Can non US citizen create corporation in US to invest in vanguard

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Topic Author
Neus
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Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

I'm not US citizen and currently can't invest with vanguard as personal

I wonder if i create corporation in US (INC or LLC) to then invest the fund, will i able to invest in vanguard? and If yes, what option should i choose as there's this option:

General investing
Individual account
Joint account
Trust account

For a business
i401(k)
SEP-IRA
SIMPLE IRA

Retirement
Traditional IRA
Roth IRA
Rollover IRA
Variable annuity

Thanks
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Tylenol Jones
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Tylenol Jones »

Sure, you can do it, but you'll be paying for administering that company and you'll be paying US taxes as a US company and you'll be taxed then on anything you take out of that company back in your country.

You'd better follow the general recommendation on this forum for your case: open an Interactive Brokers personal account and buy Vanguard ETFs at London Stock Exchange.
Topic Author
Neus
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

Tylenol Jones wrote: Fri Sep 22, 2017 5:45 am Sure, you can do it, but you'll be paying for administering that company and you'll be paying US taxes as a US company and you'll be taxed then on anything you take out of that company back in your country.

You'd better follow the general recommendation on this forum for your case: open an Interactive Brokers personal account and buy Vanguard ETFs at London Stock Exchange.
Tylenol,

Thank you for your reply

I just recheck this forum and somehow i actually have been an interactive broker customer for a while

Regarding London Stock Exchange, any particular reason why buy vanguard ETF at London Stock Exchange?

Currently i own several vanguard ETF but not sure it's London Stock Exchange one, for example VTI, i select ARCA one - Stock (Smart), it this London Stock Exchange?


Also regarding succession of my account, i recently want to activate Transfer On Death feature, but turns out i'm not eligible for this feature as i'm not US citizen, what is the best way to overcome this issue other than giving password to my spouse and hope for the best? Also if i'm not mistaken there's some additional tax for passing amount above $60.000?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
imperia
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by imperia »

Does Indonesia has tax treaty with US?
Does Indonesia has dividend tax?

For most NRA Ireland domicile ETF are the best choice.
You can use Vanguard or iShares ETF.

Ireland has tax treaty with USA so you lose just 15% of divident(instead of 30%).

Ireland does not apply dividend tax for non residents and because of all this Ireland domicle ETF are best option.
iShares offer accumulation ETF that reinvest dividend so you can avoid dividend taxation in your country.
You can buy ETF with IB on most European stocks exchange, not just London

www.bogleheads.org/wiki/Nonresident_ali ... Irish_ETFs
InternationalMan
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by InternationalMan »

Non Resident Aliens usually do not want to own US assets in their own name for income and estate tax reasons. One way it's commonly done is the NRA creates a non US holding company. The holding company owns the US assets. The NRA only owns the shares of the holding company and does not directly own US assets. The NRA's shares can be passed to the NRA's heirs.
Pippen_001
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Pippen_001 »

InternationalMan wrote: Wed Dec 13, 2017 3:02 pm Non Resident Aliens usually do not want to own US assets in their own name for income and estate tax reasons. One way it's commonly done is the NRA creates a non US holding company. The holding company owns the US assets. The NRA only owns the shares of the holding company and does not directly own US assets. The NRA's shares can be passed to the NRA's heirs.
Any insights on how to do this? Links, examples?
I have read about Family LLC, where the parents are managers and the heirs just members. Death of the parents will result in a trigger where the heirs become members. However this structure is for LLCs in the US.

I'm interested on how to set this up outside the US.

BTW I'm a NRA investing in Vanguard ETF through TD.
iliakan
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by iliakan »

I've heard that owning a US-company for a sole purpose of being a "wallet" may be treated by judges as the same by owning "wallet containment" directly.

So that in case of death the assets of the company (100% owned by a non-resident) are still taxed using harsh US rules.

I heard about such court rulings, but probably lawers can say that better.
InternationalMan
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by InternationalMan »

Pippen_001 wrote: Thu Dec 14, 2017 8:39 amI'm interested on how to set this up outside the US.

