International ETFs with 0% dividend withholding tax?

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Longtermgrowth
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International ETFs with 0% dividend withholding tax?

Post by Longtermgrowth » Wed Feb 15, 2017 9:15 pm

Does anyone know if there are any International ETFs that specifically invest only in stocks from countries that do not withhold tax on dividends for U.S. investors?

I know there are country specific ETFs, but even the U.K. ETFs I look at hold both Shell RDS-A and RDS-B shares (only B shares have no withholding). If an ETF that invests in all ex-U.S. stocks with 0% dividend withholding hasn't already been created, it seems like a decent idea for a satellite holding. Especially in an IRA that can't claim the foreign tax credit.

Dirghatamas
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Re: International ETFs with 0% dividend withholding tax?

Post by Dirghatamas » Wed Feb 15, 2017 9:48 pm

Longtermgrowth wrote:Does anyone know if there are any International ETFs that specifically invest only in stocks from countries that do not withhold tax on dividends for U.S. investors?

I know there are country specific ETFs, but even the U.K. ETFs I look at hold both Shell RDS-A and RDS-B shares (only B shares have no withholding). If an ETF that invests in all ex-U.S. stocks with 0% dividend withholding hasn't already been created, it seems like a decent idea for a satellite holding. Especially in an IRA that can't claim the foreign tax credit.
No, I don't but I think this animal doesn't exist. I hate dividends/taxes and always interested in tax minimization but have concluded that simple US/Int total market is the way to go.

The main issue is that if you insist on countries with US tax treaties (so no tax is withheld) that will miss our MOST of the world. Consider that UK has a treaty but Japan doesn't. Netherland doesn't (that's why RDS B is no foreign tax from UK but RDS A is). You will miss out Switzerland (Nestle), all of Asia.

One possibility is to concentrate in countries which historically pay very little dividends. Japan and India stand out while UK/Australia tend to be very bad (high dividends). Again though you lose diversification.

Yet another approach is to simply put international in your taxable slot. You gain the foreign credit but get stuck with higher % of unqualified dividends so that too is bad.

I personally haven't found anything to help with dividends/foreign tax drags and just use US/Tot Int in both tax deferred and taxable. It is an unfortunate drag of foreign investing.

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Longtermgrowth
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Re: International ETFs with 0% dividend withholding tax?

Post by Longtermgrowth » Thu Feb 16, 2017 1:23 am

Thanks for the reply. I've done a lot of searching and haven't come up with anything, so I'm pretty sure it doesn't exist. It's almost surprising because there are so many different ETFs out there. Some of them look much more ridiculous to me than the idea of an ETF holding the countries listed at 0% in the link below, maybe at market cap weight.

Here is the most current list I can find on withholding percentage by country: http://topforeignstocks.com/wp-content/ ... r-2016.png

As you said, one would miss out on many good international stocks if used as a core holding. Though it would still be a more diversified satellite holding than just picking a U.K. ETF for a small portion of international stocks.

AlohaJoe
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Re: International ETFs with 0% dividend withholding tax?

Post by AlohaJoe » Thu Feb 16, 2017 2:28 am

If such an ETF were market-cap weighted (what else would you want?) then it would be 47% Hong Kong, 22% India, 9% Singapore, 7% Brazil, 5% Malaysia.

(Technically the UK would make up 99% of the ETF but that's boring so I left it out of the above calculation...)

It seems like the UK is the only country with 0% dividends that most bogleheads would really want to invest substantial amounts in, so it isn't surprising to me that there is no ETF for a niche this small.
Longtermgrowth wrote:Though it would still be a more diversified satellite holding than just picking a U.K. ETF for a small portion of international stocks.
It would only be more diversified if you ignored market cap-weighting and used some other scheme (equal weighting?). But that would likely drive up costs & turnover.

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Longtermgrowth
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Re: International ETFs with 0% dividend withholding tax?

Post by Longtermgrowth » Thu Feb 16, 2017 3:06 am

Thanks for the clarification. 99%! I figured the U.K. would make up a large portion of it if market cap weighted, but didn't think it would be quite that much haha. So dividend weighting would probably bring it very high percentage U.K. and equal weighting, besides the turnover and costs, might make the ex-U.S. small cap funds look like something vary safe in comparison...

Clive
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Re: International ETFs with 0% dividend withholding tax?

Post by Clive » Thu Feb 16, 2017 6:01 am

Without looking, IIRC something like 70% of UK FT100 (largest 100 by market cap) index is via foreign business/revenues/earnings. 50% foreign earnings for the next 250 largest (FT250) midcap index ... which in US scale compares to small cap. Above average dividends could be considered as being 'value' (so UK FT250 = small cap value).

