm a bit reluctant: Firstly, because I doubt Europe will outperform the other markets that much with its chronic political instability - I don't have that much home bias. Secondly, because it might go against the overall philosophy of "Keeping it simple" - I'd argue the 50/50 VUSA/VWRL distribution would probably be the most elegant solution. What's your take? Is the currency risk a big factor to consider?

jalbert
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Re: A new investor has appeared! [Portugal]

Post by jalbert » Mon Jul 09, 2018 2:12 am

This sounds reasonable to me, considering Bogle says "no more than 20% on Intl" and Vanguard now aims at 40 or 50%.
Mr. Bogle's position is that any more than 20% non-US equity takes to much currency risk for a US investor. If your expenses are in Euros, a largely USD-denominated portfolio would take substantial currency risk. I would not assume that Mr. Bogle would make the same recommendation for a Eurozone resident, nor that it would be optimal.

I don't have an opinion on what the right mix might be for a Eurozone investor, but I would think it would not be tilted more away from Eurozone stocks than a world market-cap portfolio, and maybe either would have more Eurozone exposure, or would be at least partially currency hedged.
Index fund investor since 1987.

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 09, 2018 3:03 am

jalbert wrote:
Mon Jul 09, 2018 2:12 am
This sounds reasonable to me, considering Bogle says "no more than 20% on Intl" and Vanguard now aims at 40 or 50%.
Mr. Bogle's position is that any more than 20% non-US equity takes to much currency risk for a US investor. If your expenses are in Euros, a largely USD-denominated portfolio would take substantial currency risk. I would not assume that Mr. Bogle would make the same recommendation for a Eurozone resident, nor that it would be optimal.

I don't have an opinion on what the right mix might be for a Eurozone investor, but I would think it would not be tilted more away from Eurozone stocks than a world market-cap portfolio, and maybe either would have more Eurozone exposure, or would be at least partially currency hedged.
From his interview, it looked like his tilt away from International was due to him thinking that Japan, France and Britain would not be great producers, rather than currency risk?

DJN
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Re: A new investor has appeared! [Portugal]

Post by DJN » Mon Jul 09, 2018 3:29 am

A couple of things that you should research from the beginning as a non US investor:
- check your local tax liabilities for both earnings and capital gains (you may need to keep careful records)
- check your local position with regards to your estate position, who gets your stuff if you die and what taxes are applicable?
- remember to pick your ETF's carefully (if you are going to use ETF's), UCIT compliant ETF's based from Ireland are generally best for EU citizens (apart from Irish residents)
Good luck
DJN

imperia
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Re: A new investor has appeared! [Portugal]

Post by imperia » Mon Jul 09, 2018 3:40 am

Have you read about accumulations etfs(reinvest dividends), so you can avoid dividend tax in your country.

Vanguards has not accumulations etfs in Europe so I suggest iShares or Xtrackers

Common portfolio for EU investor is:

90% iShares Core MSCI World UCITS ETF (IWDA) TER 0.2
10%iShares Core MSCI EM IMI UCITS ETF (EIMI) TER 0.18

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danielc
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Re: A new investor has appeared! [Portugal]

Post by danielc » Mon Jul 09, 2018 3:43 am

DrBlues wrote:
Mon Jul 09, 2018 3:03 am
From his interview, it looked like his tilt away from International was due to him thinking that Japan, France and Britain would not be great producers, rather than currency risk?
(1) Nobody can predict the future. That applies to John Bogle too.

(2) He might not have mentioned currency risk, but I would bet that he was thinking about it. His advice is intended for an American audience. In the last 9 years the Euro has lost 27% of its value relative to the USD. It should be obvious that over 25 years of investing the currency can have an effect.

(3) Japan is not in the Eurozone. Feel free to underweigh Japan.

I agree with jalbert that 75% US seems extremely risky for someone living in the Eurozone. There's a lot of currency exposure and you are mis-applying advice that was meant for people living in the US. I live in the US and my own US allocation is only 60%.

Here's an idea: How about we take the world market cap as a starting point? A lot of people in this forum have exactly that portfolio, so you would have the exact same US vs EU allocation as many people living in the US. Using Vanguard VT as a guide, that works out to around

- 51% US
- 20% Europe
- 10% Emerging Markets
- 14% Pacific
- 5% Canada

If you did that, you would have the exact same European allocation as a lot of American investors. That doesn't sound like "too much Europe" does it?

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danielc
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Re: A new investor has appeared! [Portugal]

Post by danielc » Mon Jul 09, 2018 3:52 am

DrBlues wrote:
Mon Jul 09, 2018 1:47 am
I did think about putting an a bit of the Euro STOXX 50 UCITS ETF (VX5E, ER 0.1%) to the mixture so I could weigh it a bit more on Europe, but I'm a bit reluctant: Firstly, because I doubt Europe will outperform the other markets that much with its chronic political instability - I don't have that much home bias. Secondly, because it might go against the overall philosophy of "Keeping it simple" - I'd argue the 50/50 VUSA/VWRL distribution would probably be the most elegant solution. What's your take? Is the currency risk a big factor to consider?
Here is the problem with predicting the market: Everybody in the world also knows about the problems in Europe, and they have already incorporated that information in the price of European equities. The iShares US ETF shows that the US market has a PE ratio (price/earnings) of 23.56 while the Europe ETF has a PE of 15.31.

In other words, you can pay $23.56 to buy $1/year of US earnings or you can pay $15.31 to buy $1/year of EU earnings. The fact that European earnings are cheaper to buy reflects the fact that many people have concerns about Europe. Many people expect the US to grow earnings faster than Europe, but the higher price of US earnings perfectly cancels that information. Does that make sense? Because of the price difference, Europe doesn't have to increase earnings as fast as the US in order to give a better return. From here on, nobody can guess which of the two will turn out to be a better investment.

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 09, 2018 5:24 am

Major problem is taxation. How are ETFs taxed?
My understanding is that VUSA would typically get withold 15%. Then you can send to IRS form to W-8BEN to USA IRS and they make send you a refund. With other countries it may get even more complicated. But you may want to check in Portugal (local forums, tax advisor, ..) and let us know

For simplicity, it's better to get some of the Vanguard Irish accumulation funds. They pay the taxes to US and you don't have to worry

Also, may European brokers charge you high fees, including a percentage of the trade. Some even an ongoing custodial fee for keeping your stocks/ETFs
De Giro is typically the cheaper, but keep an eye on the fees.

TedSwippet
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Re: A new investor has appeared! [Portugal]

Post by TedSwippet » Mon Jul 09, 2018 6:31 am

international001 wrote:
Mon Jul 09, 2018 5:24 am
My understanding is that VUSA would typically get withold 15%.
Not for VUSA, because that is Ireland domiciled.
international001 wrote:
Mon Jul 09, 2018 5:24 am
Then you can send to IRS form to W-8BEN to USA IRS and they make send you a refund.
Not really. If the OP held a US domiciled ETF such as VOO then they would have to send a W-8BEN to the broker to get the US withholding reduced from the standard US 30% rate to the 15% US/Portugal income tax treaty rate. They would not get any refund of that from the IRS later. US dividend withholding tax cannot be reclaimed from the IRS by US NRAs -- except to the extent that the withholding exceeds any applicable treaty rate, in which case a full US 1040-NR would be needed to reclaim the over-withholding from the IRS.

Buying VUSA (or VUSD) should be easy from Portugal, but VOO is likely hard to impossible now that MiFID and PRIIPS EU regulations are in force. In any case, because Portugal has no estate tax treaty with the US, Portuguese investors should generally completely avoid US domiciled ETFs anyway, and certainly so for anything above $60k in total US assets.

