[EU] How to bypasses MIFID II, PRIPS and buy US ETFs

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norciom
Posts: 45
Joined: Wed Sep 28, 2016 4:46 pm

[EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by norciom » Fri Jul 13, 2018 10:04 am

1. Open an account with an US broker that has no branch in EU.

DriveWealth. Fee 3 USD to purchase ETFs.

2. Use an international money transfer service

Transferwise Borderless account allows you to have an US bank account in your name. Any broker will accept transfers from and to your account. Transferwise currency conversion fee for EURO to USD is 0.5%. No other fees. Conversion is done at the real spot price.

Revolut plans to offer US accounts, now it offers free currency conversion until 6000 EUR per month, 0.5% fee after 6000 EUR. You can transfer USD from Revolut to Transferwise US bank account for free.

Conclusion: you can invest 6000 EUR per month for 3 USD when using a single ETF.

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

Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by selters » Fri Jul 13, 2018 1:23 pm

If I understand this correctly, this is possible, but your dividends will be taxed in the US when you receive them? And then you have to pay taxes on them again when you transfer the money back to your home country? The costs of this will be greater than if you just bought the iShares Core S&P 500 UCITS ETF at 0.07%.

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

Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by TedSwippet » Fri Jul 13, 2018 3:17 pm

norciom wrote:
Fri Jul 13, 2018 10:04 am
Open an account with an US broker that has no branch in EU. DriveWealth. Fee 3 USD to purchase ETFs.
Never heard of them, but yes, they do claim to offer accounts to non-US residents and non-US citizens. A $5 fee for handling a W-8BEN seems pretty reasonable too.

Have you tried this personally, and does it really work? If yes, this could be a solution for the problem posed elsewhere in this thread.
selters wrote:
Fri Jul 13, 2018 1:23 pm
If I understand this correctly, this is possible, but your dividends will be taxed in the US when you receive them? And then you have to pay taxes on them again when you transfer the money back to your home country?
Depending on what you hold, though, and how your home country taxes things, you can still come out ahead.

A UK investor holding VOO, Vanguard's US domiciled S&P 500 tracker, would pay 15% to the US under the US/UK treaty. If their UK tax on this dividend exceeds 15% then they can claim the 15% paid to the US as a foreign tax credit. So if the UK rate is 20%, that's 15% to the US and a 5% top-up to the UK, total 20% tax drag.

In contrast, this investor holding VUSA, Vanguard's UCITS S&P 500 tracker, would receive dividends after the ETF has paid 15% internally to the US under the US/Ireland treaty. The remaining 85% is however all subject to UK tax, with no credit or offset for the 15% lost within the ETF itself. So the investor here in the 20% UK tax bracket pays an effective 32% total tax drag. Win for VOO and loss for VUSA here, then.

Note that if the UK tax bracket for this investor is below 15% the edge for VOO drops. And at 0% rather than 20% the results from VOO and VUSA become equal, a 15% non-recoverable in both cases.

For ETFs that hold non-US stocks, the situation is different. There is no advantage to this same investor where the underlying stock's country does not tax dividends. ETFs that holds only UK stocks, say. Here they would pay 15% to the US and 5% to the UK, or just 20% to the UK, because ETFs domiciled either in the US or in Ireland receive the same dividend from their underlying UK stocks. (Of course, a rational UK investor should prefer their tax payment to go towards services that they can actually benefit from, and so prefer UCITS here over US domiciled.)

Other countries beside the UK will have differing treatments here. There can be a lot of variation on this even just across Europe. Individual investors need to determine their own circumstances. For residents of countries that lack a US estate tax treaty, the ridiculous threat of 40% confiscatory US estate taxes on anything above $60k in US domiciled ETFs often sways the decision towards UCITS.
Last edited by TedSwippet on Sat Jul 14, 2018 6:27 pm, edited 1 time in total.

Theoretical
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Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by Theoretical » Fri Jul 13, 2018 4:48 pm

Here’s the problem: you’re likely to invoke US non resident alien estate and gift taxes which are insanely punitive above $60k.

TedSwippet
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Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by TedSwippet » Fri Jul 13, 2018 5:35 pm

Theoretical wrote:
Fri Jul 13, 2018 4:48 pm
Here’s the problem: you’re likely to invoke US non resident alien estate and gift taxes which are insanely punitive above $60k.
For some investors, absolutely. And by calling it "insanely punitive" you are not being harsh enough.

This is indeed a complete show-stopper problem for non-US citizen investors from countries without US estate tax treaties. Purely in numbers terms that would be the majority of the planet's inhabitants. The minority though, that is US citizens and people from countries with US estate tax treaties, have an around $11MM estate tax exemption which leaves them pretty safe from this, at least for the most part.

As with all cases of this sort, you have to investigate your own personal situation extremely carefully. Blanket rules are useful, but the nuances can be important too.

norciom
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Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by norciom » Mon Jul 16, 2018 2:45 am

TedSwippet wrote:
Fri Jul 13, 2018 3:17 pm
Have you tried this personally, and does it really work? If yes, this could be a solution for the problem posed elsewhere in this thread.
Yes, I have done it. Not a theoretical exercise, I checked all the paperwork and real costs.

I am a resident of The Netherlands, so for tax reasons it's worth the complicated setup.

TedSwippet
Posts: 1836
Joined: Mon Jun 04, 2007 4:19 pm

Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by TedSwippet » Mon Jul 16, 2018 2:48 am

norciom wrote:
Mon Jul 16, 2018 2:45 am
Yes, I have done it. Not a theoretical exercise, I checked all the paperwork and real costs. I am a resident of The Netherlands, so for tax reasons it's worth the complicated setup.
Good to know. Thank you for posting the details and confirmation.

norciom
Posts: 45
Joined: Wed Sep 28, 2016 4:46 pm

Re: [EU] How to bypasses MIFID II, PRIPS and buy US ETFs

Post by norciom » Fri Jul 27, 2018 12:20 pm

Just2Trade has changed policy, moving (new) EU accounts to the US Ltd.

This is a reaction to the MIFID law. Interesting to see brokers start responding besides blocking client access to US instruments.

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