Much like a international fund via a single point/holding, and no withholding tax.

Isn't S&P500 also up at around 50% foreign revenue/earnings? Such that a combination of S&P and FT250 might span domestic/foreign, large/small, growth/value.

My figures show yearly FT250 (UK midcap) % total returns in US$ adjusted since 1986 of

36.9
44.1
10.6
13.0
0.8
13.7
2.4
34.2
1.2
18.0
27.7
6.3
5.2
32.2
-3.6
-9.2
-16.9
54.2
31.8
16.5
48.4
-1.1
-54.9
68.4
23.1
-11.0
31.2
34.6
-2.5
5.1
-11.9

Comparing those with S&P500 total returns from here indicates SCV like characteristics (higher arithmetic average, higher standard deviation in yearly returns compared to S&P500).

Vanguard UK provide VMID (expense ratio 0.1%). Or there are spreadbets with zero cost roll when fully funded (Ayondo) - like a tracker, but no taxes due to being a 'bet'. Like many accounts however, US residents will likely be rejected due to all of the US reporting requirements that are otherwise needed.

msk
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Re: International ETFs with 0% dividend withholding tax?

Post by msk » Thu Feb 16, 2017 6:36 am

One could look up and invest in non-dividend-paying stocks :mrgreen: Good start: BRK.B. Over 20 years it has more than kept up with the SP500 and it does hold 70+ businesses within it. Enough diversification for a billionaire like Warren Buffett. The future is unknown...

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Epsilon Delta
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Re: International ETFs with 0% dividend withholding tax?

Post by Epsilon Delta » Thu Feb 16, 2017 11:18 am

AlohaJoe wrote:If such an ETF were market-cap weighted (what else would you want?) then it would be 47% Hong Kong, 22% India, 9% Singapore, 7% Brazil, 5% Malaysia.

(Technically the UK would make up 99% of the ETF but that's boring so I left it out of the above calculation...)
I think you overstate the size of the UK. It would be high but not that high. More like the position of Japan in the Pacific Stock Index than that of the US in the S&P 500 (I believe that in the past the S&P 500 has been less than 99% US!).

Vanguard Total World Stock Index has:
UK 6.0%
Hong Kong 1.3
India 1.2%
Brazil 0.9%
Singapore 0.4%
Malasia 0.4%

alexfoo39
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Re: International ETFs with 0% dividend withholding tax?

Post by alexfoo39 » Fri Jan 11, 2019 8:03 pm

Sorry for reviving old thread.

I'm a Malaysian, and I can't purchase vanguard fund directly. The only way is thru etf.

I have few choices. Buy sp500 in US-listed, or UK-listed, or Hk-listed.

I read that as a foreigner, I'm advised against putting money in us-listed due to 30% withholding tax. UK is reasonable because it is 15%.

My question. How about HK? Seeking confirmation. Thank you :)

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Re: International ETFs with 0% dividend withholding tax?

Post by msk » Sat Jan 12, 2019 2:52 am

Sounds as if you are confused somewhat. If you buy ETFs that are Ireland based you do not pay the 30% US withholding tax. E.g. assuming your brokerage account is with a broker, e.g. Interactive Brokers, that caters to international clients, then you can buy worldwide stocks by market weight via VT or VWRD. VT is US based, so your dividends will suffer a US withholding tax of 30%, VWRD is Ireland based and your dividends will have no withholding tax imposed. Essentially both include the same stocks portfolio, though with minor differences. Both are Vanguard and both are available via brokers, even if you are unable to buy them directly from Vanguard because of your country of tax residence. Just open an account at Interactive Brokers and buy VWRD. Reinvest the dividends every 3 months and be very happy 30 years from now :moneybag

VUSA follows the SP500 and you will not suffer the 30% US withholding tax on dividends.

TedSwippet
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Re: International ETFs with 0% dividend withholding tax?

Post by TedSwippet » Sat Jan 12, 2019 5:11 am

alexfoo39 wrote:
Fri Jan 11, 2019 8:03 pm
I have few choices. Buy sp500 in US-listed, or UK-listed, or Hk-listed.
You are asking here about the exchange on which an ETF is listed. This has no impact on the taxability (or otherwise) of ETF dividends. The thing that does matter is the domicile of the ETF.

If you find a HK-listed ETF that is not US domiciled and which meets your investing requirements then by all means use it. Ideally though -- that is, for best tax results -- you want to look for Ireland domiciled ETFs. These are listed on the London stock exchange, Euronext, and a couple of other EU exchanges.