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 09, 2018 7:45 am

imperia wrote:
Mon Jul 09, 2018 3:40 am
Have you read about accumulations etfs(reinvest dividends), so you can avoid dividend tax in your country.

Vanguards has not accumulations etfs in Europe so I suggest iShares or Xtrackers

Common portfolio for EU investor is:

90% iShares Core MSCI World UCITS ETF (IWDA) TER 0.2
10%iShares Core MSCI EM IMI UCITS ETF (EIMI) TER 0.18
Thank you so much for making me realize this. I was convinced that Vanguard funds reinvested the dividends, but turns out they don't. I assume taxes would thus apply. I searched for other topics on European portfolios, but couldn't find a particularly helpful one; what else do you know about european investors and sample portfolios?

danielc wrote:
Mon Jul 09, 2018 3:43 am
DrBlues wrote:
Mon Jul 09, 2018 3:03 am
From his interview, it looked like his tilt away from International was due to him thinking that Japan, France and Britain would not be great producers, rather than currency risk?
(1) Nobody can predict the future. That applies to John Bogle too.

(2) He might not have mentioned currency risk, but I would bet that he was thinking about it. His advice is intended for an American audience. In the last 9 years the Euro has lost 27% of its value relative to the USD. It should be obvious that over 25 years of investing the currency can have an effect.

(3) Japan is not in the Eurozone. Feel free to underweigh Japan.

I agree with jalbert that 75% US seems extremely risky for someone living in the Eurozone. There's a lot of currency exposure and you are mis-applying advice that was meant for people living in the US. I live in the US and my own US allocation is only 60%.

Here's an idea: How about we take the world market cap as a starting point? A lot of people in this forum have exactly that portfolio, so you would have the exact same US vs EU allocation as many people living in the US. Using Vanguard VT as a guide, that works out to around

- 51% US
- 20% Europe
- 10% Emerging Markets
- 14% Pacific
- 5% Canada

If you did that, you would have the exact same European allocation as a lot of American investors. That doesn't sound like "too much Europe" does it?
This is an a great argument. I thank you for the common sense you presented me with; I'm starting to feel like I should just own the total world stock to start, and not complicate it any more. I honestly dislike complex portfolios, it goes against the idea of keeping it simple. What would your intuitive suggestion be in terms of weights of each geographical area?
danielc wrote:
Mon Jul 09, 2018 3:52 am
DrBlues wrote:
Mon Jul 09, 2018 1:47 am
I did think about putting an a bit of the Euro STOXX 50 UCITS ETF (VX5E, ER 0.1%) to the mixture so I could weigh it a bit more on Europe, but I'm a bit reluctant: Firstly, because I doubt Europe will outperform the other markets that much with its chronic political instability - I don't have that much home bias. Secondly, because it might go against the overall philosophy of "Keeping it simple" - I'd argue the 50/50 VUSA/VWRL distribution would probably be the most elegant solution. What's your take? Is the currency risk a big factor to consider?
Here is the problem with predicting the market: Everybody in the world also knows about the problems in Europe, and they have already incorporated that information in the price of European equities. The iShares US ETF shows that the US market has a PE ratio (price/earnings) of 23.56 while the Europe ETF has a PE of 15.31.

In other words, you can pay $23.56 to buy $1/year of US earnings or you can pay $15.31 to buy $1/year of EU earnings. The fact that European earnings are cheaper to buy reflects the fact that many people have concerns about Europe. Many people expect the US to grow earnings faster than Europe, but the higher price of US earnings perfectly cancels that information. Does that make sense? Because of the price difference, Europe doesn't have to increase earnings as fast as the US in order to give a better return. From here on, nobody can guess which of the two will turn out to be a better investment.
So... You'd just keep it simple and buy total world stock, period? No particular weighing on Europe or US?
TedSwippet wrote:
Mon Jul 09, 2018 6:31 am
international001 wrote:
Mon Jul 09, 2018 5:24 am
My understanding is that VUSA would typically get withold 15%.
Not for VUSA, because that is Ireland domiciled.
international001 wrote:
Mon Jul 09, 2018 5:24 am
Then you can send to IRS form to W-8BEN to USA IRS and they make send you a refund.
Not really. If the OP held a US domiciled ETF such as VOO then they would have to send a W-8BEN to the broker to get the US withholding reduced from the standard US 30% rate to the 15% US/Portugal income tax treaty rate. They would not get any refund of that from the IRS later. US dividend withholding tax cannot be reclaimed from the IRS by US NRAs -- except to the extent that the withholding exceeds any applicable treaty rate, in which case a full US 1040-NR would be needed to reclaim the over-withholding from the IRS.

Buying VUSA (or VUSD) should be easy from Portugal, but VOO is likely hard to impossible now that MiFID and PRIIPS EU regulations are in force. In any case, because Portugal has no estate tax treaty with the US, Portuguese investors should generally completely avoid US domiciled ETFs anyway, and certainly so for anything above $60k in total US assets.
From what I understand, however, because dividends are distributed I'll get taxed annually on any dividends I earn on VUSA, right? Maybe an ishares fund would be more beneficial? Or am I thinking about it wrong?

TedSwippet
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Re: A new investor has appeared! [Portugal]

Post by TedSwippet » Mon Jul 09, 2018 8:56 am

DrBlues wrote:
Mon Jul 09, 2018 7:45 am
From what I understand, however, because dividends are distributed I'll get taxed annually on any dividends I earn on VUSA, right? Maybe an ishares fund would be more beneficial? Or am I thinking about it wrong?
You seem to be conflating two different tax issues.

The first is whether or not to use Ireland domiciled ETFs or US domiciled ones, and concerns US taxes. Both Vanguard's and iShares ETF range aimed at EU investors will be Ireland domiciled. In an Ireland domiciled ETF, the ETF pays 15% internally in US tax on dividends paid out by any US stocks held (this 15% is the US/Ireland treaty rate for dividends), but you get the remainder without further tax interference. If you instead held a US domiciled ETF, you would pay 15% in US tax withheld by broker, on the ETF dividend as it is paid out to you. If you think about it, you can see that this is a wash for an S&P 500 tracker ETF where the investor also lives in a 15% tax rate treaty country, but a deadweight loss to the US for a US domiciled ETF that held only non-US stocks.

With all of that said, in practical terms you don't have much choice in the matter anyway. Thanks to PRIIPS and MiFID most if not all US domiciled ETFs are no longer sold to EU residents, so Ireland domiciled ETFs -- or perhaps Luxembourg domiciled ones, Luxembourg being the other main EU ETF domicile (with France and Germany somewhat distant third/fourth) -- are likely your only practical choice. But that's okay anyway because for you, holding US domiciled ETFs would be stepping into a huge and entirely avoidable US tax trap, specifically the threat of US estate taxes of up to 40% on holdings above a mere $60k. Portugal has no US estate tax treaty.

The second issue is whether or not you can reduce your local Portuguese tax by using accumulating ETFs rather than distributing ones. Some Vanguard Ireland domiciled ETFs are accumulating, some distributing. Likewise, some iShares Ireland domiciled ETFs are accumulating and some distributing. It is not one-or-the-other from either ETF issuer.

Now, if Portugal taxes capital gains less heavily than dividends, and if it will allow you to effectively convert dividends into capital gains by holding accumulating ETFs, then there is a possible win for you there. I don't know how Portuguese taxes work here -- it is not my country -- so you will need to uncover this for yourself. (I do know how UK taxes work in this situation; they do not let an investor convert dividends into capital gains, but tax the 'notional' dividend on accumulating ETFs or funds annually, even where not received. Portugal might be the same. Or it might not be.)

