Ireland ETFs Inheritance tax for Non-Irish residents

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Topic Author
jkfe
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Joined: Tue Oct 12, 2021 12:21 pm

Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

Hi,

I'm from Brazil and thinking of investing in Irish domiciled ETFs.

Appreciate if you can answer a few questions that I have.

1) I understand there's no inheritance tax for Non Irish residents. To take advantage on that, do I need to invest in the Irish domiciled ETFs through an Irish broker or the broker can be from another country? I'm thinking of using a broker from the United States.

2) Does this irish inheritance tax exemption automatically exempts the brazilian inheritance tax or the brazilian tax would still be due?

3) What are the legal procedures that the heirs need to take to have access to the funds when the investor dies? How much would that cost in terms of time and Money?

Thanks,
seajay
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Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by seajay »

Just casual observations (not a tax specialist, just a regular UK resident guy) :

Can't see Brazil listed as a Irish dual taxation agreement https://www.revenue.ie/en/tax-professio ... spx?page=B

Usually where such a treaty exists then you end up paying just the single tax amount i.e. if in total you'd pay $100,000 and where a foreign country had levied $60,000 then you only pay $40,000 to your own state. Where no such treaty exists you could become eligible to pay the full amounts to both parties according to their own rules/rates.

The process for heirs/probate to get funds released following death might be relatively straight forward for a legal entity that specialises in such, but their fees and the time ???

Yet another risk is that rules change over time, so circumstances/conditions that apply now might be distinctly different in 10/whatever years time when you die.

Might be better to look at more local/domestic alternatives, looks like Vanguard for instance were looking to expand into Mexico/Brazil back in 2017 https://citywireamericas.com/news/vangu ... t/a1009634
TedSwippet
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Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by TedSwippet »

Welcome.
jkfe wrote: Tue Oct 12, 2021 12:30 pm I'm from Brazil and thinking of investing in Irish domiciled ETFs.
That seems sensible. Brazil has no tax treaties of any kind with the US.
jkfe wrote: Tue Oct 12, 2021 12:30 pm 1) I understand there's no inheritance tax for Non Irish residents. To take advantage on that, do I need to invest in the Irish domiciled ETFs through an Irish broker or the broker can be from another country? I'm thinking of using a broker from the United States.
You do not need to use an Irish broker. You can use any that gives you access to the European stock markets. However, if you do use a US based broker then any cash holding you have with them above $60,000 may be at risk of US estate tax. Full details in the wiki:

Outline of non-US domiciles - Bogleheads
jkfe wrote: Tue Oct 12, 2021 12:30 pm 2) Does this irish inheritance tax exemption automatically exempts the brazilian inheritance tax or the brazilian tax would still be due?
Holding Ireland domiciled ETFs does not leave you at risk of either US or Irish estate or inheritance tax. However, you would -- probably; I don't know Brazilian tax law at all! -- still be liable for any local Brazilian estate or inheritance tax.
jkfe wrote: Tue Oct 12, 2021 12:30 pm 3) What are the legal procedures that the heirs need to take to have access to the funds when the investor dies? How much would that cost in terms of time and Money?
It depends on the broker. A US broker may insist that you file a US estate tax return, form 706NA, before they can release the funds to your heirs. If required, it is not hard to complete -- you could probably handle it yourself. Brokers in other countries may have different processes.

However, if you have arranged things correctly (for example, no 'US situs' holdings above $60,000) then there should be no estate tax to pay, just a delay in your heirs getting access to the funds while the various tax authorities take their time in handling any estate tax paperwork. The US IRS is (unsurprisingly) especially slow in this regard.
Topic Author
jkfe
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Joined: Tue Oct 12, 2021 12:21 pm

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

Thank you TedSwippet and seajay.
This was certainly a very warm and helpful welcome.

Your comments clarified a lot to me.

TedSwippet, when you say to arrange things correctly do you forsee anything else I should take care besides making sure I don't live more than USD 60K of non invested cash in the US broker account?