Above, msk notes VWRD, and for you this makes an ideal substitute for VT (you would massively overpay tax if you held VT, and also be at risk from confiscatory US estate taxes on everything over $60k). For VOO, substitute VUSD. And so on.

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BeBH65
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Re: International ETFs with 0% dividend withholding tax?

Post by BeBH65 » Sat Jan 12, 2019 5:30 am

msk wrote:
Sat Jan 12, 2019 2:52 am
VUSA follows the SP500 and you will not suffer the 30% US withholding tax on dividends.
Correct. As VUSA is an Ireland domiciled fund it benefits from the US-Ireland treaty that limits the US dividend witholding tax to 15%.
Ireland itself does not withold dividend taxes on funds domiciled in its country.
To compute the total witholding you pay, you now only need to substract the dividend taxation that your country levies.

For more information see the page in our bogleheads Wiki.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

alexfoo39
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Re: International ETFs with 0% dividend withholding tax?

Post by alexfoo39 » Sat Jan 12, 2019 6:29 am

Thank you. It helps clear things now. So as an alien I'll go for Ireland domiciled etf, which is sp500 on London stock exchange. I'll be charged 15% on dividend withholding tax. That's the best I can get.

Now I'm looking for the cheapest broker to have access to LSE. Thinking of degiro.

I suppose that because I'll be buying from LSE, I'll be wiring GBP to my broker instead.

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Re: International ETFs with 0% dividend withholding tax?

Post by BeBH65 » Sat Jan 12, 2019 7:30 am

Assuming the country where you are taxed (Malaysia?) does not tax investment (no witholding tax, no capital gains tax, no wealth tax, .. )

note; that the 15% taxation by the US will be internal to the fund, included in the daily price, invisible to you.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: International ETFs with 0% dividend withholding tax?

Post by msk » Sun Jan 13, 2019 12:54 am

alexfoo39 wrote:
Sat Jan 12, 2019 6:29 am
I suppose that because I'll be buying from LSE, I'll be wiring GBP to my broker instead.
I feel that there is often an over emphasis on cheap brokerage commissions. These matter only if your regular purchases are small, e.g. a few hundred $ a month. If your purchases are typically several thousand $ each then an extra 10$ on $5000 is, frankly just noise, dwarfed just by day to day variations. What currency, GBP or Euro or USD, you buy the ETF should depend on your source of funds and how cheaply you can convert from that currency into GBP/EUR/USD.

alexfoo39
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Re: International ETFs with 0% dividend withholding tax?

Post by alexfoo39 » Sun Jan 13, 2019 12:57 am

msk wrote:
Sun Jan 13, 2019 12:54 am
alexfoo39 wrote:
Sat Jan 12, 2019 6:29 am
I suppose that because I'll be buying from LSE, I'll be wiring GBP to my broker instead.
I feel that there is often an over emphasis on cheap brokerage commissions. These matter only if your regular purchases are small, e.g. a few hundred $ a month. If your purchases are typically several thousand $ each then an extra 10$ on $5000 is, frankly just noise, dwarfed just by day to day variations. What currency, GBP or Euro or USD, you buy the ETF should depend on your source of funds and how cheaply you can convert from that currency into GBP/EUR/USD.
noted. I come from a country where 1GBP is equivalent to a local lunch meal, hence I'm striving for lowest brokerage. My broker CapTrader gives the lowest brokerage if I can buy S&P 500 (Accumulating) from either

TradeGate, Turquoise DE, or ChiX, BATS.

Getting confused with too many products with too many fine prints =(

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privatefarmer
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Re: International ETFs with 0% dividend withholding tax?

Post by privatefarmer » Sun Jan 13, 2019 3:00 am

sorry for the novice question, but can a US resident/investor buy an international ETF based in Ireland and then only pay the US dividend tax rate of 15%? if so, anyone know of a global ex-US ETF that is based in Ireland? and can this be bought on interactive brokers? thanks

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Re: International ETFs with 0% dividend withholding tax?

Post by alpine_boglehead » Sun Jan 13, 2019 3:22 am

privatefarmer wrote:
Sun Jan 13, 2019 3:00 am
sorry for the novice question, but can a US resident/investor buy an international ETF based in Ireland and then only pay the US dividend tax rate of 15%? if so, anyone know of a global ex-US ETF that is based in Ireland? and can this be bought on interactive brokers? thanks
As shown in this bogleheads wiki article, the withholding tax leakage of e.g. Vanguard FTSE All-World UCITS ETF (covering whole world large cap) is about 11% (which results from mixture of 15% US withholding tax and withholding taxes from the rest of the world).