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Mon Jul 09, 2018 9:34 am

Hello DrBleus,

Welcome to the forum.

You have already received good advise.
Please also read the wiki pages that have been referenced.
There have been some threads in the past on Portugal, do a search in the search bos in the top right corner of this page.

As mentioned by some, you will probably NOT be able to buy Us-domiciled funds anymore. As there companies do not want to comply with European law.
You will need to check fund-dividend taxation in Porttugal, how does Portugal treats accumulating funds that will directly reinvest the dividends it receives? In some countries the investors will not be taxed on these reinvested dividends. For others countries you will still have to pay taxes on dividends even if they are reinvested directly.

Related to your Asset Allocation. Yes in the US there are quite some investors who ony invest in US equities. The US is about 52-69% of the world market, the EU is about 20%, Portugal itself a lot less. OIn this forum there is a lot of discussion if US investors need to invest internationally. For investors which are outside of the US there is little doubt that you should look to invest worldwide.

There are multiple funds that invest worldwide. Sometimes they include Emerging markets, sometome (e.g. MSCI)) have seperate EM funds.
You will also need to decide if you (in te future?) will want to add small cap equity.

For equity, currency volatility is less importatn as the equities are itself more volatile.

For your stable bond portion, focussing on EURo would lower your volatility, either through investing in EURO bonds or buy a fund that is EURo hedged.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 09, 2018 10:24 am

TedSwippet wrote:
Mon Jul 09, 2018 6:31 am
international001 wrote:
Mon Jul 09, 2018 5:24 am
My understanding is that VUSA would typically get withold 15%.
Not for VUSA, because that is Ireland domiciled.
international001 wrote:
Mon Jul 09, 2018 5:24 am
Then you can send to IRS form to W-8BEN to USA IRS and they make send you a refund.
Not really. If the OP held a US domiciled ETF such as VOO then they would have to send a W-8BEN to the broker to get the US withholding reduced from the standard US 30% rate to the 15% US/Portugal income tax treaty rate. They would not get any refund of that from the IRS later. US dividend withholding tax cannot be reclaimed from the IRS by US NRAs -- except to the extent that the withholding exceeds any applicable treaty rate, in which case a full US 1040-NR would be needed to reclaim the over-withholding from the IRS.

Buying VUSA (or VUSD) should be easy from Portugal, but VOO is likely hard to impossible now that MiFID and PRIIPS EU regulations are in force. In any case, because Portugal has no estate tax treaty with the US, Portuguese investors should generally completely avoid US domiciled ETFs anyway, and certainly so for anything above $60k in total US assets.
Thanks a lot for the correction. Reading other (local) forums I got the wrong impression. I guess tax refunds between countries work only between European countries (I read about people getting tax refunds 4 years later after having to submit paperwork in a foreign country). It's great to have you in BH.

So to summarize

1- Buying US domiciled ETF (if it was possible): US IRS withholds 15% of dividends (after submitting W-8BEN). You get into your checking account the rest of the dividends. Not sure if Portugal withholds anything else.

2- Buying VUSA (or any non-accumulation ETF domiciled in Ireland, let's assume US stocks): US IRS witholds 15% internally. You get into your checking account the rest of the dividends. Not sure if Portugal withholds anything else. My understanding is that for UCITS ETFs nothing else is withhold.

3 - Buying CSPX (or any accumulation ETF domiciled in Ireland, let's assume US stocks): US IRS witholds 15% internally. The rest of the dividends are reinvested in the fund

In which cases do you have to pay income taxes in Portugal? Can you get a tax credit from Portugal?

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 09, 2018 12:39 pm

TedSwippet wrote:
Mon Jul 09, 2018 8:56 am
DrBlues wrote:
Mon Jul 09, 2018 7:45 am
From what I understand, however, because dividends are distributed I'll get taxed annually on any dividends I earn on VUSA, right? Maybe an ishares fund would be more beneficial? Or am I thinking about it wrong?
You seem to be conflating two different tax issues.

The first is whether or not to use Ireland domiciled ETFs or US domiciled ones, and concerns US taxes. Both Vanguard's and iShares ETF range aimed at EU investors will be Ireland domiciled. In an Ireland domiciled ETF, the ETF pays 15% internally in US tax on dividends paid out by any US stocks held (this 15% is the US/Ireland treaty rate for dividends), but you get the remainder without further tax interference. If you instead held a US domiciled ETF, you would pay 15% in US tax withheld by broker, on the ETF dividend as it is paid out to you. If you think about it, you can see that this is a wash for an S&P 500 tracker ETF where the investor also lives in a 15% tax rate treaty country, but a deadweight loss to the US for a US domiciled ETF that held only non-US stocks.

With all of that said, in practical terms you don't have much choice in the matter anyway. Thanks to PRIIPS and MiFID most if not all US domiciled ETFs are no longer sold to EU residents, so Ireland domiciled ETFs -- or perhaps Luxembourg domiciled ones, Luxembourg being the other main EU ETF domicile (with France and Germany somewhat distant third/fourth) -- are likely your only practical choice. But that's okay anyway because for you, holding US domiciled ETFs would be stepping into a huge and entirely avoidable US tax trap, specifically the threat of US estate taxes of up to 40% on holdings above a mere $60k. Portugal has no US estate tax treaty.

The second issue is whether or not you can reduce your local Portuguese tax by using accumulating ETFs rather than distributing ones. Some Vanguard Ireland domiciled ETFs are accumulating, some distributing. Likewise, some iShares Ireland domiciled ETFs are accumulating and some distributing. It is not one-or-the-other from either ETF issuer.

Now, if Portugal taxes capital gains less heavily than dividends, and if it will allow you to effectively convert dividends into capital gains by holding accumulating ETFs, then there is a possible win for you there. I don't know how Portuguese taxes work here -- it is not my country -- so you will need to uncover this for yourself. (I do know how UK taxes work in this situation; they do not let an investor convert dividends into capital gains, but tax the 'notional' dividend on accumulating ETFs or funds annually, even where not received. Portugal might be the same. Or it might not be.)
I searched a bit for information on tax issues here in Portugal, it is not absolutely clear, but I'll post a small summary at the end of this post.
BeBH65 wrote:
Mon Jul 09, 2018 9:34 am
Hello DrBleus,

Welcome to the forum.

You have already received good advise.
Please also read the wiki pages that have been referenced.
There have been some threads in the past on Portugal, do a search in the search bos in the top right corner of this page.

As mentioned by some, you will probably NOT be able to buy Us-domiciled funds anymore. As there companies do not want to comply with European law.
You will need to check fund-dividend taxation in Porttugal, how does Portugal treats accumulating funds that will directly reinvest the dividends it receives? In some countries the investors will not be taxed on these reinvested dividends. For others countries you will still have to pay taxes on dividends even if they are reinvested directly.

Related to your Asset Allocation. Yes in the US there are quite some investors who ony invest in US equities. The US is about 52-69% of the world market, the EU is about 20%, Portugal itself a lot less. OIn this forum there is a lot of discussion if US investors need to invest internationally. For investors which are outside of the US there is little doubt that you should look to invest worldwide.

There are multiple funds that invest worldwide. Sometimes they include Emerging markets, sometome (e.g. MSCI)) have seperate EM funds.
You will also need to decide if you (in te future?) will want to add small cap equity.

For equity, currency volatility is less importatn as the equities are itself more volatile.

For your stable bond portion, focussing on EURo would lower your volatility, either through investing in EURO bonds or buy a fund that is EURo hedged.

