Tax efficient etf and Comissions recommendation for non us

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Topic Author
tcobogle
Posts: 10
Joined: Mon Oct 11, 2021 9:58 am

Tax efficient etf and Comissions recommendation for non us

Post by tcobogle »

Hello all!

My Portfolio

VTI: Vanguard US Total Stock Market ETF (backbone of my portfolio)
VXUS: Vanguard Total International Stock ETF

I never withdraw funds from the portfolio and I try to contribute by chunks of money (explanation below). This is a passive, buy and hold portfolio.

I am a non US Citizen from Costa Rica. I opened my brokerage account with Charles Schwab in 2020. I have a Banco Bac San Jose account where I manage my savings but it costs me $30 to move funds to Schwab to invest. I suppose there's nothing else I can do to better improve this process, so a strategy might be helpful here. My strategy is try to accumulate a good chunk of money and transfer, other banks ask for some percentage while this is the lowest fixed amount. On the long term, how would you recommend me moving funds to Schwab due to wire transferfees?

For my portfolio, I have yet to realize gains for any of my investments, so I’m particularly worried how I will be taxed when I do so. Any thoughts on this will be very helpful. Also I read in another couple of threads that VTI and VXUS are not good for non us investor or even one suggesting that non us can't invest in VTI? is that true? then what would you recommend me then?

1. Taxes on bonds. Later on I will want to start adding bonds when I get older, how can I start to transition to bonds? which bond should I go with considering my location status.

2. For internationals like me, which investments are recommended in terms of operating costs and taxes: ETFs or mutual funds? Bear in mind I am implementing a long term, buy and hold strategy and will not withdraw the funds in until maybe retirement.

3. Can internationals (non US Citizens) with a brokerage account in the US use VTI/VXUS?

Thanks for your help!
assyadh
Posts: 407
Joined: Tue Sep 18, 2018 12:44 pm

Re: Tax efficient etf and Comissions recommendation for non us

Post by assyadh »

Costa Rica doesn't have a tax treaty with the US. This means you pay 30% dividend witholding tax on the US registered ETFs such as VTI. If you had held Irish registered ETFs such as VWRA, then you would only pay 15%.

Costa Rica doesn't have an estate tax treaty with the US. Which means that in the event of your death, the US will withold up to 40% above 60k of whatever you hold as assets in the US, ETFs included. With Irish registered ETFs, it's 0%.

My advice: move it all to IBKR, sell it all, and buy Irish registered ETFs. This can be done in USD (VWRA is listed on the London Stock Exchange and trades in USD).
TedSwippet
Posts: 3910
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Tax efficient etf and Comissions recommendation for non us

Post by TedSwippet »

Welcome.
tcobogle wrote: Mon Oct 11, 2021 10:20 am VTI: Vanguard US Total Stock Market ETF (backbone of my portfolio)
VXUS: Vanguard Total International Stock ETF
As already noted by assyadh, because of antagonistic US tax laws for nonresident aliens, for you these particular ETFs are tax-inefficient. You should probably sell them and switch instead to equivalent non-US domiciled ETFs. You can find full details in this section of the wiki:

- Outline of non-US domiciles - Tax issues specific to nonresident aliens
Topic Author
tcobogle
Posts: 10
Joined: Mon Oct 11, 2021 9:58 am

Re: Tax efficient etf and Comissions recommendation for non us

Post by tcobogle »

Thank you, I will do that an invest in VWRA instead. I also had ARKK purchased, assuming it's a very small percentage (10%) then maybe its not worth selling right now and I can hold it and depending on the future of that ETF, I can sell it to try other speculative assets. As I'm young, I want to put some weight in risky assets. Later on, of course, try to bring bonds into play.

Thanks!
Valuethinker
Posts: 43176
Joined: Fri May 11, 2007 11:07 am

Re: Tax efficient etf and Comissions recommendation for non us

Post by Valuethinker »

tcobogle wrote: Tue Oct 12, 2021 4:17 pm Thank you, I will do that an invest in VWRA instead. I also had ARKK purchased, assuming it's a very small percentage (10%) then maybe its not worth selling right now and I can hold it and depending on the future of that ETF, I can sell it to try other speculative assets. As I'm young, I want to put some weight in risky assets. Later on, of course, try to bring bonds into play.

Thanks!
ARKK

You should read the history of Janus Fund Managers around the years 1998-2001. It is very instructive -- we've been through this cycle before.

The woman who runs ARKK is a lone gun, completely dominating the investment strategy and process at her firm. I imagine all decisions go through her. That too, is a risk. It does rather remind me of Bill Gross at PIMCO-- eventually he fell out with his partners, and left, having run the largest mutual fund in the world ($100bn+ in bonds). Then he started up again with another firm, didn't do that well, and finally retired (well into his 70s).

Neil Woodford in the UK might be another example.

People have styles that outperform in certain markets. Whether they do so in all markets, and what they do when they underperform, is a real test of their ability, and the resilience of their organisation.
Topic Author
tcobogle
Posts: 10
Joined: Mon Oct 11, 2021 9:58 am

Re: Tax efficient etf and Comissions recommendation for non us

Post by tcobogle »

Totally but that's why you allocate small portion of your portfolio on that. Anyways,
Question out of topic-
When being asked for Tax ID as a Costa Rican, do you provide the National ID for that? I have been doing that but not sure if that's the right choice.

Thanks and I hope someone helps clarify that.
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