Thanks again.
TedSwippet
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Location: UK

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by TedSwippet »

jkfe wrote: Tue Oct 12, 2021 4:13 pm TedSwippet, when you say to arrange things correctly do you forsee anything else I should take care besides making sure I don't live more than USD 60K of non invested cash in the US broker account?
Nothing that I can think of. Ireland levies no tax whatsoever on non-Irish residents who hold Ireland domiciled ETFs, and for tax purposes it should not matter which country's exchange you use to buy your Ireland domiciled ETFs.

Ideally you would want to try to use a non-US broker, to remove even the threat of US estate tax on a large cash holding. However, this is not always convenient (or perhaps, not cost-effective). Provided you keep your cash balance below this level though, you will probably be safe enough with a US broker.
Topic Author
jkfe
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Joined: Tue Oct 12, 2021 12:21 pm

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

I agree. I just know of US brokers that would give access to Ireland ETFs.
Do you know of any others that would accept foreign investors? Maybe one directly in Ireland would probably be ideal.
TedSwippet
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Location: UK

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by TedSwippet »

jkfe wrote: Tue Oct 12, 2021 5:31 pm Do you know of any others that would accept foreign investors? Maybe one directly in Ireland would probably be ideal.
You might find this recent thread useful:

Stock Brokers for non-US Investors - Bogleheads.org

I don't think there would be any gain for you in having an Irish brokerage. And any that do exist will probably restrict to Ireland residents only. Your best bets will be either Brazil-based brokers or a specialist international broker such as one of the above.
Topic Author
jkfe
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Joined: Tue Oct 12, 2021 12:21 pm

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

Ok. Will need to do some more research to identify the best broker option. Thanks for your help.
Topic Author
jkfe
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Joined: Tue Oct 12, 2021 12:21 pm

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

Hi TedSwippet,
Back to this. Do you have a link to the USA government regulation that people are using to interpret that investments made by foreign investors on ETFs/stocks domiciled in another country through an US broker wouldn't be subject to the US inheritance tax? I see several people saying that. But based on what official US government document is that interpretation coming from? Thanks.
TedSwippet
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Location: UK

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by TedSwippet »

jkfe wrote: Wed Oct 13, 2021 10:04 pm Back to this. Do you have a link to the USA government regulation that people are using to interpret that investments made by foreign investors on ETFs/stocks domiciled in another country through an US broker wouldn't be subject to the US inheritance tax? I see several people saying that. But based on what official US government document is that interpretation coming from?
Will these suffice? The italics below are mine.

Sorry if it looks like I am labouring the point. That is not my intention at all. I just want to make sure that every possible aspect of your question is covered, and it seemed necessary to include all of these items to get the full picture. US tax law is voluminously explicit about all of the many things it taxes, but light on detail about what it does not tax.

https://www.irs.gov/individuals/interna ... ax-returns
Certain deceased nonresidents who were not citizens of the United States are subject to U.S. estate taxation with respect to their U.S.-situated assets. For estate tax purposes, a citizen of a U.S. possession is not a U.S. citizen.

U.S.-situated assets that are subject to estate tax include, for example:
- Real estate located in the U.S.,
- Tangible personal property (excluding some art), and
- Stock of corporations organized in or under U.S. law, even if the nonresident held the certificates abroad or registered the certificates in the name of a nominee.
https://www.irs.gov/instructions/i706na
Unless a treaty provides otherwise (...), use the following rules to determine whether assets are located in the United States.
...

Stock. Generally, no matter where stock certificates are physically located, stock of corporations organized in or under U.S. law is property located in the United States, and all other corporate stock is property located outside the United States.
https://www.law.cornell.edu/cfr/text/26/20.2103-1
§ 20.2103-1 Estates of nonresidents not citizens; “entire gross estate”.