Thank you for your input. I searched for "Portugal" on this forum, but information is still scarce. Regardless, if anything maybe this topic will become useful for a future investor. I'll have to search on reinvesting funds on DeGiro, seeing as Vanguard only has those features on their global funds (which seem to be actively managed). I will probably be investing worldwide - I'm starting to like more and more the idea of just getting the Total World Stock for now and further down the road tilt it towards US or Eurozone if I feel like it.

international001 wrote:
Mon Jul 09, 2018 10:24 am
TedSwippet wrote:
Mon Jul 09, 2018 6:31 am
international001 wrote:
Mon Jul 09, 2018 5:24 am
My understanding is that VUSA would typically get withold 15%.
Not for VUSA, because that is Ireland domiciled.
international001 wrote:
Mon Jul 09, 2018 5:24 am
Then you can send to IRS form to W-8BEN to USA IRS and they make send you a refund.
Not really. If the OP held a US domiciled ETF such as VOO then they would have to send a W-8BEN to the broker to get the US withholding reduced from the standard US 30% rate to the 15% US/Portugal income tax treaty rate. They would not get any refund of that from the IRS later. US dividend withholding tax cannot be reclaimed from the IRS by US NRAs -- except to the extent that the withholding exceeds any applicable treaty rate, in which case a full US 1040-NR would be needed to reclaim the over-withholding from the IRS.

Buying VUSA (or VUSD) should be easy from Portugal, but VOO is likely hard to impossible now that MiFID and PRIIPS EU regulations are in force. In any case, because Portugal has no estate tax treaty with the US, Portuguese investors should generally completely avoid US domiciled ETFs anyway, and certainly so for anything above $60k in total US assets.
Thanks a lot for the correction. Reading other (local) forums I got the wrong impression. I guess tax refunds between countries work only between European countries (I read about people getting tax refunds 4 years later after having to submit paperwork in a foreign country). It's great to have you in BH.

So to summarize

1- Buying US domiciled ETF (if it was possible): US IRS withholds 15% of dividends (after submitting W-8BEN). You get into your checking account the rest of the dividends. Not sure if Portugal withholds anything else.

2- Buying VUSA (or any non-accumulation ETF domiciled in Ireland, let's assume US stocks): US IRS witholds 15% internally. You get into your checking account the rest of the dividends. Not sure if Portugal withholds anything else. My understanding is that for UCITS ETFs nothing else is withhold.

3 - Buying CSPX (or any accumulation ETF domiciled in Ireland, let's assume US stocks): US IRS witholds 15% internally. The rest of the dividends are reinvested in the fund

In which cases do you have to pay income taxes in Portugal? Can you get a tax credit from Portugal?
I had some time to search for this in portuguese forums; information is scarce, but here's what it looked like to me, for ETFs domiciled in Ireland

1. Dividends are taxed at 15% the moment they are issued, regardless of them being distributed or reinvested.
2. If on a given year I sell the ETF or stock, I will have to declare whatever profit I had.
2.1 Profit due to the stock valuation will be taxed at 28% (if can be taxed at a lower rate if my yearly earnings are low enough, but that's a rare situation)
2.2 Profit due to dividends will be taxed at 28%, but due to double taxation I can make a requirement for them to only be taxed at 13% (seeing as 15% was already withheld in Ireland)

(I will still double-check this info and then confirm it definitively)
Last edited by DrBlues on Mon Jul 09, 2018 1:04 pm, edited 2 times in total.

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danielc
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Re: A new investor has appeared! [Portugal]

Post by danielc » Mon Jul 09, 2018 12:45 pm

DrBlues wrote:
Mon Jul 09, 2018 7:45 am
This is an a great argument. I thank you for the common sense you presented me with; I'm starting to feel like I should just own the total world stock to start, and not complicate it any more. I honestly dislike complex portfolios, it goes against the idea of keeping it simple. What would your intuitive suggestion be in terms of weights of each geographical area?
Total world sounds like a good default plan to me. Especially if you find a simple low-cost tax-efficient way to do it. In 25 years it will be obvious which portfolio you should have had, but today nobody knows. Total world market cap is the average opinion of all investors in the world.

DrBlues wrote:
Mon Jul 09, 2018 7:45 am
So... You'd just keep it simple and buy total world stock, period? No particular weighing on Europe or US?
I think that's what I would do if I was in your place.

One can make an argument for overweighing Eurozone, but based on the conversation that we've had I think that if you did that you'd spend the next 25 years second-guessing yourself and wondering if you should have done it differently. Besides the unnecessary stress, there is also a risk that you'd spend the time tweaking the portfolio to try to optimize it. It is important that you pick a portfolio that lets you sleep at night and that you can stick to.

Another reason for using the total wrold portfolio is that small changes are guaranteed to not make a big difference. Most of the benefit of diversification comes early. For example, if you are a US investor and you were 100% US, just adding 10% of international stock would significantly reduce the average volatility of the portfolio. The next 10% would make a smaller difference, and so on. Vanguard back-tested portfolios for US investors and they found that, in average, historically it didn't matter whether the investor had 30% or 40% of their stock outside the US. The benefit was identical (see Figure 3).

jalbert
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Re: A new investor has appeared! [Portugal]

Post by jalbert » Mon Jul 09, 2018 1:02 pm

I have seen interviews where Mr. Bogle specifically said (speaking to US investors) that in his following of US and non-US equities, they don't deviate by too much over the long run so why take the currency risk?

You saw a different interview. You cannot base an investment strategy on either interview. An investment program should not be based on predictions of an expert. Mr. Bogle cannot predict the future, nor would he try.

If your expenses are in a different currency than your assets, you are subject to currency risk. Currency offers no long-term return, so currency risk is uncompensated risk. You need to figure out a maximum currency exposure. Bond investments in a different currency likely should be hedged. You can take some currency risk with stocks but it should be limited according to your determination.

Note that multinational corporations have some currency risk in their revenue stream already.

If I lived in the Eurozone, I might choose a stock allocation that was 1/3 Eurozone stocks, 1/3 currency-hedged US stocks, 1/3 rest of the world stocks mostly or fully unhedged. I don't know if that is right for you.

A total world index fund would also be a major consideration. That is about 80% non-Euro-denominated.

What if anything do other Eurozone investors do to manage currency risk in a diversified global equity portfolio? That is more relevant than our recommendations.
Index fund investor since 1987.

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 09, 2018 1:14 pm

danielc wrote:
Mon Jul 09, 2018 12:45 pm
Total world sounds like a good default plan to me. Especially if you find a simple low-cost tax-efficient way to do it. In 25 years it will be obvious which portfolio you should have had, but today nobody knows. Total world market cap is the average opinion of all investors in the world.
DrBlues wrote:
Mon Jul 09, 2018 7:45 am
So... You'd just keep it simple and buy total world stock, period? No particular weighing on Europe or US?
I think that's what I would do if I was in your place.

One can make an argument for overweighing Eurozone, but based on the conversation that we've had I think that if you did that you'd spend the next 25 years second-guessing yourself and wondering if you should have done it differently. Besides the unnecessary stress, there is also a risk that you'd spend the time tweaking the portfolio to try to optimize it. It is important that you pick a portfolio that lets you sleep at night and that you can stick to.

Another reason for using the total wrold portfolio is that small changes are guaranteed to not make a big difference. Most of the benefit of diversification comes early. For example, if you are a US investor and you were 100% US, just adding 10% of international stock would significantly reduce the average volatility of the portfolio. The next 10% would make a smaller difference, and so on. Vanguard back-tested portfolios for US investors and they found that, in average, historically it didn't matter whether the investor had 30% or 40% of their stock outside the US. The benefit was identical (see Figure 3).
Yeah, it looks like Total World is a good starting point. If for some reason I ever decide to weigh US or Eurozone a bit more, I'll buy the respective ETF in the desired proportion - but Total World will probably not have me second-guessing every night :sharebeer

jalbert wrote:
Mon Jul 09, 2018 1:02 pm
I have seen interviews where Mr. Bogle specifically said (speaking to US investors) that in his following of US and non-US equities, they don't deviate by too much over the long run so why take the currency risk?

