VTI/VXUS- Need guidance [India]

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Topic Author
ConfusedbutEducated
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VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Dear Kindred,

I hope all of you and those you love are safe.

Just starting out on the ETF way and planning a VTI/VXUS 60/40 allocation. Not taking BND exposure as I am not from US and looking to invest in US solely for diversification and $ appreciation vis a vis Indian Rupee (historically ~ 2-3%).

Given the melt up in the market will want to do a DCA type strategy from a Money Market Index Fund

My questions to all of you are

1) Can I start now , given the melt up in market - just a tad fearful?
2) Can I park the money in an Money Market ETF, as I withdraw periodically to do a DCA in VTI/VXUS? I might not have access to money market funds via Schwab( given my Non US status)
3)One and Done VT vs VTI/VXUS? any advice will be welcome

Thank you for your help
mega317
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Re: VTI/VXUS- Need guidance

Post by mega317 »

Welcome.

1. Definitely start now, the earlier the better. Since you can’t predict the future you might as well get your money in now to allow maximum time for growth.

2. I’m not aware of money market ETFs but there are plenty of short term treasury funds that will be good enough for what you want. (I don’t know if there are special considerations for you bring non US)

3. It hardly matters. I prefer to be able to hold US/international at my own ratio and tax loss harvest a little more specifically. Neither is a big deal.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
TedSwippet
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

Welcome.
ConfusedbutEducated wrote: Thu Aug 20, 2020 1:27 am Dear Kindred, ...
Are you a US investor?

If yes, note that you posted in the non-US investor forum. Posting this in one of the main US focused forums should get you better and more appropriate responses.

If no, which country do you live in? This will significantly affect whether or not you should use VT, VTI or VXUS at all.
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ConfusedbutEducated
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Re: VTI/VXUS- Need guidance

Post by ConfusedbutEducated »

The administrator pushed it into the Non US form What should I do ?
TedSwippet
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

ConfusedbutEducated wrote: Fri Aug 21, 2020 9:05 am The administrator pushed it into the Non US form What should I do ?
From your answer, I assume you're a US investor.

You can asked that it be moved using the '!' icon (Report this post) at the top right of your posting. I just did that for you, so with luck it should get moved soon. It's not normal for an admin to move something to the non-US forum unless it obviously comes from a non-US investor, so I can't explain why this happened.
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Re: VTI/VXUS- Need guidance

Post by LadyGeek »

TedSwippet - Report received, thanks. It wasn't me, but I'm guessing a moderator moved the thread because of the OP's non-US status.
ConfusedbutEducated wrote: Thu Aug 20, 2020 1:27 am Not taking BND exposure as I am not from US and looking to invest in US solely for diversification and $ appreciation vis a vis Indian Rupee (historically ~ 2-3%).

...2) Can I park the money in an Money Market ETF, as I withdraw periodically to do a DCA in VTI/VXUS? I might not have access to money market funds via Schwab( given my Non US status
Are you a US citizen? If not, what is your home country (India)? Are you currently living in the US?

If you are looking to invest in the US, bear in mind that Vanguard will not accept clients who live outside the US.

There are ways to invest in the US without using funds that are domiciled in the US. Please see the wiki: Investing from outside of the US

I can move the thread to the Personal Investments forum, but that is only for investors who are domiciled in the US. I'll keep the thread in the non-US forum, as the OP is living outside the US. (If I am in error, please correct me.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

LadyGeek wrote: Fri Aug 21, 2020 11:44 am TedSwippet - Report received, thanks. It wasn't me, but I'm guessing a moderator moved the thread because of the OP's non-US status.
...
I can move the thread to the Personal Investments forum, but that is only for investors who are domiciled in the US. I'll keep the thread in the non-US forum, as the OP is living outside the US. (If I am in error, please correct me.)
Sorry, ignore me. Somehow I speed-read past the whole sentence where the OP states that they are non-US. Short on caffeine today, it seems.
ConfusedbutEducated wrote: Thu Aug 20, 2020 1:27 am 1) Can I start now , given the melt up in market - just a tad fearful?
2) Can I park the money in an Money Market ETF, as I withdraw periodically to do a DCA in VTI/VXUS? I might not have access to money market funds via Schwab( given my Non US status)
3) One and Done VT vs VTI/VXUS? any advice will be welcome
On 1, nobody knows the future. On 2 and 3, because of unfavourable US income tax rules and discriminatory US estate tax rules, you almost certainly want to avoid VT, VTI and VXUS and instead use non-US domiciled equivalents. India has a relatively poor US income tax treaty, and absolutely no US estate tax treaty, so you will get better tax results from non-US domiciled ETFs.

Much more in the wiki:
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Re: VTI/VXUS- Need guidance

Post by ConfusedbutEducated »

Dear Kindred,

Thank you for your inputs. This forum is quite awesome.

I am an Indian citizen , living in India and for IRS purpose’s I am a NRA, non US person, not domiciled in US and will be taxed on US situated assets only. I have no intention of relocating from India to US.