The “entire gross estate” wherever situated of a nonresident who was not a citizen of the United States at the time of his death is made up in the same way as the “gross estate” of a citizen or resident of the United States. See §§ 20.2031-1 through 20.2044-1. See paragraphs (a) and (c) of § 20.2031-1 for the circumstances under which real property situated outside the United States is excluded from the gross estate of a citizen or resident of the United States. However, except as provided in section 2107(b) with respect to the estates of certain expatriates, in the case of a nonresident not a citizen, only that part of the entire gross estate which on the date of the decedent's death is situated in the United States is included in his taxable estate. In fact, property situated outside the United States need not be disclosed on the return unless section 2107 is applicable, certain deductions are claimed, or information is specifically requested. ...
Topic Author
jkfe
Posts: 14
Joined: Tue Oct 12, 2021 12:21 pm

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

TedSwippet,
Thanks a lot for your very detailed and to the point answer.
I doesn't look that you are labouring the point at all. I was the one that asked for that and you brilliantly provided the exact sources. Many thanks for that.

About this one:
Unless a treaty provides otherwise (...), use the following rules to determine whether assets are located in the United States.
...

Stock. Generally, no matter where stock certificates are physically located, stock of corporations organized in or under U.S. law is property located in the United States, and all other corporate stock is property located outside the United States.
If the ETF is domiciled in another country such as Ireland, but it has US stocks(let's say an SP500 Irish domiciled ETF such as CSPX), wouldn't that fall into this category?

Now I should be the one to apologize if I'm being too picky. Just want to stress down to the bottom of the discussion to make sure this gets very clear not only for me but also for others that will come to the forum for this information in the future. Thanks again.
TedSwippet
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Location: UK

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by TedSwippet »

jkfe wrote: Thu Oct 14, 2021 7:06 am About this one:
Unless a treaty provides otherwise (...), use the following rules to determine whether assets are located in the United States.
...

Stock. Generally, no matter where stock certificates are physically located, stock of corporations organized in or under U.S. law is property located in the United States, and all other corporate stock is property located outside the United States.
If the ETF is domiciled in another country such as Ireland, but it has US stocks(let's say an SP500 Irish domiciled ETF such as CSPX), wouldn't that fall into this category?
No. The US estate tax cannot "look through" a foreign corporation and into its underlying holdings. The ETF structure is itself a "foreign corporation" -- that is, a non-US corporation -- and so is a "blocker" for things like the US estate and gift taxes. All the US can do here is to tax the dividends paid by the stocks this non-US corporation holds, at a default 30% rate, lower if treaty (so in actuality, 15% for dividends paid to an Ireland domiciled ETF).

If you own shares of CSPX, you own shares of an Irish corporation, not a US corporation, and as far as the US and its estate tax is concerned, you do not own a 'US situs' asset. From the prospectus for CSPX (you can find similar language in the prospectus of every non-US domiciled ETF's prospectus):

https://www.ishares.com/uk/individual/e ... pectus.pdf
An umbrella investment company with variable capital and having segregated liability between its Funds incorporated with limited liability in Ireland under registration number 469617 and authorised by the Central Bank pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended.
And from the actual US code:

https://www.law.cornell.edu/uscode/text/26/2104
(a) Stock in corporation
For purposes of this subchapter shares of stock owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States only if issued by a domestic corporation.
Topic Author
jkfe
Posts: 14
Joined: Tue Oct 12, 2021 12:21 pm

Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by jkfe »

Oh man, this is exactly what I was looking for.
It makes me much more confortable to go with the US broker I had chosen (IBKR).

Thank you so much for being so generous with your knowledge.
You really made a difference for me. :D
Wishing all the best for you.
occambogle
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Re: Ireland ETFs Inheritance tax for Non-Irish residents

Post by occambogle »

jkfe wrote: Thu Oct 14, 2021 11:05 am Oh man, this is exactly what I was looking for.
It makes me much more confortable to go with the US broker I had chosen (IBKR).
Ted explained everything perfectly. I am also using Irish UCITS ETFs for my non-US wife held at IBKR LLC (US IBKR).
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