You saw a different interview. You cannot base an investment strategy on either interview. An investment program should not be based on predictions of an expert. Mr. Bogle cannot predict the future, nor would he try.

If your expenses are in a different currency than your assets, you are subject to currency risk. Currency offers no long-term return, so currency risk is uncompensated risk. You need to figure out a maximum currency exposure. Bond investments in a different currency likely should be hedged. You can take some currency risk with stocks but it should be limited according to your determination.

Note that multinational corporations have some currency risk in their revenue stream already.

If I lived in the Eurozone, I might choose a stock allocation that was 1/3 Eurozone stocks, 1/3 currency-hedged US stocks, 1/3 rest of the world stocks mostly or fully unhedged. I don't know if that is right for you.

A total world index fund would also be a major consideration. That is about 80% non-Euro-denominated.

What if anything do other Eurozone investors do to manage currency risk in a diversified global equity portfolio? That is more relevant than our recommendations.
I've looked at other Eurozone investors; a proposition was made above. Most tend to go towards Total World types of portfolios, sometimes supplementing with some "Eurozone" portfolios to tilt it towards Europe due to currency risk. I might start with the Total World for now, and tilt it a bit down the road if I see it's a good idea eventually - I'm still young (29), so I'll have more than enough time for these trims to take effect.

That being said, no one can predict the future. Tilting a Total World portfolio is sounding like a guessing game, more than anything else... I'm unsure if that's a game I'm willing to play.

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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 09, 2018 4:50 pm

DrBlues wrote:
Mon Jul 09, 2018 12:39 pm


I had some time to search for this in portuguese forums; information is scarce, but here's what it looked like to me, for ETFs domiciled in Ireland

1. Dividends are taxed at 15% the moment they are issued, regardless of them being distributed or reinvested.
2. If on a given year I sell the ETF or stock, I will have to declare whatever profit I had.
2.1 Profit due to the stock valuation will be taxed at 28% (if can be taxed at a lower rate if my yearly earnings are low enough, but that's a rare situation)
2.2 Profit due to dividends will be taxed at 28%, but due to double taxation I can make a requirement for them to only be taxed at 13% (seeing as 15% was already withheld in Ireland)

(I will still double-check this info and then confirm it definitively)
So total tax on dividends is 28%?

Why not use an accumulation fund, then? Before distribution, you'll only pay 15%

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 09, 2018 4:53 pm

jalbert wrote:
Mon Jul 09, 2018 1:02 pm

If I lived in the Eurozone, I might choose a stock allocation that was 1/3 Eurozone stocks, 1/3 currency-hedged US stocks, 1/3 rest of the world stocks mostly or fully unhedged. I don't know if that is right for you.
You can check Vanguards white papers. Stocks are more volatile than currency, so it doesn't make a big difference in what currency you buy them. For bonds it's important to have them hedged in your currency.

Why would you want to tilt towards Euro stocks if you live in Europe? If anything, I would tilt towards another country to diversify (you don't want your stock going down when you get laid off because of a European crisis).

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 09, 2018 6:46 pm

Got this from a Spanish website

https://blog.selfbank.es/como-tributan- ... de-origen/

-----
Let's take an example: imagine that BMW pays us a dividend of 10 euros gross:

In origin (Germany) we will retain 26.375%, that is, 2.6375 euros. We would be 7.36 euros.
In destination (Spain) we will apply a withholding of 19% of those 7.3625 euros, not 10 euros. So by retaining here 19% (1.39 euros), we will see a final income in our account of 5.96 euros.
A posteriori we can claim from the German treasury the difference between 26.375% and 15% signed in the agreement, which is 11.375%. That is, we could recover 1.13 euros.
------

So this looks pretty much like double taxation to me. Is the same if you buy BMW via a UCITS ETFs? Accumulation or non-accumulation?

jalbert
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Re: A new investor has appeared! [Portugal]

Post by jalbert » Mon Jul 09, 2018 7:27 pm

You can check Vanguards white papers. Stocks are more volatile than currency, so it doesn't make a big difference in what currency you buy them. For bonds it's important to have them hedged in your currency.
From a short-term volatility perspective currency fluctuations would dominate bond volatility for an unhedged int’l bond fund but short-term volatility of equities dominate currency volatility. Thus, Vanguard hedges their int’l bond fund. This is the point made by that article. It would be an incorrect interpretation of the article to consider it as advocating holding 90% of one’s assets in a foreign currency.
Index fund investor since 1987.

jalbert
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Re: A new investor has appeared! [Portugal]

Post by jalbert » Mon Jul 09, 2018 7:42 pm

Here is some more info about Mr Bogle’s advice, which is intended for US investors:

http://www.investmentnews.com/article/2 ... nal-stocks
Index fund investor since 1987.

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Tue Jul 10, 2018 5:59 am

international001 wrote:
Mon Jul 09, 2018 6:46 pm
Got this from a Spanish website

https://blog.selfbank.es/como-tributan- ... de-origen/

-----
Let's take an example: imagine that BMW pays us a dividend of 10 euros gross:

In origin (Germany) we will retain 26.375%, that is, 2.6375 euros. We would be 7.36 euros.
In destination (Spain) we will apply a withholding of 19% of those 7.3625 euros, not 10 euros. So by retaining here 19% (1.39 euros), we will see a final income in our account of 5.96 euros.
A posteriori we can claim from the German treasury the difference between 26.375% and 15% signed in the agreement, which is 11.375%. That is, we could recover 1.13 euros.
------

So this looks pretty much like double taxation to me. Is the same if you buy BMW via a UCITS ETFs? Accumulation or non-accumulation?
The question cannot be answered without knowing the country where the fund is domiciled and the country where the investor is domiciled.

As you know there are three countries involved in the taxation: the country of the asset, the country of the fund, the country of the investor; each with their own tax laws and tax-treaties with the other countries.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Tue Jul 10, 2018 6:40 am

BeBH65 wrote:
Tue Jul 10, 2018 5:59 am
international001 wrote:
Mon Jul 09, 2018 6:46 pm
Got this from a Spanish website

https://blog.selfbank.es/como-tributan- ... de-origen/

-----
Let's take an example: imagine that BMW pays us a dividend of 10 euros gross:

In origin (Germany) we will retain 26.375%, that is, 2.6375 euros. We would be 7.36 euros.
In destination (Spain) we will apply a withholding of 19% of those 7.3625 euros, not 10 euros. So by retaining here 19% (1.39 euros), we will see a final income in our account of 5.96 euros.
A posteriori we can claim from the German treasury the difference between 26.375% and 15% signed in the agreement, which is 11.375%. That is, we could recover 1.13 euros.
------

So this looks pretty much like double taxation to me. Is the same if you buy BMW via a UCITS ETFs? Accumulation or non-accumulation?
The question cannot be answered without knowing the country where the fund is domiciled and the country where the investor is domiciled.

As you know there are three countries involved in the taxation: the country of the asset, the country of the fund, the country of the investor; each with their own tax laws and tax-treaties with the other countries.

Rigth. I'm just using the Spanish example.

But if one European country can do this double taxation (do you agree it is?), other country may as well, and it's worth checking.

And it makes it even more complicated that we have to deal with multiple governments. Also, there seems to be a trick in favor of the Spanish taxpayer. The second (Spanish taxation) is referred to (100-26.375%) instead of (100-15%). It doesn't sound right and may come back to bite you from Spanish taxman.