1)I have a US based Schwab account that allows commission free Vanguard buying /selling. Schwab/IB/Ameritrade allow opening of such accounts from India. I cannot directly invest in Vangaurd funds except via Schwab/IB.
2)US Dividend Withholding Tax : India has a Double Tax Avoidance Treaty with US –reads as “If an Indian Resident derives income and the same is taxed in the United States, then India shall allow the amount equal to the income tax paid in the United States, as a deduction”. Withholding rate for Indian NRA is 25% on US domiciled ETF. Schwab has a W8 BEN form on file for me. (more below)
3) US Estate tax treaty for Indian NRA’s is quite appalling- I agree. 40% above $ 60,000 -- I better not die soon.
4) Interest taxes, on cash balance lying with Schwab (which pays a paltry 0.01%) is 15% for me and the broker deducts that
5) US Gift Taxes : Zero
6)US Capital gains taxes from US/Non US domiciled ETFs for NRA is zero


Thank you TedSwippet - for making a very important distinction, which was new knowledge to me - Gaining tax efficiency through non US -domiciled ETFs and I did some reading (https://betterspider.com/tax-efficient- ... lding-tax/). This is what I came up with and pertains mostly to Dividend witholding taxes


Dividend Withholding Tax(DWT)
DWT Level 1(Company to ETF): 0% for US Dom ETF and 15% for Non US som ETF
DWT Level 2(ETF to Investor): 25% for US Dom ETF and 0% for Non US Dom
DWT Level 3( @ Home Country) : NA NA NA NA

Calculating the tax withholding ratio (TWR)

Putting it all together, we assume a dividend yield of 2% of the S&P500 index fund. To calculate the tax withholding ratio, i.e. the total annual approximation of tax withholding percentages. Eg
iShares Core S&P 500 ETF (IVV)
Dividend yield: 2%
L1 tax: 2% x 0% = 0%
L2 tax: 25% of 2% = 0.5 %
L3 tax: 0%
TWR: 0% + 0.5% + 0% = 0.5%
iShares Core S&P 500 UCITS ETF (CSPX) (Ireland Domiciled)
Dividend yield: 2%
L1 tax: 2% x 15% = 0.3%
L2 tax: = 0%
L3 tax: 0%
TWR: 0.3% + 0% + 0% = 0.3%
CSPX has a slightly lower overall TWR! Hence, investing in CSPX over IVV can give you 0.2% in additional returns annually for free (assuming no other costs involved).
CAVEATS:
In reality, of course, other considerations such as availability of these ETF on the broker platform transaction costs, liquidity of the ETF, tracking error and bid-ask spread matter.

The above discussion also only covered dividends from US stocks and not international stocks. I would expect that when investing internationally( such as VEA/VWO/VXUS), dividends from international stocks will be withheld at 25% for US-domiciled funds when distributed to the individual, while 0% for Ireland-domiciled funds – this will further increase the difference in TWR.


Look forward to comments from fellow Bogleheads
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BeBH65
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Re: VTI/VXUS- Need guidance

Post by BeBH65 »

Your calculation seems to correspond to the one on the wiki: Calculating_dividend_tax_withholding_as_a_ratio

Here is a page that could help you decide between US and non-US fund: Nonresident_alien's_ETF_domicile_decision_table
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
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ConfusedbutEducated
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Re: VTI/VXUS- Need guidance

Post by ConfusedbutEducated »

The challenge is many fold and thank you Bogleheads for pointing them out-at any rate what is one supposed to do

1) Schwab will not allow Irish domiciled ETF to be bought/sold via it's US site- at least that is what I can tell. Does IB allow -not sure .
2) Would a difference of 20-25 bps over 10 years add to a pretty penny? I guess so. Can we actually calculate it's impact on a $200k AUM?
3)If US domiciled ETF's are a tad costly affair and Irish ones are not available to buy from your broker- what does one do?

Please do guide and help me reach a decision -unfortunately the monies are in US Schwab -I did not realize this fatal flaw in my thinking before remitting the money?
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am I am an Indian citizen , living in India and for IRS purpose’s I am a NRA, non US person, not domiciled in US and will be taxed on US situated assets only. I have no intention of relocating from India to US.
Entirely clear. Sorry I missed all that detail in your first post.
ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am 2)US Dividend Withholding Tax : India has a Double Tax Avoidance Treaty with US –reads as “If an Indian Resident derives income and the same is taxed in the United States, then India shall allow the amount equal to the income tax paid in the United States, as a deduction”. Withholding rate for Indian NRA is 25% on US domiciled ETF. Schwab has a W8 BEN form on file for me.
The Indian treaty isn't all that good. The rate for non-treaty countries is 30%, so little benefit for Indian residents there. The US/Ireland rate is 15%, and you can achieve by holding your US stock allocation through Ireland domiciled ETFs. You'll need access to European exchanges for these, so London, Frankfurt, Amsterdam etc. London probably has the widest coverage, at least for now (Brexit, sigh!).
ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am 3) US Estate tax treaty for Indian NRA’s is quite appalling- I agree. 40% above $ 60,000 -- I better not die soon.
'Appalling' seems apposite. Also, execrable, odious, foul, abominable.
ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am 4) Interest taxes, on cash balance lying with Schwab (which pays a paltry 0.01%) is 15% for me and the broker deducts that
Is that 15% your local rate, or something else? Just curious where it comes from. In general, the US does not tax interest paid to NRA. So 0% US tax on interest and 25% (treaty rate) US tax on dividends, neither of which match 15%.

At 15% of next-to-nothing though, it's probably not high on your list of worries.
ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am 5) US Gift Taxes : Zero
6) US Capital gains taxes from US/Non US domiciled ETFs for NRA is zero
Yes, and yes.
ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am CSPX has a slightly lower overall TWR! Hence, investing in CSPX over IVV can give you 0.2% in additional returns annually for free (assuming no other costs involved).
That looks about right. Nice job on working through the numbers here. It can be intimidating when you first run into it, though once you see what's going on in here, and where the taxes are being subtracted, it becomes a bit clearer.
ConfusedbutEducated wrote: Sat Aug 22, 2020 2:35 am The above discussion also only covered dividends from US stocks and not international stocks. I would expect that when investing internationally( such as VEA/VWO/VXUS), dividends from international stocks will be withheld at 25% for US-domiciled funds when distributed to the individual, while 0% for Ireland-domiciled funds – this will further increase the difference in TWR.
Yes. This is where things get complicated. Also, you might have noticed that if you can claim a full credit against Indian tax for the direct US tax paid on a US domiciled ETF, but not for the indirect US tax paid by an Ireland domiciled ETF -- and most countries seem to operate this way -- then there is a break-even point where the optimum switches.