BTW I'm a NRA investing in Vanguard ETF through TD.
This is not something we can advise you in detail on this board! This is recommended something that should involve an international tax law firm or accounting firm and they will need many details about you and your family's situation. The consequences of a mistake could be extremely expensive. US tax laws for NRAs are extremely complicated and confusing. Then there are the tax laws and tax treaties with your home country. And then there are the laws of possibly a third country where the holding company or trust will be. The other previous option of using non US ETF is a possible solution as well. Depending on the size of the portfolio it may be a simpler answer.

I am concerned about the Vanguard ETF invested through TD. It's possible that if you should pass away, that account could be subject to US estate tax.
Topic Author
Neus
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

imperia wrote: Mon Dec 11, 2017 10:26 am Does Indonesia has tax treaty with US?
Does Indonesia has dividend tax?

For most NRA Ireland domicile ETF are the best choice.
You can use Vanguard or iShares ETF.

Ireland has tax treaty with USA so you lose just 15% of divident(instead of 30%).

Ireland does not apply dividend tax for non residents and because of all this Ireland domicle ETF are best option.
iShares offer accumulation ETF that reinvest dividend so you can avoid dividend taxation in your country.
You can buy ETF with IB on most European stocks exchange, not just London

www.bogleheads.org/wiki/Nonresident_ali ... Irish_ETFs
Hi Imperia

Thanks for the information

I think Indonesia do have tax treaty with US https://www.irs.gov/pub/irs-trty/indo.pdf
Indonesia has dividend tax rate of 10%

Does this two factor makes is it tax wise for Indonesian to purchase US domiciled vanguard ETF? Or ireland / UK domiciled vanguard ETF still better?

As for trade permissions on my IB account, Ireland can't be found on the list

Trade Permissions
Check the products that you wish to trade and the countries in which you want to trade them and we will provide you with the required disclosures and agreements.
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
imperia
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by imperia »

You also need to check does Indonesia has treaty for estate tax(I did not find that treaty on the internet)
If you have more than 60.000$ invested in US, if you die US will charge estate tax(about 40%), and your family will recive just 60% of your holdings.

Another thing is dividend tax in Indonesia.
When you recive dividend from US ETF, you will recive 85% of dividend , because US goverment will charge you 15%(instead 30% because of tax treaty).
When you recive 85% of the dividend, do you need to pay more 10% to Indonesian goverment?

If you use Ireland accumulation domicile ETF you no need to pay dividend tax in Indonesia, becaouse ETF reinvest dividend automaticly.

I also use IB and you can buy all Ireland domicile ETF on IB platform.
ETF are Ireland domicile, but you need to buy them on London, Amsterdam, Milano, Frankfurth stock exchenge.
Just go in ishares site find ETF you want and put ETF ticker and that is it.

Vanguard only have distribution ETF, and because of that I use iShares or something else.
I also recomend you to use www.justetf.com for European base ETF search.
TedSwippet
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Sun Dec 17, 2017 11:32 pmDoes this two factor makes is it tax wise for Indonesian to purchase US domiciled vanguard ETF? Or ireland / UK domiciled vanguard ETF still better?
Indonesia has no estate tax treaty with the US. This means that anything you hold in US domiciled ETFs above $60k is at risk from US estate taxes.

Income tax treaties and estate tax treaties are separate things. You really want the coverage of both for it to be safe to use US domiciled ETFs. You should probably prefer the non-US domiciled ETFs, then.
Neus wrote: Sun Dec 17, 2017 11:32 pmAs for trade permissions on my IB account, Ireland can't be found on the list.
Vanguard's and iShare's Ireland domiciled ETFs don't actually trade in Dublin, but instead trade on multiple exchanges, including London, Euronext, and a couple of others. So you probably need to look for the ability to trade on the 'London Stock Exchange', LSE, UK, or similar -- although I am guessing a bit here, as I am not an IB customer.
Topic Author
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Mon Dec 18, 2017 2:58 am
Neus wrote: Sun Dec 17, 2017 11:32 pmDoes this two factor makes is it tax wise for Indonesian to purchase US domiciled vanguard ETF? Or ireland / UK domiciled vanguard ETF still better?
Indonesia has no estate tax treaty with the US. This means that anything you hold in US domiciled ETFs above $60k is at risk from US estate taxes.