Anyway, I think this are good reasons to do accumulation funds instead of ETFs. A Roboadvisor indexing company in Spain sells funds in taxable accounts and ETFs on pension plans (where that second taxation does not happen till you distribute). But by all means, show me other examples (Spain, Portugal, any) where ETFs could be more tax efficient.

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Tue Jul 10, 2018 7:10 am

DrBlues wrote:
Mon Jul 09, 2018 12:39 pm

I had some time to search for this in portuguese forums; information is scarce, but here's what it looked like to me, for ETFs domiciled in Ireland

1. Dividends are taxed at 15% the moment they are issued, regardless of them being distributed or reinvested.

2. If on a given year I sell the ETF or stock, I will have to declare whatever profit I had.
2.1 Profit due to the stock valuation will be taxed at 28% (if can be taxed at a lower rate if my yearly earnings are low enough, but that's a rare situation)
2.2 Profit due to dividends will be taxed at 28%, but due to double taxation I can make a requirement for them to only be taxed at 13% (seeing as 15% was already withheld in Ireland)

(I will still double-check this info and then confirm it definitively)
#1: would be correct for US domiciled stocks, other countries/ tax treaties might have a different dividend taxation; sometimes 0%, sometimes 10%, sometimes 30%, ...
#2.2: actually the 15% is witheld in the US (or the other countries).
Not sure how exactly you will "know" how much you should recuperate of these 15% or 10%, 30%, ... .
I am not aware that UCITS funds report this level-1 taxation, but they might well do this in countries where this is applicable.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Wed Jul 11, 2018 6:45 am

international001 wrote:
Mon Jul 09, 2018 4:50 pm

So total tax on dividends is 28%?

Why not use an accumulation fund, then? Before distribution, you'll only pay 15%
I will be using an accumulation fund. After some research, it looks like IWDA + EIMI are a better option than Vanguard for european chap. ;)

international001 wrote:
Mon Jul 09, 2018 4:53 pm
Why would you want to tilt towards Euro stocks if you live in Europe? If anything, I would tilt towards another country to diversify (you don't want your stock going down when you get laid off because of a European crisis).
This makes much more sense to me, actually. I see a lot of "you should focus on your own currency" arguments, but actually I wonder if it wouldn't make sense to buy a fund that represents OTHER countries, even if on your currency (like a total world stock in your own currency).
international001 wrote:
Tue Jul 10, 2018 6:40 am
Rigth. I'm just using the Spanish example.

But if one European country can do this double taxation (do you agree it is?), other country may as well, and it's worth checking.

And it makes it even more complicated that we have to deal with multiple governments. Also, there seems to be a trick in favor of the Spanish taxpayer. The second (Spanish taxation) is referred to (100-26.375%) instead of (100-15%). It doesn't sound right and may come back to bite you from Spanish taxman.

Anyway, I think this are good reasons to do accumulation funds instead of ETFs. A Roboadvisor indexing company in Spain sells funds in taxable accounts and ETFs on pension plans (where that second taxation does not happen till you distribute). But by all means, show me other examples (Spain, Portugal, any) where ETFs could be more tax efficient.
BeBH65 wrote:
Tue Jul 10, 2018 7:10 am
#1: would be correct for US domiciled stocks, other countries/ tax treaties might have a different dividend taxation; sometimes 0%, sometimes 10%, sometimes 30%, ...
#2.2: actually the 15% is witheld in the US (or the other countries).
Not sure how exactly you will "know" how much you should recuperate of these 15% or 10%, 30%, ... .
I am not aware that UCITS funds report this level-1 taxation, but they might well do this in countries where this is applicable.
I decided to go into a national finance forum to clarify the matter. Different websites say different things, so I am not completely sure yet how it is handled in Portugal. Once I am actually sure, I will be sure to let you guys know.

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Re: A new investor has appeared! [Portugal]

Post by international001 » Fri Jul 13, 2018 7:12 am

Why do you prefer IWDA + EIMI than a fund?
Those ETFs are accumulation, but they are denominated in USD (adds a little bit -not much- currency volatility)
So did you check that they are taxed just like funds?

IF they are accumulation, you should not have to pay taxes in Portugal while you just hold them (only when you sell them). And do not be able to take a credit for the 15% you'd pay in taxes to US

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Fri Jul 13, 2018 12:44 pm

international001 wrote:
Fri Jul 13, 2018 7:12 am
Why do you prefer IWDA + EIMI than a fund?
Those ETFs are accumulation, but they are denominated in USD (adds a little bit -not much- currency volatility)
So did you check that they are taxed just like funds?

IF they are accumulation, you should not have to pay taxes in Portugal while you just hold them (only when you sell them). And do not be able to take a credit for the 15% you'd pay in taxes to US
There are versions of those funds denominated in EUR in Amsterdam and Italy, which should make it just fine. I don't know of any other accumulation fund which would mimick the entirety of the world stock.

Unfortunately, I haven't gotten my answer regarding taxes just yet. Once I do, I'll be sure to let you know.

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Fri Jul 13, 2018 3:23 pm

DB Xtrackers also has MSCI world accumulating funds.
And i believe there are others.
I would say the IShares ones are certainly part of the good ones.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Sun Jul 15, 2018 9:33 am

international001 wrote:
Fri Jul 13, 2018 7:12 am
Why do you prefer IWDA + EIMI than a fund?
Those ETFs are accumulation, but they are denominated in USD (adds a little bit -not much- currency volatility)
So did you check that they are taxed just like funds?

IF they are accumulation, you should not have to pay taxes in Portugal while you just hold them (only when you sell them). And do not be able to take a credit for the 15% you'd pay in taxes to US
BeBH65 wrote:
Fri Jul 13, 2018 3:23 pm
DB Xtrackers also has MSCI world accumulating funds.
And i believe there are others.
I would say the IShares ones are certainly part of the good ones.
I have finally gotten an answer from the national forum on finances. Here's what I was informed regarding Portugal:

- For non-US domiciled accumulation funds (my case with IWDA and EIMI), Portugal will tax 28% of all profits only when I sell the ETF.
- For non-US domiciled redistribution funds, Portugal will tax 28% of all dividends when they are distributed, and then 28% of the stock valuation once the stock is sold.
- For US-domiciled funds, the US will get 30% of all dividends, and Portugal will get 28% of all profit (dividends + stock valuation). The 30% the US earns can be reduced to 15% by filling the W-8BEN form.

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Sun Jul 15, 2018 5:52 pm

DrBlues wrote:
Sun Jul 15, 2018 9:33 am


I have finally gotten an answer from the national forum on finances. Here's what I was informed regarding Portugal:

- For non-US domiciled accumulation funds (my case with IWDA and EIMI), Portugal will tax 28% of all profits only when I sell the ETF.
- For non-US domiciled redistribution funds, Portugal will tax 28% of all dividends when they are distributed, and then 28% of the stock valuation once the stock is sold.
- For US-domiciled funds, the US will get 30% of all dividends, and Portugal will get 28% of all profit (dividends + stock valuation). The 30% the US earns can be reduced to 15% by filling the W-8BEN form.

But for non-US domiciled accumulation funds, my understanding is that the fund hast to pay (L1 of witholding) 15% to US

What about non-US domiciled distribution funds. Doesn't the US get anything? This would seem against treaty. I thought they got 15% of dividends but then you were able to get a credit for this amount in your Portuguese taxes. Same for US-domiciled funds (hypothetically, you cannot buy them anymore). But I could be wrong.

In anycase, this would seem that accumulation funds (or ETFs) win. But only because Portuguese taxes are so high (28% vs 15%). Note that accumulation funds mantain the original cost basis of when you obtain the shares. If you had the chance of just paying the same rate of taxes on dividends and reinvest the dividends on the fund, the cost basis would increase.