For example, factoring out TERs for now, suppose you hold an S&P 500 tracker. And suppose the US domiciled one pays you a dividend with 25% tax subtracted, but you can credit your local tax rate, call it L, against this. If L < 25% your tax loss on dividends is 25%. The Ireland domiciled one pays you a dividend with 15% tax already paid internally to the US, but you then have to pay local Indian tax L on the remaining 85%, and cannot credit the indirect 15%. So for you, an Ireland domiciled ETF is preferable if:

Code: Select all

L < ({US/India_treaty_rate} - {US/Ireland_treaty_rate}) / {1 - US/Ireland_treaty_rate}
That is, if L < (0.25 - 0.15)/0.85, so L < 11.8%.

For ETFs holding non-US stocks, Ireland domiciled ETFs are preferable when, simply, L < 25% (and if L > 25%, neutral). In that case, you get the dividends with 25% subtracted in the case of the US domiciled ETF, and nothing subtracted if in an Ireland domiciled ETF. Put differently, holding non-US stocks inside a US domiciled ETFs magically transforms (non-taxable) non-US source dividends into (US taxable) US source dividends; quite a neat trick the US has going on there, then. For non-US stocks, Ireland domiciled ETFs are the obvious tax winners every time; better or at worst neutral relative to US ones.

For ETFs holding all-world stocks, the picture is muddled, but a decent estimate might be to pro-rate the difference between your US stocks and non-US stocks break-even numbers. So if an all-world ETF is 60% stocks, say, your break-even L would be 11.8% + 0.6 * (25% - 11.8%) = 19.72%. For most investors this is likely to indicate Ireland domiciled ETFs, just because US stocks are the largest component of all-world funds.

Of course, all of this ignores the huge spectre of US estate tax, and so may well be moot for most investors anyway. Risking confiscatory losses of 25%-40% of assets for a small annual reduction in tax drag is not even close to worth it, so the US estate tax issue will dominate. Still, it seemed worth laying out since folk ask about it from time to time. Maybe I'll add it to the wiki at some point.
ConfusedbutEducated wrote: Sat Aug 22, 2020 6:43 am 1) Schwab will not allow Irish domiciled ETF to be bought/sold via it's US site- at least that is what I can tell. Does IB allow -not sure .
Interactive Brokers should allow you access to the relevant exchanges. I don't have direct experience, but a lot of others here do, and they all seem entirely happy with it.
ConfusedbutEducated wrote: Sat Aug 22, 2020 6:43 am2) Would a difference of 20-25 bps over 10 years add to a pretty penny? I guess so. Can we actually calculate it's impact on a $200k AUM?
We can project using some historical return numbers (aka guess!). Say stocks return 7% after TERs and so on. (1.07 ^ 10) * $200k = $393,430. Subtracting 0.25% from the return gives (1.0675 ^ 10) * $200k = $384,334. So compounding a 0.25% extra drag would cost you $9,096. For a 0.2% drag you lose $7.293.
ConfusedbutEducated wrote: Sat Aug 22, 2020 6:43 am3)If US domiciled ETF's are a tad costly affair and Irish ones are not available to buy from your broker- what does one do?
I guess one changes broker. $9k is not small change. Shaving nearly $1k/year in tax drag would pay for a nice annual holiday.
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Re: VTI/VXUS- Need guidance

Post by ConfusedbutEducated »

An after thought - if what I have surmised is correct then would it not make sense to buy VT where dividend yields are much less compared to VTI/VXUS
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

Namaste Bhai as a fellow Indian I advice you not to gamble on the exchange rate. If you look at Wikipedia from 2000 to 2010 the USD-INR did not move at all:https://en.wikipedia.org/wiki/Exchange_ ... dian_rupee

The yields are much lower for US compared to India. I repeat Don't invest in US bonds. We have much better risk free instruments like PPF,EPF,VPF and even NSC if you don't mind paying tax on interest.
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

ConfusedbutEducated wrote: Thu Aug 20, 2020 1:27 am 1) Can I start now , given the melt up in market - just a tad fearful?
2) Can I park the money in an Money Market ETF, as I withdraw periodically to do a DCA in VTI/VXUS? I might not have access to money market funds via Schwab( given my Non US status)
3) One and Done VT vs VTI/VXUS? any advice will be welcome
I realise nobody has yet addressed your main questions. A few thoughts here then, with the overarching comment that you will of course substitute all of the above ETFs for non-US domiciled ones ...

1) Nobody knows. Not every market has 'melted up' in the same way. For example, I am up around 13% in my US stock allocation, but still down around 13% in my UK one. So a US centric view might tend to magnify the 'melt up', at least relative to that experienced by investors who hold stocks other than US only ones.

2) The statistics say that lump sum wins over DCA more times than the other way around. Fine. I however have never had the nerve to lump sum a large amount in one go, so for me it's either DCA or analysis paralysis. So I choose DCA. Historically, I've always ended up investing into long bull markets, but nevertheless I don't regret my decision (well, not hugely!), and would do the same again. But that might be just me.

3) One and done (and anyway, for assorted commercial reasons, no Ireland domicile ex-US stock ETFs exist, so you would have hold separate Europe, Japan, Pacific, and Emerging Markets components). In your case though, not VT but rather VWRD, SWRD, and similar. Lots more options to look through in this wiki page:

Building a non-US Boglehead portfolio - Bogleheads
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

ConfusedbutEducated wrote: Thu Aug 20, 2020 1:27 am Dear Kindred,

I hope all of you and those you love are safe.

Just starting out on the ETF way and planning a VTI/VXUS 60/40 allocation. Not taking BND exposure as I am not from US and looking to invest in US solely for diversification and $ appreciation vis a vis Indian Rupee (historically ~ 2-3%).