Income tax treaties and estate tax treaties are separate things. You really want the coverage of both for it to be safe to use US domiciled ETFs. You should probably prefer the non-US domiciled ETFs, then.
Neus wrote: Sun Dec 17, 2017 11:32 pmAs for trade permissions on my IB account, Ireland can't be found on the list.
Vanguard's and iShare's Ireland domiciled ETFs don't actually trade in Dublin, but instead trade on multiple exchanges, including London, Euronext, and a couple of others. So you probably need to look for the ability to trade on the 'London Stock Exchange', LSE, UK, or similar -- although I am guessing a bit here, as I am not an IB customer.
Hi TedSwippet,

Thank you for pointing out regarding the absence of tax estate treaties between Indonesia and USA and the importance to use Ireland Domiciled ETF

So to sum up, because there's income tax treaty but no Estate tax treaty between Indonesia and USA, current dividend / interest income from US domiciled ETF will not be withhold by 30% as US rate, BUT ONLY when i pass away, my estate will have to pay US government estate tax, is this understanding correct?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Topic Author
Neus
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

imperia wrote: Mon Dec 18, 2017 2:55 am You also need to check does Indonesia has treaty for estate tax(I did not find that treaty on the internet)
If you have more than 60.000$ invested in US, if you die US will charge estate tax(about 40%), and your family will recive just 60% of your holdings.

Another thing is dividend tax in Indonesia.
When you recive dividend from US ETF, you will recive 85% of dividend , because US goverment will charge you 15%(instead 30% because of tax treaty).
When you recive 85% of the dividend, do you need to pay more 10% to Indonesian goverment?

If you use Ireland accumulation domicile ETF you no need to pay dividend tax in Indonesia, becaouse ETF reinvest dividend automaticly.

I also use IB and you can buy all Ireland domicile ETF on IB platform.
ETF are Ireland domicile, but you need to buy them on London, Amsterdam, Milano, Frankfurth stock exchenge.
Just go in ishares site find ETF you want and put ETF ticker and that is it.

Vanguard only have distribution ETF, and because of that I use iShares or something else.
I also recomend you to use www.justetf.com for European base ETF search.
Imperia,

So with income tax treaty, buying US domiciled ETF will cost me 15% on dividend / interest income, while buying Ireland domiciled ETF will also cost me 15% which means the result is the same, the difference will be when i pass away, my estate will be taxed 40% if i pick US domiciled ETF and 0% if i pick Ireland domiciled ETF, is this understanding correct?

Regarding distribution, there's option to DRIP (dividend reinvestment) at IB account management which i check YES, is this the same as immediate reinvestment or IB reinvest after tax amount?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
TedSwippet
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Sat Feb 03, 2018 2:15 amRegarding the application, in my understanding there's no ireland domiciled vanguard ETF that equals to basic vanguard ETF such as VTI, VXUS, BND?
VUSD tracks the S&P 500, so directly equivalent to VOO. And if you compare VOO and VTI you will see practically no difference at all in performance. For non-US investors, VWRD is a great option as it is broadly equivalent to if you had combined VOO and VXUS in global market cap ratios.

For bonds, you should consider carefully if you want your fixed income allocation to be pegged to the USD or whether either local or global bond holdings are more suitable.

In general, the US domiciled ultra-simple 'three fund portfolio' much talked about in this forum is really only suitable for US investors. Non-US investors need to create their own variations on it.
Neus wrote: Sat Feb 03, 2018 2:15 amWhat if i set the dividend to be auto reinvested? Will the amount gets taxed at 30% before reinvested?
Actually 15%, under Article 11 Paragraph 2 of the US/Indonesia tax treaty. The broker will deduct this and pay it to the US IRS before either paying you the dividend or reinvesting it.

