[EU] Accumulated ETFs: Ireland vs Luxembourg

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Thbst
Posts: 7
Joined: Sat Dec 10, 2016 3:42 pm

[EU] Accumulated ETFs: Ireland vs Luxembourg

Post by Thbst » Sun Jul 22, 2018 2:14 am

I am looking for advice on the best option for my safe part of the portofolio as a citizen in Romania (part of EU), any advice is greatly appreciated.

The context:
1. According to Vanguard Study (Going global with bonds: The benefits of a more global fixed income allocation https://personal.vanguard.com/pdf/ISGGLBD.pdf), i am considering to use as part of my portofolio allocation a Global Bond EUR Hedged ETF (as my future expenses will be in EUR).

2. Based on Witholding tax studies i found on the Internet (https://home.kpmg.com/content/dam/kpmg/ ... y-2017.pdf , https://www.pwc.com/gx/en/eu-tax-harmon ... 2-8-05.pdf), i understand that Luxembourg ETFs incorporated as Company With Variable Capital (SICAV) have challenges to access their own tax treaty rates and are currently charged with high amount of rates by EU countries. I see crazy percentages for up to 30-35% (see the table in page 4 of the KPMG study)

3. My Country (Romania), based on the research i have done so far:
- does not seem to tax accumulated dividends from ETFs (still looking for an official confirmation for that)
- it has a 5% L3T for dividends and taxes capital gains with 10%
- in case i am taxed with higher % that 5% as WHT, the 5% are absorbed by the WHT and i don't pay anything else on top.
So It looks i should ideally use an accumulated ETFs to optimize on taxes.

The challenge:
The only ETF i was able to find that matches my criteria (accumulated, global, low costs, AUM big enough, 5y+ old) was DBZB (https://www.justetf.com/en/etf-profile. ... 0378818131)

The alternative from Ireland seems to be AGGH (https://www.justetf.com/en/etf-profile. ... 00BDBRDM35) , however i do not feel confortable to use an ETF funded on Nov 2017

Questions:
1. Does Ireland ETFs encounter the same challenges as the Luxembourg SICAV ETFs?
2. How does Ireland stand comparing with Luxembourg in terms of WHT treaties?
3. Is there a better Irish accumulated ETF that i missed instead of DBZB that i could use?
4. In my situation, Is it worth considering a distributed ETF from Ireland instead of an accumulated ETF from Luxembourg? If yes, any idea which?
5. What would be the best way to compare 2 ETFs tracking the same Index with domicile in different countries (e.g. Ireland vs Luxembourg) from a WHT leakage standpoint?

Many thanks,

selters
Posts: 608
Joined: Thu Feb 27, 2014 9:26 am

Re: [EU] Accumulated ETFs: Ireland vs Luxembourg

Post by selters » Sun Jul 22, 2018 6:44 am

Bonds are for stability. Unless your net worth is in the millions of dollars/euros, bonds are not a requirement. A regular savings account will do the trick just fine. As long as Romanian banks are safe, I would just use a savings account.

The Ireland based ETFs seem to be the ones with highest assets under management, lowest costs, lowest tracking error, so I'd use them.

https://www.justetf.com/en/etf-profile. ... 00B4L5Y983 (iShares Core MSCI World UCITS ETF USD (Acc))
plus
https://www.justetf.com/en/etf-profile. ... 00BKM4GZ66 (iShares Core MSCI Emerging Markets IMI UCITS ETF)
is the probably the best combination.

Vanguard's funds distribute dividends, so that makes them not ideal for long term investing.

Compare different funds that track the same index on morningstar.co.uk to find which ones are best at dealing with withholding taxes. iShares seem to outperform other ETFs.

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BeBH65
Posts: 1274
Joined: Sat Jul 04, 2015 7:28 am

Re: [EU] Accumulated ETFs: Ireland vs Luxembourg

Post by BeBH65 » Sun Jul 22, 2018 11:44 am

Thbst wrote:
Sun Jul 22, 2018 2:14 am
Questions:
1. Does Ireland ETFs encounter the same challenges as the Luxembourg SICAV ETFs?
2. How does Ireland stand comparing with Luxembourg in terms of WHT treaties?
3. Is there a better Irish accumulated ETF that i missed instead of DBZB that i could use?
4. In my situation, Is it worth considering a distributed ETF from Ireland instead of an accumulated ETF from Luxembourg? If yes, any idea which?
5. What would be the best way to compare 2 ETFs tracking the same Index with domicile in different countries (e.g. Ireland vs Luxembourg) from a WHT leakage standpoint?

Many thanks,
Generally it is believed that irish funds can take advantage of the excellent tax treaties it has. Luxemburg might not have as good treaties.

Please confirm that Roumenia does not tax dividends from funds that are reinvested by the fund itself.
Some countries do, and this then becomes a pain for the investors.

Ishares has a global fonds fund hedged to the euro AGGH, this is the hedged version of AGGG.