Given the melt up in the market will want to do a DCA type strategy from a Money Market Index Fund

My questions to all of you are

1) Can I start now , given the melt up in market - just a tad fearful?
2) Can I park the money in an Money Market ETF, as I withdraw periodically to do a DCA in VTI/VXUS? I might not have access to money market funds via Schwab( given my Non US status)
3)One and Done VT vs VTI/VXUS? any advice will be welcome

Thank you for your help
I would advice you if you are tax payer in India to not invest in these VTI/VXUS funds and instead use the 65/35 funds I mentioned earlier. These funds have same tax advantage as local Indian equities. Use them as only equity fund in your portfolio:viewtopic.php?t=315586

The VTI/VXUS funds will be taxed as Debt Funds if you are Indian tax payer. Don't invest in them.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Hi Anon9001

My investments in US will be buy/hold for >10 years- the issue of Debt/Equity funds in India will be moot IMHO
PPFAS- is already in my stable.
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

ConfusedbutEducated wrote: Sat Aug 22, 2020 7:36 am Hi Anon9001

My investments in US will be buy/hold for >10 years- the issue of Debt/Equity funds in India will be moot IMHO
PPFAS- is already in my stable.
Depends entirely if the tax laws stay stable. What if they change it back to old no tax regardless of amount? Will you stay the course? Better not to do this. I only use PPFAS as my equity fund due to the tax angle and currency risk issue.
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Re: VTI/VXUS- Need guidance [India]

Post by sharukh »

1. Open account in interactive brokers registered in India
2. Buy VWRA or IWDA

Done.

No dividends distributed to user. Not sure about how that is taxed or to be reported in India.

Any insight in reporting of accumulating funds for Indian residents will be greatly appreciated.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Wanted to post a table for actual calculation I had done on a Word document for perusal ? When I cut and paste the format is lost : (
Any easy way to do this ?
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

OP I would advice not doing the Interactive Brokers. I got burned with it before. The currency conversion charges,monthly charges of 10$, garbage customer service and tax penalty of foreign investments make it a useless effort. I have done this before because I was a bhakt about index investing and there was no local index investing in Global equities in India and I ended up regretting it due to the reasons stated previously.
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

ConfusedbutEducated wrote: Sat Aug 22, 2020 6:58 am An after thought - if what I have surmised is correct then would it not make sense to buy VT where dividend yields are much less compared to VTI/VXUS
I'm unsure what you're asking about?

US stocks generally yield less than non-US ones, because the US tax code tends to motivate companies to reinvest money into the business rather than pay it as dividends. But the dividend you get from VT should be as a VTI/VXUS combination that is split to the same US/non-US ratio as VT. (Except of course that you would want to avoid US domiciled ETFs, so VWRD or SWRD rather than VT, and so on).
ConfusedbutEducated wrote: Sat Aug 22, 2020 9:40 am Wanted to post a table for actual calculation I had done on a Word document for perusal ? When I cut and paste the format is lost : (
Any easy way to do this ?
phpBB has only a few formatting options, but you could try the '</>' 'Code display' button. That preserves spacing and uses a fixed-width font. It's limited, but can be okay for simple tables.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Ted my issue is

Problem area : I am a Non Resident Alien based in India and subject to 25% wiyjolding on ETF's domiciled in US. Trying to minimize this tax drag ( eg the Total Cost Of Ownership of VTI for me is about 50-60 bps not the 3 bps which is the TER)

Solutions

Option 1: Buy Irish Domiciled ETF's - Charles Schwab doesnt offer them on their portal : ( , and that means open up IB account + deal with bid-ask spread/liquidity issues
Option 2 : Buy US domiciled ETF with low dividend pay out ; unfortunately as NRA i dont have access to Mutul Funds or Target Date Funds
Option 3 : Continue on the VTI/VXUS trajectoy and not sweat the small stuff : )

Seek advice from fellow bogleheads
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Re: VTI/VXUS- Need guidance [India]

Post by TedSwippet »

ConfusedbutEducated wrote: Mon Aug 24, 2020 12:35 am Option 3 : Continue on the VTI/VXUS trajectoy and not sweat the small stuff : )
I think we established upthread that on a $200k portfolio, using US domiciled ETFs will cost you around $9,000 in lost return over a decade. If you die in that decade, your losses rise by between $27,400 and $106,566. To my mind, an entirely avoidable virtually certain loss of 4.7% of returns to US dividend taxes and an entirely avoidable risk of a further 27%+ loss of principal to US estate tax is not "small stuff".

My sense is that after embarking on creating your VT/VTI/VXUS portfolio with Schwab US you are now clinging on to it, even in the face of facts that appear to no longer support it. Open up a broker that gives you access to the appropriate investments, and use them instead of your current one. There are bid-ask spreads in every ETF, US as well as UCITS. Even if UCITS spreads exceed US ones by 0.2%, remember that this 0.2% is one off, whereas 0.2% US tax drag on dividends is annual and forever. And as for liquidity, the primary driver is the liquidity of the underlying stocks, rather than the ETF's volume. Explained in this paper from Vanguard:

https://www.vanguardinvestments.dk/docu ... uidity.pdf

I realise that it's easy for me to say this because it's not my money and I'm not in your position. I have however faced similar at least once in the past, where I chose to not only uproot an entire invested portfolio but also lose both tax and early withdrawal penalties on it when doing so. It was far from easy, but the alternative was worse. No regrets.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Ted, thank you for your wise and kind advice. I had invested in March and Feb, sold out early in June. Money is idling in Schwab.Would have to close my Schwab account and open IB.

Is the spectre of estate tax not existing in UCITS.

