Tax on European domiciled ETF's

For residents of the United Arab Emirates.
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outofdxb
Posts: 3
Joined: Fri Feb 14, 2020 5:23 am

Tax on European domiciled ETF's

Post by outofdxb » Fri Feb 14, 2020 5:35 am

Hi all,

I think there might be a straight forward answer to this question, but I haven't found it. Please direct me there if it's already been answered.

I am a New Zealander living in the UAE. I've just opened an IB account and am starting to put together a portfolio so new to a lot of this. So here are the questions:
1. If I invest in a European domiciled ETF (such as IWLE - iShares Core MSCI World UCITS ETF) which is domiciled in Ireland, any dividend which is distributed is taxed in that country. Is this correct?
2. If the answer to the above question is yes, does that mean I have to file a tax return in that country for the dividend generated?

Thanks!

glorat
Posts: 394
Joined: Thu Apr 18, 2019 2:17 am

Re: Tax on European domiciled ETF's

Post by glorat » Fri Feb 14, 2020 7:14 am

Not correct to both questions... the best wiki page is https://www.bogleheads.org/wiki/Nonresi ... Irish_ETFs if you are able to digest it.

In short, it explains that there may exist taxes due to
1) Tax of the assets at source (e.g. US dividend withholding tax), paid by the fund
2) Tax at the domicile of the fund (e.g. Ireland, which will tax at zero)
3) Tax by your tax resident country (which may be NZ or UAE or both depending on their respective tax laws)

So to your questions... for dividend tax, the Ireland fund will pay 15% dividend tax to the US and taxes to other countries (estimated around 8%). You additionally on top may have to pay dividend taxes depending on your NZ/UAE tax laws, which may or may not treat distributing/accumulating funds differently, which you then may have to report in your NZ/UAE tax returns, again depending on the laws.

You do not have to file any tax returns with Ireland and probably the most you have to "file" with the US is the W8-BEN form which the broker will ask for you and deal with on your behalf

Topic Author
outofdxb
Posts: 3
Joined: Fri Feb 14, 2020 5:23 am

Re: Tax on European domiciled ETF's

Post by outofdxb » Fri Feb 14, 2020 8:09 am

Thanks glorat, that's exactly what I was looking for. I read through it and it more or less makes sense.

You mentioned taxes to other countries of around 8% (on top of the 15% to the US). Is this a L1TW? Reading through that page you linked, I didn't pick up where these "other countries" fit into the picture. Can you expand on that a little more?

glorat
Posts: 394
Joined: Thu Apr 18, 2019 2:17 am

Re: Tax on European domiciled ETF's

Post by glorat » Fri Feb 14, 2020 8:19 am

outofdxb wrote:
Fri Feb 14, 2020 8:09 am
Thanks glorat, that's exactly what I was looking for. I read through it and it more or less makes sense.

You mentioned taxes to other countries of around 8% (on top of the 15% to the US). Is this a L1TW? Reading through that page you linked, I didn't pick up where these "other countries" fit into the picture. Can you expand on that a little more?
Yes, L1TW is 15% on US domiciled underlying stocks. Other countries around the world may withhold dividend taxes though. By reading the annual reports (like described at https://www.bogleheads.org/wiki/Nonresi ... iled_funds) I estimate the average L1TW for non-US stocks works out to be 8%

msk
Posts: 1470
Joined: Mon Aug 15, 2016 10:40 am

Re: Tax on European domiciled ETF's

Post by msk » Fri Feb 14, 2020 8:30 am

Or you can buy VWRA (Vanguard World Accumulative, based in Ireland), and never worry about taxes at all. Vanguard sorts it all out to various countries, at maximum efficacy, and reinvests all dividends after tax and fees. And neither New Zealand nor the UAE tax you on income outside their borders. I am presuming that you are currently a tax resident of the UAE? Make sure you understand your exposure, if any, to New Zealand capital gains taxes before you repatriate your tax residence to New Zealand. It may be wise to cash out everything before moving back to NZ and thus avoid any quibble regarding capital appreciation of the VWRA during the years you were a tax resident of the UAE. I.e. restart in NZ with a neat load of cash.

TedSwippet
Posts: 2651
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Tax on European domiciled ETF's

Post by TedSwippet » Fri Feb 14, 2020 9:09 am

glorat wrote:
Fri Feb 14, 2020 7:14 am
You do not have to file any tax returns with Ireland and probably the most you have to "file" with the US is the W8-BEN form which the broker will ask for you and deal with on your behalf
Strictly, a broker need only require you to send them a W-8BEN if you will buy US stocks or US domiciled ETFs, but not for stocks or ETFs from any other country, including Ireland domiciled ETFs. Some brokers seem to require it from every investor though, even if due to US tax laws the investor might plan to avoid US domiciled investments like the plague.

Personally, although I have to file several(*) with Vanguard US, for accounts I still hold from when I worked in the US, I find the W-8BEN to be highly objectionable in its requirement for me to sign and "certify under penalties of perjury" to a country of which I am neither citizen nor resident. Perhaps it's just me, but this wretched jurat grinds my gears.


(*) One for each of the four account types I hold with them. Because for the IRS, why do something once when multiple times will suffice?

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