These withholding taxes will be "leaked", i.e. most likely not be taken into consideration by your country's taxation system. E.g. in Austria we've stacked another 27.5% taxes on the amount that was already reduced by these 11% (so from $100 dividends, the fund distributes $89, from which I finally receive $64.5 after taxes). You could escape this by holding stocks directly, but at the much increased effort of replacing indexes yourself and also costs (unless you're very wealthy). There are two hopes in this direction: either countries will take the already paid taxes into account (unlikely, that would reduce tax revenue), or there will be a fintech that does that for you (i.e. replicate the index directly in the customer's accounts).

Ex-us ETFs don't seem to be very popular in ex-US :D, so you'd have to build that yourself from ETFs tracking e.g. Developed Europe, Pacific, Emerging Markets.

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Re: International ETFs with 0% dividend withholding tax?

Post by msk » Sun Jan 13, 2019 3:31 am

You cannot avoid paying US taxes on any dividends worldwide without breaking US laws and you will find it next to impossible to find a stockbroker willing to help you do so, i.e. allow you to purchase accumulating ETFs or accumulating mutual funds. That's why stockbrokers worldwide make such a fuss about proving your tax residency before they will open an account for you. Just pay and get on with life. AFAIK Brokerages limit what items you can purchase by what your recorded tax residence is. Or simply buy Berkshire Hathaway and get no dividends. That actually also worked very well for tax efficiency. US tax residents are, I believe, barred from owning accumulating ETFs but are OK to own accumulating stocks like Berkshire or Amazon :mrgreen: Don't let the dog wag the tail...

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Re: International ETFs with 0% dividend withholding tax?

Post by TedSwippet » Sun Jan 13, 2019 4:29 am

privatefarmer wrote:
Sun Jan 13, 2019 3:00 am
... can a US resident/investor buy an international ETF based in Ireland ... ?
Not without encountering the sort of punitive US tax laws that will leave you envying the dead at tax time.

Why Americans Should Never Own Shares in a Non-US Mutual Fund (PFIC)

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privatefarmer
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Re: International ETFs with 0% dividend withholding tax?

Post by privatefarmer » Sun Jan 13, 2019 5:03 am

TedSwippet wrote:
Sun Jan 13, 2019 4:29 am
privatefarmer wrote:
Sun Jan 13, 2019 3:00 am
... can a US resident/investor buy an international ETF based in Ireland ... ?
Not without encountering the sort of punitive US tax laws that will leave you envying the dead at tax time.

Why Americans Should Never Own Shares in a Non-US Mutual Fund (PFIC)
thanks for all the responses! I think I am more confused than I was before asking... All I want to know is, as a US investor trying to diversify into the INTL markets, is there a more tax-efficient way of doing so other than holding say VXUS (INTL ETF) in my taxable acct and taking the foreign tax credit? I believe that I am still paying some foreign dividend taxes on top of the domestic dividend taxes but not sure how much of a cost drag that amounts to or if there's any way of avoiding it. thanks!

TedSwippet
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Re: International ETFs with 0% dividend withholding tax?

Post by TedSwippet » Sun Jan 13, 2019 5:37 am

privatefarmer wrote:
Sun Jan 13, 2019 5:03 am
... as a US investor trying to diversify into the INTL markets, is there a more tax-efficient way of doing so other than holding say VXUS (INTL ETF) in my taxable acct and taking the foreign tax credit? I believe that I am still paying some foreign dividend taxes on top of the domestic dividend taxes but not sure how much of a cost drag that amounts to or if there's any way of avoiding it.
There's no more efficient way than what you are currently doing with (most probably) form 1116. The foreign tax statement for VXUS shows you the per-share foreign tax the fund has paid in a year. From this you can find your own dollar figure.

For federal taxes, if your US tax rate on this income is higher than the foreign tax so that you get to claim a full credit for it, you are not paying foreign taxes 'on top' of domestic taxes, and so for you it's not a 'tax drag'. Your state taxes might operate differently, so here there is potential for some 'tax drag', but it depends. In any case, there is nothing you can readily do differently that would not be worse (and some are vastly worse, for example PFIC).

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BeBH65
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Re: International ETFs with 0% dividend withholding tax?

Post by BeBH65 » Sun Jan 13, 2019 5:58 am

In the BH Wiki there is a page on foreign tax credit, in my understanding applicable for US taxpayers.

Non-US investors need to check their own tax laws to validate if they'll get a tax credit for dividend witholding tax that they would have paid to a different country.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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