Thank you for your time Ted and allowing me the perspective
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Re: VTI/VXUS- Need guidance [India]

Post by nirajn123 »

HDFC and AXIS securities seem to offer US investing via Vested - prices seems reasonable especially if you want to buy and hold, I just googled it and have not used it myself - see if that works for what you are trying to do.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

nirajn123 wrote: Mon Aug 24, 2020 7:45 am HDFC and AXIS securities seem to offer US investing via Vested - prices seems reasonable especially if you want to buy and hold, I just googled it and have not used it myself - see if that works for what you are trying to do.

They offer US Domiciled ETF only. Not Ireland ones.

While we are at the topic on IB, US Portal - we can buy UCITs based ETF but wonder that as the money would go through three exchanges to invest; Rupee (Cash)>Irish Pound (Deposit)>Irish Fund Purchases Stocks in USD. The opposite would take place when withdrawing money (unknown time and exchange rate in the future). Would it entail significant conversion losses?
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Re: VTI/VXUS- Need guidance [India]

Post by LazyNihilist »

ConfusedbutEducated wrote: Mon Aug 24, 2020 9:24 am
nirajn123 wrote: Mon Aug 24, 2020 7:45 am HDFC and AXIS securities seem to offer US investing via Vested - prices seems reasonable especially if you want to buy and hold, I just googled it and have not used it myself - see if that works for what you are trying to do.

They offer US Domiciled ETF only. Not Ireland ones.

While we are at the topic on IB, US Portal - we can buy UCITs based ETF but wonder that as the money would go through three exchanges to invest; Rupee (Cash)>Irish Pound (Deposit)>Irish Fund Purchases Stocks in USD. The opposite would take place when withdrawing money (unknown time and exchange rate in the future). Would it entail significant conversion losses?

If you invest in VWRA (Total Stock Accumulating USD) and VAGU (Total Bond Accumulating USD) buying them on LSE through Interactive Brokers, then you will only be converting Rupees -> USD and buying those 2 etf's.
If you have more than $100,000 to invest from India I think this would be one of the best options.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

https://americas.vanguard.com/instituti ... ##overview


It is unlikely that we can buy VWRA from IB/elsewhere ,unless I understand it wrong-read below the excerpt

See Vangaurd Prospectus dated 10 Aug 2020- Page 5 --Top Row -- INDIA

In addition, Shares of the Company have not been and will not be registered under the laws of India and
are not intended to benefit from any laws in India promulgated for the protection of investors. Due to
Indian regulatory requirements, no Shares of the Vanguard FTSE All-World UCITS ETF, the Vanguard
FTSE Emerging Markets UCITS ETF or the Vanguard FTSE All-World High Dividend Yield UCITS
ETF shall be knowingly offered to, directly or indirectly, sold or delivered within India or, transferred
to, purchased by, held for or on the account of or for the benefit of (i) a “person resident in India” (
as
such term is defined in the Foreign Exchange Management Act, 1999 as may be amended or
supplemented from time to time), or, (ii) any other entity or person disqualified or otherwise prohibited
from accessing the Indian securities market under applicable laws, as may be amended from time to
time. Each investor must satisfy itself regarding compliance with these requirements, prior to
subscribing to or purchasing the Shares.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

ConfusedbutEducated wrote: Tue Aug 25, 2020 2:20 am https://americas.vanguard.com/instituti ... ##overview


It is unlikely that we can buy VWRA from IB/elsewhere ,unless I understand it wrong-read below the excerpt



WE as in Indian Citizens, residing in India
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Re: VTI/VXUS- Need guidance [India]

Post by TedSwippet »

ConfusedbutEducated wrote: Tue Aug 25, 2020 2:20 am"Due to Indian regulatory requirements, no Shares of the Vanguard FTSE All-World UCITS ETF, the Vanguard FTSE Emerging Markets UCITS ETF or the Vanguard FTSE All-World High Dividend Yield UCITS ETF shall be knowingly offered to, directly or indirectly, sold or delivered within India or, transferred to, purchased by, held for or on the account of or for the benefit of (i) a “person resident in India”... "
Well, that looks frustrating. Apparently India has a problem with anyone holding Ireland domiciled ETFs that (might?) contain any trace of the 1.1% of global market cap that is Indian stocks. I would almost bet real money that neither IB nor any another broker will enforce this.

I did not find the same restriction in any of SWRD's documents, though might have missed it. SWRD is cheaper than VWRD/VWRA by a decent margin.

Or hold individual regional ETFs to mimic the bulk of VWRD/VWRA, and get your emerging markets fix elsewhere. For example combining VUSD, VEUR, VJPN and VPAC approximates all-world excluding the 10% or so of it that is emerging markets. Probably close enough like that, or for completeness add some China and a sprinkle of Taiwan and Korea. The other 'emerging markets' countries are rather too small a part of all-world to justify separate holdings. No longer simple, of course.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Ted you are right

1) IB ready to sell Vangaurd too. Schwab refuses.

Ted- clarify these approximate equations for me, please

2)" mini" VT = Benchmark is FTSE All World Index = Vanguard FTSE All-World UCITS ETF 2 flavors -- VWRA IE00BK5BQT80 OR VWRD - IE00B3RBWM25 / iShares Core MSCI World UCITS ETF SWDA /SWRD SPDR® MSCI World UCITS ETF The ones in bold are good enough choices and cheaper too. All 4 available on IB
3) BND = AGGU - IE00BZ043R46 =VANGAURD VAGU
4) SPY S&P 500 = iShares Core S&P 500 UCITS ETF CSSPX -ACCUMULATING IE00B5BMR087
5) VTI =ucits EQUIVALENT??
6) VXUS = ucits equivalent??
7) USA : VT = VTI + VXUS
8) then UCITS would be : ?

I am working to compile your posts like a meta thread ,only more systematic so as not to miss any of your pearls of wisdom
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am Ted you are right

1) IB ready to sell Vangaurd too. Schwab refuses.