For comparing funds you could use Morningstar. The site has a lot of info and one can also create a portfolio with the exact scenario and contributies in the past. This would then, for two funds that track the same/similar index show who performer best.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

DJN
Posts: 153
Joined: Mon Nov 20, 2017 12:30 am

Re: [EU] Accumulated ETFs: Ireland vs Luxembourg

Post by DJN » Sun Jul 22, 2018 12:38 pm

A few considerations to think about:
- TAX - you need to check this out first in the context of your local tax situation.
- Buy UCITS etfs domiciled in Ireland, the tax treaty with US results in only 15% withholding. Ireland has the better infra structure for am.
- Check the TER of each and buy accordingly the lowest cost that suits your needs.
- I like to check the capital level invested.
- If you choose to get accumulating, check first if your local tax laws involve separate taxation of income and capital growth. You may need separate records for the taxman.
good luck
DJN

Thbst
Posts: 7
Joined: Sat Dec 10, 2016 3:42 pm

Re: [EU] Accumulated ETFs: Ireland vs Luxembourg

Post by Thbst » Mon Jul 23, 2018 2:26 pm

selters wrote:
Sun Jul 22, 2018 6:44 am
Bonds are for stability. Unless your net worth is in the millions of dollars/euros, bonds are not a requirement. A regular savings account will do the trick just fine. As long as Romanian banks are safe, I would just use a savings account.

The Ireland based ETFs seem to be the ones with highest assets under management, lowest costs, lowest tracking error, so I'd use them.

https://www.justetf.com/en/etf-profile. ... 00B4L5Y983 (iShares Core MSCI World UCITS ETF USD (Acc))
plus
https://www.justetf.com/en/etf-profile. ... 00BKM4GZ66 (iShares Core MSCI Emerging Markets IMI UCITS ETF)
is the probably the best combination.

Vanguard's funds distribute dividends, so that makes them not ideal for long term investing.

Compare different funds that track the same index on morningstar.co.uk to find which ones are best at dealing with withholding taxes. iShares seem to outperform other ETFs.
Thank you for the tip related to morningstar, i was using justetf.com so far, i'll start playing with it.

I was also considering IWDA and EMIM as well. As far as i understood from similar forum threads, an ideal breakdown that would mimic VT would be: 78% IWDA, 12% WDSC, 10% EMIM.

Related to WDSC, i am wondering if it would be worth replacing it with WSML (0,35% vs 0,45%), however i am a concerned on the Inception Date (Mar 2018 vs Nov 2013):
https://www.justetf.com/en/etf-profile. ... 00BF4RFH31

Thbst
Posts: 7
Joined: Sat Dec 10, 2016 3:42 pm

Re: [EU] Accumulated ETFs: Ireland vs Luxembourg

Post by Thbst » Mon Jul 23, 2018 2:38 pm

BeBH65 wrote:
Sun Jul 22, 2018 11:44 am
Thbst wrote:
Sun Jul 22, 2018 2:14 am
Questions:
1. Does Ireland ETFs encounter the same challenges as the Luxembourg SICAV ETFs?
2. How does Ireland stand comparing with Luxembourg in terms of WHT treaties?
3. Is there a better Irish accumulated ETF that i missed instead of DBZB that i could use?
4. In my situation, Is it worth considering a distributed ETF from Ireland instead of an accumulated ETF from Luxembourg? If yes, any idea which?
5. What would be the best way to compare 2 ETFs tracking the same Index with domicile in different countries (e.g. Ireland vs Luxembourg) from a WHT leakage standpoint?

Many thanks,
Generally it is believed that irish funds can take advantage of the excellent tax treaties it has. Luxemburg might not have as good treaties.

Please confirm that Roumenia does not tax dividends from funds that are reinvested by the fund itself.
Some countries do, and this then becomes a pain for the investors.

Ishares has a global fonds fund hedged to the euro AGGH, this is the hedged version of AGGG.

For comparing funds you could use Morningstar. The site has a lot of info and one can also create a portfolio with the exact scenario and contributies in the past. This would then, for two funds that track the same/similar index show who performer best.
According to the fiscal code, a dividend is defined as an actual distribution of funds. You have an obligation to declare revenue from capital gains only when you sell the ETF. This means that if the dividend is not distributed, it should not be taxed.

AGGH seem to be what i am looking for. However, i have two question marks:
1) In the KIID, i see: Fund Base Currency USD and Share Class Currency EUR. Is this normal? Shouldn't the Fund Base Currency also be EUR since this fund is hedged? Will the trading be done in EUR?
2) Inception date: 21 November 2017. Can i trust a fund that doesn't even have 1 year? The ETFs from Luxembourg have more than 5 years of age.

Thank you for the tip related to Morningstar, i'll do some digging to find out more information and compare.

User avatar
BeBH65
Posts: 1274
Joined: Sat Jul 04, 2015 7:28 am

Re: [EU] Accumulated ETFs: Ireland vs Luxembourg

Post by BeBH65 » Mon Jul 23, 2018 3:45 pm

Thbst wrote:
Mon Jul 23, 2018 2:38 pm
According to the fiscal code, a dividend is defined as an actual distribution of funds. You have an obligation to declare revenue from capital gains only when you sell the ETF. This means that if the dividend is not distributed, it should not be taxed.

AGGH seem to be what i am looking for. However, i have two question marks:
1) In the KIID, i see: Fund Base Currency USD and Share Class Currency EUR. Is this normal? Shouldn't the Fund Base Currency also be EUR since this fund is hedged? Will the trading be done in EUR?
2) Inception date: 21 November 2017. Can i trust a fund that doesn't even have 1 year? The ETFs from Luxembourg have more than 5 years of age.

Thank you for the tip related to Morningstar, i'll do some digging to find out more information and compare.
Good news on the taxation of accumulating funds: this means you can have compounding of the full 100% of the dividends before taxation.

Have a look at Base_currency_vs._trading_currency_vs._currency_of_the_underlying_asset.
Hedging is provided through assets (futures/... ) that the fund will hold.

The Ishares fund follows a known index. Blackrock iShares is a very reputable ETF provider.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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