Note that there is no escaping this 15% on US stocks. An Ireland domiciled ETF will pay it to the US internally before distributing dividends, but crucially, only on the US stock held by the ETF, so for example approximately half of the stocks held by VWRD. In contrast, if you held VTI+VXUS you would pay 15% to the US on your entire dividends, and also risk US estate taxes.
Neus wrote: Sat Feb 03, 2018 2:15 amSo to sum up, because there's income tax treaty but no Estate tax treaty between Indonesia and USA, current dividend / interest income from US domiciled ETF will not be withhold by 30% as US rate, BUT ONLY when i pass away, my estate will have to pay US government estate tax, is this understanding correct?
Not quite. As noted above, the US dividend tax withholding rate for Indonesians is 15%, and you would pay that on all your dividends if you held US domiciled ETFs, but on perhaps only just over half of your dividends if you held Ireland domiciled ones. You are correct on the US estate tax.
Topic Author
Neus
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Sat Feb 03, 2018 3:28 am
Neus wrote: Sat Feb 03, 2018 2:15 amRegarding the application, in my understanding there's no ireland domiciled vanguard ETF that equals to basic vanguard ETF such as VTI, VXUS, BND?
VUSD tracks the S&P 500, so directly equivalent to VOO. And if you compare VOO and VTI you will see practically no difference at all in performance. For non-US investors, VWRD is a great option as it is broadly equivalent to if you had combined VOO and VXUS in global market cap ratios.

For bonds, you should consider carefully if you want your fixed income allocation to be pegged to the USD or whether either local or global bond holdings are more suitable.

In general, the US domiciled ultra-simple 'three fund portfolio' much talked about in this forum is really only suitable for US investors. Non-US investors need to create their own variations on it.
Neus wrote: Sat Feb 03, 2018 2:15 amWhat if i set the dividend to be auto reinvested? Will the amount gets taxed at 30% before reinvested?
Actually 15%, under Article 11 Paragraph 2 of the US/Indonesia tax treaty. The broker will deduct this and pay it to the US IRS before either paying you the dividend or reinvesting it.

Note that there is no escaping this 15% on US stocks. An Ireland domiciled ETF will pay it to the US internally before distributing dividends, but crucially, only on the US stock held by the ETF, so for example approximately half of the stocks held by VWRD. In contrast, if you held VTI+VXUS you would pay 15% to the US on your entire dividends, and also risk US estate taxes.
Neus wrote: Sat Feb 03, 2018 2:15 amSo to sum up, because there's income tax treaty but no Estate tax treaty between Indonesia and USA, current dividend / interest income from US domiciled ETF will not be withhold by 30% as US rate, BUT ONLY when i pass away, my estate will have to pay US government estate tax, is this understanding correct?
Not quite. As noted above, the US dividend tax withholding rate for Indonesians is 15%, and you would pay that on all your dividends if you held US domiciled ETFs, but on perhaps only just over half of your dividends if you held Ireland domiciled ones. You are correct on the US estate tax.
Tedswippet,

Thank you very much for the explanation, i'll need to reallocate my current VTI + VXUS holding to Ireland domiciled ETF then

Regarding Total World ETF, I check that VWRD TER is 0.25%, what is your opinion on blackrock ishares total world (SWDA) with 0.2% TER and automatically dividend reinvested?

Regarding US Bond, our currency is weakens about 4-5% annually against USD, and with Indonesia Mid Term Government Bond rate at 5.85%, taxed at 15%, while real inflation is at god know how much, in my understanding holding US bond and paying 15% tax is still better than holding our government bond
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
TedSwippet
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Sat Feb 03, 2018 4:51 amRegarding Total World ETF, I check that VWRD TER is 0.25%, what is your opinion on blackrock ishares total world (SWDA) with 0.2% TER and automatically dividend reinvested?
Also a good choice. In some countries having dividend accumulated within the ETF can be a tax advantage. In others, it can be neutral (although potentially a tax computation nightmare). I don't know which of these categories Indonesia would fit into.
Neus wrote: Sat Feb 03, 2018 4:51 amRegarding US Bond, our currency is weakens about 4-5% annually against USD, and with Indonesia Mid Term Government Bond rate at 5.85%, taxed at 15%, while real inflation is at god know how much, in my understanding holding US bond and paying 15% tax is still better than holding our government bond.
If you are stuck on the idea of holding only US bonds, perhaps consider VUTY (0.12% TER). It holds US treasuries, but being Ireland domiciled means you get protection from US estate taxes. Otherwise, perhaps consider iShares AGGG or IGLO, also both Ireland domiciled but globally diversified.
Topic Author
Neus
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Sat Feb 03, 2018 7:37 am
Neus wrote: Sat Feb 03, 2018 4:51 amRegarding Total World ETF, I check that VWRD TER is 0.25%, what is your opinion on blackrock ishares total world (SWDA) with 0.2% TER and automatically dividend reinvested?
Also a good choice. In some countries having dividend accumulated within the ETF can be a tax advantage. In others, it can be neutral (although potentially a tax computation nightmare). I don't know which of these categories Indonesia would fit into.

