Index fund Investing from Cayman islands

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Tzimmermann
Posts: 2
Joined: Sat Jan 12, 2019 10:57 am

Index fund Investing from Cayman islands

Post by Tzimmermann » Sat Jan 12, 2019 11:43 am

Hi All,

I'm new to the forum and have a few questions, that I was hoping some of you can help me with.
First of all a bit of my background, I'm a German/Australian citizen currently living and working in the Cayman Islands (and I'm not planning on leaving any time soon)
I have recently opened a brokerage account here on island and would like to start investing in (mostly) Index funds.
With OneTradeX I'm able to invest in most worldwide markets.

Now my question is regarding taxation, if I invest in the VFINX directly, would I be subject to the 30% US tax?
From my research online I also found that if I would invest in the VUSD on the London stock exchange instead I only pay 15% tax due to the tax treaty with the US, I'm just not sure if that is relevant if I live in the Cayman islands?

Any advise on investing from the Cayman islands (as a Cayman islands resident) would be helpful.

Thank you very much,

TedSwippet
Posts: 1948
Joined: Mon Jun 04, 2007 4:19 pm

Re: Index fund Investing from Cayman islands

Post by TedSwippet » Sat Jan 12, 2019 12:33 pm

Welcome.
Tzimmermann wrote:
Sat Jan 12, 2019 11:43 am
Now my question is regarding taxation, if I invest in the VFINX directly, would I be subject to the 30% US tax?
Assuming you can access US mutual funds at all, yes. As a resident of a country without any tax treaties with the US, you will be liable for 30% US tax on every dividend paid out by US domiciled mutual fund and US domiciled ETFs, and also risk US estate tax at confiscatory rates on any holdings above $60k.

More in this section of the wiki: Outline of Non-US domiciles - Bogleheads
Tzimmermann wrote:
Sat Jan 12, 2019 11:43 am
From my research online I also found that if I would invest in the VUSD on the London stock exchange instead I only pay 15% tax due to the tax treaty with the US, I'm just not sure if that is relevant if I live in the Cayman islands?
Entirely relevant. Because it can use the US/Ireland tax treaty, the ETF itself will pay 15% US tax on dividends from US stock holdings. (And in the case of an ex-US or global stock tracker ETF, VWRD say, there is of course no US tax at all on dividends from stock holdings in other countries.) Dividends are then passed through to you as an investor with no further Irish or any other country's tax interference.

The treaty in question here then, is that between the ETF's domicile country and the US. Your own domicile or residence is immaterial when considering Ireland domiciled ETFs. For investors such as yourself, living in countries with no US tax treaties, using Ireland domiciled ETFs makes excellent economic sense because it effectively allows access to the US/Ireland treaty. Ireland does not tax dividends paid out by Ireland domiciled funds, nor does it apply its inheritance taxes to funds held by non-Irish residents.

And as a bonus, you get to completely avoid any risk of horrific US estate taxes on any holdings beyond the miserly $60k exemption for NRAs.

Topic Author
Tzimmermann
Posts: 2
Joined: Sat Jan 12, 2019 10:57 am

Re: Index fund Investing from Cayman islands

Post by Tzimmermann » Sun Jan 13, 2019 9:59 am

Thank you very much for your helpful answer, this will definitely help me with my investment decisions.

Post Reply