Ted- clarify these approximate equations for me, please

2)" mini" VT = Benchmark is FTSE All World Index = Vanguard FTSE All-World UCITS ETF 2 flavors -- VWRA IE00BK5BQT80 OR VWRD - IE00B3RBWM25 / iShares Core MSCI World UCITS ETF SWDA /SWRD SPDR® MSCI World UCITS ETF The ones in bold are good enough choices and cheaper too. All 4 available on IB
3) BND = AGGU - IE00BZ043R46 =VANGAURD VAGU
4) SPY S&P 500 = iShares Core S&P 500 UCITS ETF CSSPX -ACCUMULATING IE00B5BMR087
5) VTI =ucits EQUIVALENT??
6) VXUS = ucits equivalent??
7) USA : VT = VTI + VXUS
8) then UCITS would be : ?

I am working to compile your posts like a meta thread ,only more systematic so as not to miss any of your pearls of wisdom
Bhai what are you doing? Here we have Motilal Oswal S&P 500 fund and 65/35 funds if you aren't index bhakt. Why do this kolaveri? The US stocks and Ex-US stocks have very high correlation so you are not getting any benefits from including VT over S&P 500. Also there is a taxation ambiguity with this way of investing. :confused
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Anon- the equations are for academic clarity not investing.I appreciate your note though and it's well meaning sentiment.
If I do UCITS( and I will) - it will be FTSE World or MSCI world -both approximate VT and cover~90+% of the investing universe globally

Taxation- where is the ambiguity ? Tedium yes- ambiguity -no
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Re: VTI/VXUS- Need guidance [India]

Post by TedSwippet »

ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 2)" mini" VT = Benchmark is FTSE All World Index = Vanguard FTSE All-World UCITS ETF 2 flavors -- VWRA IE00BK5BQT80 OR VWRD - IE00B3RBWM25 / iShares Core MSCI World UCITS ETF SWDA /SWRD SPDR® MSCI World UCITS ETF The ones in bold are good enough choices and cheaper too. All 4 available on IB
More or less. Sometimes you see differences in the index tracked, so MSCI all-world or FTSE all-world. Really a non-issue, though.
ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 3) BND = AGGU - IE00BZ043R46 =VANGAURD VAGU
BND is US only bonds. The others are global bonds. You'd likely want global rather than US anyway. AGGU is hedged to the USD, so its unhedged alter-ego AGGG would probably be better.
ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 4) SPY S&P 500 = iShares Core S&P 500 UCITS ETF CSSPX -ACCUMULATING IE00B5BMR087
Yes. (Apart from the accumulating bit -- US investors effectively cannot have accumulating ETFs, thanks to heinous US tax rules.)
ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 5) VTI =ucits EQUIVALENT??
None exact. The closest would be UCITS S&P 500 trackers, so equivalent to Vanguard US VOO. If you compare long-term performance of VOO and VTI you'll probably see virtually no difference, so CSSPX etc is fine here.
ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 6) VXUS = ucits equivalent??
None. Non-US investors have little use for an ex-US ETF, so that so far nobody has issued one.
ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 7) USA : VT = VTI + VXUS
8) then UCITS would be : ?
VWRD/SWRD if you are happy with split by market cap. To overweight the US, blend this with an extra chunk of CSSPX or other S&P 500 tracker. To underweight the US you'd have to split everything up by region, since there is no ex-US UCITS ETF to blend with a VWRD/SWRD mix.
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

ConfusedbutEducated wrote: Tue Aug 25, 2020 8:07 am Anon- the equations are for academic clarity not investing.I appreciate your note though and it's well meaning sentiment.
If I do UCITS( and I will) - it will be FTSE World or MSCI world -both approximate VT and cover~90+% of the investing universe globally

Taxation- where is the ambiguity ? Tedium yes- ambiguity -no
The taxation is not very clear in regards to buying these foreign ETF's/mutual funds mainly due to very tiny percentage of our population using these things. You can assume it is equal to unlisted shares. Also I think you need to report this yearly to tax-man even though there is no capital gains.
https://fiduciaries.in/wp-content/uploa ... uthria.pdf
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

The information below is not true
The taxation is not very clear in regards to buying these foreign ETF's/mutual funds mainly due to very tiny percentage of our population using these things. You can assume it is equal to unlisted shares. Also I think you need to report this yearly to tax-man even though there is no capital gains.
https://fiduciaries.in/wp-content/uploa ... uthria.pdf
[/quote]
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

TedSwippet wrote: Tue Aug 25, 2020 8:16 am
ConfusedbutEducated wrote: Tue Aug 25, 2020 7:45 am 2)" mini" VT = Benchmark is FTSE All World Index = Vanguard FTSE All-World UCITS ETF 2 flavors -- VWRA IE00BK5BQT80 OR VWRD - IE00B3RBWM25 / iShares Core MSCI World UCITS ETF SWDA /SWRD SPDR® MSCI World UCITS ETF The ones in bold are good enough choices and cheaper too. All 4 available on IB
More or less. Sometimes you see differences in the index tracked, so MSCI all-world or FTSE all-world. Really a non-issue, though.
[ quote fixed by admin LadyGeek]

Ted- SWRD is accumulating or distributing - not clear from State Street prospectus? European tickers are a confusing bunch :happy
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Re: VTI/VXUS- Need guidance [India]

Post by TedSwippet »

ConfusedbutEducated wrote: Tue Aug 25, 2020 9:05 am Ted- SWRD is accumulating or distributing - not clear from State Street prospectus? European tickers are a confusing bunch.
Accumulation. A prospectus won't necessarily tell you, since this information has a different role. You want to look at fund factsheets. For example, here, shown directly under 'Income Treatment':

https://www.ssga.com/uk/en_gb/intermedi ... tf-sppw-gy
https://www.ssga.com/library-content/pr ... ppw-gy.pdf