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 16, 2018 2:46 am

international001 wrote:
Sun Jul 15, 2018 5:52 pm
DrBlues wrote:
Sun Jul 15, 2018 9:33 am
I have finally gotten an answer from the national forum on finances. Here's what I was informed regarding Portugal:

- For non-US domiciled accumulation funds (my case with IWDA and EIMI), Portugal will tax 28% of all profits only when I sell the ETF.
- For non-US domiciled redistribution funds, Portugal will tax 28% of all dividends when they are distributed, and then 28% of the stock valuation once the stock is sold.
- For US-domiciled funds, the US will get 30% of all dividends, and Portugal will get 28% of all profit (dividends + stock valuation). The 30% the US earns can be reduced to 15% by filling the W-8BEN form.
But for non-US domiciled accumulation funds, my understanding is that the fund hast to pay (L1 of witholding) 15% to US

What about non-US domiciled distribution funds. Doesn't the US get anything? This would seem against treaty. I thought they got 15% of dividends but then you were able to get a credit for this amount in your Portuguese taxes. Same for US-domiciled funds (hypothetically, you cannot buy them anymore). But I could be wrong.

In anycase, this would seem that accumulation funds (or ETFs) win. But only because Portuguese taxes are so high (28% vs 15%). Note that accumulation funds mantain the original cost basis of when you obtain the shares. If you had the chance of just paying the same rate of taxes on dividends and reinvest the dividends on the fund, the cost basis would increase.
Why would the US get anything if the funds are not domiciled there? Australia, China, Poland or any other country don't get anything for US-domiciled funds, do they? The US doesn't have a say in every single fund in every single spot of the world.

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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 16, 2018 4:11 am

I'm thinking in the simple case where the underlying stocks of the fund are in US. Countries typically tax the dividends. It's level 1 witholding

https://www.bogleheads.org/wiki/Nonresi ... Irish_ETFs

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Mon Jul 16, 2018 12:59 pm

international001 wrote:
Mon Jul 16, 2018 4:11 am
I'm thinking in the simple case where the underlying stocks of the fund are in US. Countries typically tax the dividends. It's level 1 witholding

https://www.bogleheads.org/wiki/Nonresi ... Irish_ETFs
So if I'm understanding this correctly, US gets 15% of every dividend of every US-based stock, even if the ETF is domiciled elsewhere? Does this happen in any other country?

TedSwippet
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Re: A new investor has appeared! [Portugal]

Post by TedSwippet » Mon Jul 16, 2018 2:24 pm

DrBlues wrote:
Mon Jul 16, 2018 12:59 pm
So if I'm understanding this correctly, US gets 15% of every dividend of every US-based stock, even if the ETF is domiciled elsewhere?
To be accurate, the US gets 15% of every dividend paid out by a US-based stock to an Ireland-domiciled ETF, because the US/Ireland tax treaty rate for dividends is 15%. An ETF domiciled in Malaysia(*), say, would lose 30% in US tax on dividends paid by US-based stocks, because Malaysia has no US tax treaty.

(*) This is a completely random example of a country without a US tax treaty. I have no idea if there are any Malaysian domiciled ETFs. Any non-treaty country would have sufficed for this statement!
DrBlues wrote:
Mon Jul 16, 2018 12:59 pm
Does this happen in any other country?
It does, and there is a table here: https://www2.deloitte.com/content/dam/D ... -rates.pdf

You can see from this that at 30% of dividends, the US is pretty much the highest taxing country on the list. However, tax treaties between pairs of countries will often modify (generally, reduce) these rates. For example, the 15% US/Ireland treaty rate mentioned above. Without investigating the tax treaties between Ireland and every other country, it will be very difficult to quantify the tax leakage of an Ireland domiciled global fund. However, since more than half that fund will be US stocks, the 15% taken by the US will tend to dominate the numbers.

Much easier to quantify ETF tax leakage on an Ireland domiciled fund that holds only US stocks. And very tricky for Ireland domiciled funds that hold purely non-US stocks.

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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 16, 2018 3:18 pm

Thanks for the confirmation. Regarding the distribution ETFs/funds.. a country (like Portugal) is supposed to give you a tax credit for this tax leakage, right?

Ex: If you get 100 of dividends, you would pay 15 to USA, (100-15)*28%=23.8 to Portugal, and then get back 15 from Portugal. So effective tax would be 23.8%. Am I getting that right?

And for accumulation ETFs/funds you don't get anything back from from Portugal, right?

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Mon Jul 16, 2018 5:03 pm

international001 wrote:
Sun Jul 15, 2018 5:52 pm
DrBlues wrote:
Sun Jul 15, 2018 9:33 am


I have finally gotten an answer from the national forum on finances. Here's what I was informed regarding Portugal:

- For non-US domiciled accumulation funds (my case with IWDA and EIMI), Portugal will tax 28% of all profits only when I sell the ETF.
- For non-US domiciled redistribution funds, Portugal will tax 28% of all dividends when they are distributed, and then 28% of the stock valuation once the stock is sold.
- For US-domiciled funds, the US will get 30% of all dividends, and Portugal will get 28% of all profit (dividends + stock valuation). The 30% the US earns can be reduced to 15% by filling the W-8BEN form.

But for non-US domiciled accumulation funds, my understanding is that the fund hast to pay (L1 of witholding) 15% to US

What about non-US domiciled distribution funds. Doesn't the US get anything? This would seem against treaty. I thought they got 15% of dividends but then you were able to get a credit for this amount in your Portuguese taxes. Same for US-domiciled funds (hypothetically, you cannot buy them anymore). But I could be wrong.

In anycase, this would seem that accumulation funds (or ETFs) win. But only because Portuguese taxes are so high (28% vs 15%). Note that accumulation funds mantain the original cost basis of when you obtain the shares. If you had the chance of just paying the same rate of taxes on dividends and reinvest the dividends on the fund, the cost basis would increase.
Be carefully not to confound the levels of taxation.
When you are investing trough funds the there are three levels of taxation:
1- by the country of the assets: l1
2- by the country of the fund :l2
3- by the country of the investors : l3

The US has a dividend witholding tax (l1) of 30% for assets held by a non us person/fund. Tax treaties can lower this.
The US has a (l2) dividend witholding tax of 30% for funds held by a non us person/fund. Tax treaties can lower this.

A portuguese investor using irish domiciled funds will (based on the above) pay 28% portuguese tax. For US assets 15% will already have been witheld before the dividends reaches the fund (independent if the funds itself reinvested or distributies its dividends, similarly for assets of other countries.

I am not aware of any (european) country that is supposed to give you tax credit for L1 dividend witholding taxes if you invest through funds (independend if they are accumulating or distributing). Actually i only heard about tax credit in the context of US investors, investing through US domiciled funds.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Mon Jul 16, 2018 6:48 pm

I understand the levels of taxations. In my example, L1 is 15% for USA and L3 is 28% for Portugal

Look at my post at 'Tue Jul 10, 2018 7:40 am'. I was quoting a Spanish website talking about this relief of double taxation. You think it's wrong? Or that example does not apply

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Tue Jul 17, 2018 1:38 am

@International,
The example you give concerns direct investments by a Spanish taxpayer in an individual German stocks, you write that the Spanish nvestor could claim money back from the German treasury.
This is something completely different from a Portuguese fund investor in investing in an Irish fund and trying to reclaim dividend withholding taxes paid to the US for assets that the fund holds.

The second statement cannot be concluded from the first example.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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permport
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Re: A new investor has appeared! [Portugal]

Post by permport » Tue Jul 17, 2018 1:42 am

New Investor uses INDEXING!

...It's SUPER EFFECTIVE.
Buy right and hold tight.

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Tue Jul 17, 2018 7:37 am

BeBH65 wrote:
Tue Jul 17, 2018 1:38 am
@International,
The example you give concerns direct investments by a Spanish taxpayer in an individual German stocks, you write that the Spanish nvestor could claim money back from the German treasury.
This is something completely different from a Portuguese fund investor in investing in an Irish fund and trying to reclaim dividend withholding taxes paid to the US for assets that the fund holds.

The second statement cannot be concluded from the first example.
You are right.. There is a part you reclaim to Germany because they didn't honor the dual tax agreement. For US, you would just file W-8BEN.



Let me translate a section from a Spanish website https://www.cazadividendos.com/declarac ... a-general/
We consider 19% is the Spanish tax on dividends

----
Recovery of international double taxation
(...)
The 19% that they retain in Spain is on the gross amount minus the withholding tax. If it really corresponds to you to pay taxes at 19% (because you do not surpass the € 6,000 that mark the change in the tax bracket) and return you 15%, you would have paid less than for a Spanish company. And that does not make sense, so theoretically the program adjusts what you get back so that you pay exactly 19%.
----

BTW, whether it is to recover excess withholding in the country that distributes the dividends, or to recover double taxation in your country of residence, it seems it's better that the source country withholds as much as possible, because the dividends in Spain are taxed (19%) on the *remainder* (i.e. on what is left after the source country does its withholding). Is this a loophole?

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BeBH65
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Re: A new investor has appeared! [Portugal]

Post by BeBH65 » Tue Jul 17, 2018 8:20 am

I am not sure if this example for Spanish taxation on individual stocks is relevant for this thread on Fund investing by Portuguese residents.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Tue Jul 17, 2018 10:55 am

BeBH65 wrote:
Tue Jul 17, 2018 8:20 am
I am not sure if this example for Spanish taxation on individual stocks is relevant for this thread on Fund investing by Portuguese residents.
I'm not sure either. I don't speak Portuguese to do searches for Portugal taxation system.
But in Spain it seems you get a credit, so chances are that in Portugal you do to. Of course, it needs to be investigated.

What baffles me is that you could end up in a country where double taxation is allowed. It seems very unfair and inefficient.

TedSwippet
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Re: A new investor has appeared! [Portugal]

Post by TedSwippet » Tue Jul 17, 2018 12:49 pm

international001 wrote:
Tue Jul 17, 2018 10:55 am
But in Spain it seems you get a credit, so chances are that in Portugal you do too.
This makes no sense. Even in the (perhaps unlikely?) event that you do get a credit in Spain for fund-level foreign taxes, why should Portugal be the same? They are different countries, and have been for about 900 years or so. (In fact, Portugal's existence as a country pre-dates Spain's by more than 300 years.)

Europe is not like the US. It is a group of distinct countries, each having its own disparate tax regime. Any tax regime similarities you do find between European countries are far more likely to be down to coincidence than anything else.

international001
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Re: A new investor has appeared! [Portugal]

Post by international001 » Tue Jul 17, 2018 4:05 pm

You could also argue that the Crown of Aragon predates Portugal,or that Portugal and Spain were under the same king for 60 years. Or that the first traded company didn't appear till the 17th century. But nothing of that is that relevant ;-)

Just let me modify 'chacnes are' for 'may' or 'might'.

Of course, it need to be looked into. I found these 2 documents:

https://www2.deloitte.com/content/dam/D ... s-2018.pdf
https://www2.deloitte.com/content/dam/D ... s-2018.pdf

Look at 'Foreign tax credit'. It would seem both countries have a it.

TedSwippet
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Re: A new investor has appeared! [Portugal]

Post by TedSwippet » Tue Jul 17, 2018 5:32 pm

international001 wrote:
Tue Jul 17, 2018 4:05 pm
You could also argue that the Crown of Aragon predates Portugal,or that Portugal and Spain were under the same king for 60 years. Or that the first traded company didn't appear till the 17th century. But nothing of that is that relevant ;-)
Then why mention it?
international001 wrote:
Tue Jul 17, 2018 4:05 pm
Of course, it need to be looked into. I found these 2 documents ...
... neither of which say anything about the ability of an individual investor in one of these countries being able to claim a foreign tax credit against opaque foreign taxes paid internally by an ETF that they hold. The UK allows foreign tax credits too, just not for Level-1 taxes paid internally by an ETF that is, to the UK, 'offshore' (eg Ireland).

I do not know offhand where you are from, but it is not Portugal. Nor am I. Nor is BeBH65. So none of us can know the answer here, and it is fruitless to speculate further. If you have a point, I have now entirely lost track of what it is. But whatever it is, I am certain that it does not belong here. Please start a new thread outlining exactly what you think needs to be explained, and why.

DrBlues
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Re: A new investor has appeared! [Portugal]

Post by DrBlues » Sun Jul 22, 2018 3:45 am

BeBH65 wrote:
Mon Jul 16, 2018 5:03 pm
international001 wrote:
Sun Jul 15, 2018 5:52 pm
DrBlues wrote:
Sun Jul 15, 2018 9:33 am


I have finally gotten an answer from the national forum on finances. Here's what I was informed regarding Portugal:

- For non-US domiciled accumulation funds (my case with IWDA and EIMI), Portugal will tax 28% of all profits only when I sell the ETF.
- For non-US domiciled redistribution funds, Portugal will tax 28% of all dividends when they are distributed, and then 28% of the stock valuation once the stock is sold.
- For US-domiciled funds, the US will get 30% of all dividends, and Portugal will get 28% of all profit (dividends + stock valuation). The 30% the US earns can be reduced to 15% by filling the W-8BEN form.

But for non-US domiciled accumulation funds, my understanding is that the fund hast to pay (L1 of witholding) 15% to US

What about non-US domiciled distribution funds. Doesn't the US get anything? This would seem against treaty. I thought they got 15% of dividends but then you were able to get a credit for this amount in your Portuguese taxes. Same for US-domiciled funds (hypothetically, you cannot buy them anymore). But I could be wrong.

In anycase, this would seem that accumulation funds (or ETFs) win. But only because Portuguese taxes are so high (28% vs 15%). Note that accumulation funds mantain the original cost basis of when you obtain the shares. If you had the chance of just paying the same rate of taxes on dividends and reinvest the dividends on the fund, the cost basis would increase.
Be carefully not to confound the levels of taxation.
When you are investing trough funds the there are three levels of taxation:
1- by the country of the assets: l1
2- by the country of the fund :l2
3- by the country of the investors : l3

The US has a dividend witholding tax (l1) of 30% for assets held by a non us person/fund. Tax treaties can lower this.
The US has a (l2) dividend witholding tax of 30% for funds held by a non us person/fund. Tax treaties can lower this.

A portuguese investor using irish domiciled funds will (based on the above) pay 28% portuguese tax. For US assets 15% will already have been witheld before the dividends reaches the fund (independent if the funds itself reinvested or distributies its dividends, similarly for assets of other countries.

I am not aware of any (european) country that is supposed to give you tax credit for L1 dividend witholding taxes if you invest through funds (independend if they are accumulating or distributing). Actually i only heard about tax credit in the context of US investors, investing through US domiciled funds.
This was such a clear answer. I would like to thank you and everyone else who contributed to this thread and helped me get started in the investment world :) I now feel much more informed about what decisions to make... I will indeed stick to Mr. Bogle's idea of keeping it simple and owning a bit of everything. IWDA and EIMI it'll be for now, on 90/10 ratio.

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