Note also the several different exchanges, stock tickers, and trading currencies available for what is in fact one single ETF.
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

ConfusedbutEducated wrote: Tue Aug 25, 2020 8:59 am The information below is not true
The taxation is not very clear in regards to buying these foreign ETF's/mutual funds mainly due to very tiny percentage of our population using these things. You can assume it is equal to unlisted shares. Also I think you need to report this yearly to tax-man even though there is no capital gains.
https://fiduciaries.in/wp-content/uploa ... uthria.pdf
It is very confusing honestly and that is why I stopped doing this. They as in Income Tax Department don't clarify this properly and I would suggest hiring CA if you are keen on doing this.
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Re: VTI/VXUS- Need guidance [India]

Post by Anon9001 »

ConfusedbutEducated wrote: Thu Aug 20, 2020 1:27 am Dear Kindred,

I hope all of you and those you love are safe.

Just starting out on the ETF way and planning a VTI/VXUS 60/40 allocation. Not taking BND exposure as I am not from US and looking to invest in US solely for diversification and $ appreciation vis a vis Indian Rupee (historically ~ 2-3%).

Given the melt up in the market will want to do a DCA type strategy from a Money Market Index Fund

My questions to all of you are

1) Can I start now , given the melt up in market - just a tad fearful?
2) Can I park the money in an Money Market ETF, as I withdraw periodically to do a DCA in VTI/VXUS? I might not have access to money market funds via Schwab( given my Non US status)
3)One and Done VT vs VTI/VXUS? any advice will be welcome

Thank you for your help
Right I found another link showing this difficulties in this tax related:https://www.reddit.com/r/IndiaInvestmen ... invest_in/

You should be very cautious of doing this method. I am still having head-aches trying to get local CA to file foreign assets properly in tax return. Now I am going to try GalacticAdvisors and see if that changes things. This is not simple at all and I regret listening to the people here regarding Interactive Brokers.
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

Ted, I am happy to do it --most of my knowledge is recent in origin and from extensive research - largely because I hit upon your writings here. If you can share your email with me on a private message I will jot down my learning and share with you for your editorial critique

Ted while I have your attention -can you elucidate if Ireland levels any capital gains when an Indian Citizen not residing in Ireland exits
[https://anirishinvestorsguide.wordpress ... n-ireland/]

Thanks
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

This Irish Exit Tax which the aforesaid blog post talks about is valid only for Iris Nationals ? Correct in my assumption?

https://anirishinvestorsguide.wordpress ... n-ireland/
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Re: VTI/VXUS- Need guidance [India]

Post by ConfusedbutEducated »

EU Domiciled UCITS ETFs
ETFs domiciled in Europe (normally with a UCITS structure) are taxed heavily by the Irish Revenue.

The Exit Tax regime applies whereby capital gains are charged at a rate of 41%. This is higher than the rate of capital gains tax normally applied to investment gains which is 33%. Dividend income is also taxable at 41% (USC and PRSI does not apply).

Even more punishing is that under the Exit tax regime your funds are subject to a “deemed disposal” every 8 years. This means is that every 8 years you need to pretend that you sold your ETF holdings, calculate 41% of your gains at that point in time and pay them to the Revenue personally. You could liquidate some of your fund to do this if you wish. This inhibits the accumulation potential of your fund.

Finally, the most punishing element is that you cannot offset losses in your ETF investment against gains on other investments. Even worse, you cannot offset losses in one EU ETF investment with the gains in another!
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Re: VTI/VXUS- Need guidance [India]

Post by LadyGeek »

I have moved the discussion for the proposed wiki page into a new thread. See: Wiki - Investing in India

Please post all helpful information in that thread, where we can collaborate to develop the page.

Let's use this thread to answer ConfusedbutEducated's portfolio questions.
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Re: VTI/VXUS- Need guidance [India]

Post by BeBH65 »

ConfusedbutEducated wrote: Sat Aug 29, 2020 3:56 am EU Domiciled UCITS ETFs
ETFs domiciled in Europe (normally with a UCITS structure) are taxed heavily by the Irish Revenue.

The Exit Tax regime applies whereby capital gains are charged at a rate of 41%. This is higher than the rate of capital gains tax normally applied to investment gains which is 33%. Dividend income is also taxable at 41% (USC and PRSI does not apply).

Even more punishing is that under the Exit tax regime your funds are subject to a “deemed disposal” every 8 years. This means is that every 8 years you need to pretend that you sold your ETF holdings, calculate 41% of your gains at that point in time and pay them to the Revenue personally. You could liquidate some of your fund to do this if you wish. This inhibits the accumulation potential of your fund.
This is only valid for investors that are domiciled in Ireland.
If you are domiciled anywhere else Ireland will not levy any dividend tax, no capital gains tax, nor any exit tax, nor any "deemed disposal" tax; all of these make that Ireland is a favourite country chosen as domicile for ucits funds.
Finally, the most punishing element is that you cannot offset losses in your ETF investment against gains on other investments. Even worse, you cannot offset losses in one EU ETF investment with the gains in another!
This fully depends on the tax legislation country of domicile of the investor.
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Re: VTI/VXUS- Need guidance [India]

Post by LadyGeek »

I apologize, as part of TedSwippet's post which I moved to the wiki thread also contained an answer to ConfusedbutEducated's question. Here is a copy of the relevant post:
TedSwippet wrote: Sat Aug 29, 2020 6:11 am ...
ConfusedbutEducated wrote: Sat Aug 29, 2020 3:41 am This Irish Exit Tax which the aforesaid blog post talks about is valid only for Iris Nationals ? Correct in my assumption?
Right. The page you referenced is written for Irish resident investors. Irish every-eight-years 'exit tax', Irish capital gains tax, Irish inheritance taxes, and so on apply only to Irish residents. For non-Irish residents, Ireland domiciled ETFs are entirely 'tax transparent'. That is, there are no Irish tax implications at all of buying, holding, receiving dividends from, or selling one.

Nonresident alien investors and Ireland domiciled ETFs - Bogleheads
Thanks to the member who reported the post to explain what I did wrong.
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Re: VTI/VXUS- Need guidance

Post by Anon9001 »

TedSwippet wrote: Sat Aug 22, 2020 6:56 am For ETFs holding non-US stocks, Ireland domiciled ETFs are preferable when, simply, L < 25% (and if L > 25%, neutral). In that case, you get the dividends with 25% subtracted in the case of the US domiciled ETF, and nothing subtracted if in an Ireland domiciled ETF. Put differently, holding non-US stocks inside a US domiciled ETFs magically transforms (non-taxable) non-US source dividends into (US taxable) US source dividends; quite a neat trick the US has going on there, then. For non-US stocks, Ireland domiciled ETFs are the obvious tax winners every time; better or at worst neutral relative to US ones.

For ETFs holding all-world stocks, the picture is muddled, but a decent estimate might be to pro-rate the difference between your US stocks and non-US stocks break-even numbers. So if an all-world ETF is 60% stocks, say, your break-even L would be 11.8% + 0.6 * (25% - 11.8%) = 19.72%. For most investors this is likely to indicate Ireland domiciled ETFs, just because US stocks are the largest component of all-world funds.
Coming back to this slightly old thread I think there is a double taxation involved with US ETF's when owning Ex-US stocks. The DWT of Ex-US stocks is already deducted at the applicable DTAA rates between USA and Ex-US countries before the US ETF pays the dividend and when the fund manager wants to pay the dividend the 10-30% DWT is applied on the entire dividend paid out not just the US portion which is not deduced for DWT until fund manager pays out the dividend so double taxation occurs. Source. This would mean if person wants to hold US domiciled ETF to only use ETF having only US stocks to avoid Double Taxation.
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

Anon9001 wrote: Sun Apr 04, 2021 8:04 am
TedSwippet wrote: Sat Aug 22, 2020 6:56 am For ETFs holding non-US stocks, Ireland domiciled ETFs are preferable when, simply, L < 25% (and if L > 25%, neutral). In that case, you get the dividends with 25% subtracted in the case of the US domiciled ETF, and nothing subtracted if in an Ireland domiciled ETF. Put differently, holding non-US stocks inside a US domiciled ETFs magically transforms (non-taxable) non-US source dividends into (US taxable) US source dividends; quite a neat trick the US has going on there, then. For non-US stocks, Ireland domiciled ETFs are the obvious tax winners every time; better or at worst neutral relative to US ones.

For ETFs holding all-world stocks, the picture is muddled, but a decent estimate might be to pro-rate the difference between your US stocks and non-US stocks break-even numbers. So if an all-world ETF is 60% stocks, say, your break-even L would be 11.8% + 0.6 * (25% - 11.8%) = 19.72%. For most investors this is likely to indicate Ireland domiciled ETFs, just because US stocks are the largest component of all-world funds.
Coming back to this slightly old thread I think there is a double taxation involved with US ETF's when owning Ex-US stocks. The DWT of Ex-US stocks is already deducted at the applicable DTAA rates between USA and Ex-US countries before the US ETF pays the dividend and when the fund manager wants to pay the dividend the 10-30% DWT is applied on the entire dividend paid out not just the US portion which is not deduced for DWT until fund manager pays out the dividend so double taxation occurs. Source. This would mean if person wants to hold US domiciled ETF to only use ETF having only US stocks to avoid Double Taxation.
Right. The wiki makes this point exactly: Why invest in Ireland domiciled ETFs?
US domiciled ETFs holding non-US securities can suffer double tax withholding. The US domiciled ETF pays withholding to international governments, then the US levies 30% of the remaining distributed dividends. Ireland domiciled ETFs avoid this.
If your local tax rate exceeds the US withholding rate and if you can claim a full local tax credit for US tax paid, though, this would be a wash rather than double tax. Otherwise, it is indeed a deadweight tax loss.

Also: ETF domicile recommendations by asset class
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Re: VTI/VXUS- Need guidance

Post by Anon9001 »

TedSwippet wrote: Sun Apr 04, 2021 8:46 am
Related to this I have noticed Ireland has 10% DWT for India in it's DTAA yet I haven't noticed any withholding tax when I was having Interactive Brokers account from January 2019-Feb 2020 presumably due to me owning accumulating Irish ETF's instead of distributing as I was un-sure about Irish ETF Dividends being not taxable in India even though DWT is already deducted.
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Re: VTI/VXUS- Need guidance

Post by TedSwippet »

Anon9001 wrote: Sun Apr 04, 2021 9:49 am Related to this I have noticed Ireland has 10% DWT for India in it's DTAA yet I haven't noticed any withholding tax when I was having Interactive Brokers account from January 2019-Feb 2020 presumably due to me owning accumulating Irish ETF's instead of distributing as I was un-sure about Irish ETF Dividends being not taxable in India even though DWT is already deducted.
It is nothing to do with accumulating or distributing ETF types, nor is it a treaty artifact. Dividends paid to (or accumulated for) all non-Irish residents by Ireland domiciled ETFs are simply exempt from Irish withholding tax on their dividend payments:

No Irish taxes of any kind for Ireland domiciled ETFs

For non-US investors, this complete lack of any and all Irish tax interference is what makes Ireland domiciled ETFs such a good alternative to US domiciled ones. For such investors, US domiciled ETFs often come with a lot of unpleasant tax baggage; Ireland domiciled ones come with none.
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