Just realize SWDA cost almost $4000/share which is too high compared to VWRD
Image
Neus wrote: Sat Feb 03, 2018 4:51 amRegarding US Bond, our currency is weakens about 4-5% annually against USD, and with Indonesia Mid Term Government Bond rate at 5.85%, taxed at 15%, while real inflation is at god know how much, in my understanding holding US bond and paying 15% tax is still better than holding our government bond.
If you are stuck on the idea of holding only US bonds, perhaps consider VUTY (0.12% TER). It holds US treasuries, but being Ireland domiciled means you get protection from US estate taxes. Otherwise, perhaps consider iShares AGGG or IGLO, also both Ireland domiciled but globally diversified.
I just realize that stock trades at LSE cost about 1-5 usd per transaction compares to $1 to the one listed at NYSE, and very useful IB adaptive feature is not available

Non US citizen is surely at very disadvantages :(
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
TedSwippet
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Mon Feb 05, 2018 9:24 amJust realize SWDA cost almost $4000/share which is too high compared to VWRD.
The LSE prices SWDA in GBX. There are 100 of these to 1 GBP. The current price of SWDA is 3,955.50 GBX, so £39.55 or $55.45/share.

And yes, this GBX and GBP thing is unnecessarily confusing -- just be happy the UK no longer has a non-decimal currency...
Neus wrote: Mon Feb 05, 2018 9:24 amI just realize that stock trades at LSE cost about 1-5 usd per transaction compares to $1 to the one listed at NYSE, ...
How much trading do you expect to do over a year?

Even if you dollar-cost average over time, once per quarter should be plenty. I cannot imagine any important investing goal that could be derailed by an extra cost of perhaps $20/year. In comparison, your original idea to create a corporation within which to hold any US domiciled funds or ETFs would certainly cost far more than this $20/year.
Topic Author
Neus
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Mon Feb 05, 2018 11:56 am
Neus wrote: Mon Feb 05, 2018 9:24 amJust realize SWDA cost almost $4000/share which is too high compared to VWRD.
The LSE prices SWDA in GBX. There are 100 of these to 1 GBP. The current price of SWDA is 3,955.50 GBX, so £39.55 or $55.45/share.

And yes, this GBX and GBP thing is unnecessarily confusing -- just be happy the UK no longer has a non-decimal currency...
Neus wrote: Mon Feb 05, 2018 9:24 amI just realize that stock trades at LSE cost about 1-5 usd per transaction compares to $1 to the one listed at NYSE, ...
How much trading do you expect to do over a year?

Even if you dollar-cost average over time, once per quarter should be plenty. I cannot imagine any important investing goal that could be derailed by an extra cost of perhaps $20/year. In comparison, your original idea to create a corporation within which to hold any US domiciled funds or ETFs would certainly cost far more than this $20/year.
Tedswippet,

You’re right i’m muddling for few amount as i only do about 10 trade per month

I just got confirmation that due to tax treaty, by filling w8-ben form, an Indonesian citizen only pays 15% dividend tax to us and none to Indonesia

This means the tax on the dividend is equal to ireland domiciled etf, but there’s still estate tax issue

I’m thinking that since Indonesian has 0% inheritance tax, can this strategy below work?

What if i gave access to my IB account to my spouse/kids on my will, and with those access she can liquidate all ETF, redeem the cash to my Indonesian bank account, inherit the bank account and paid 0% tax, then reinvest at IB on her account
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
TedSwippet
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Wed Feb 07, 2018 4:51 amI just got confirmation that due to tax treaty, by filling w8-ben form, an Indonesian citizen only pays 15% dividend tax to us and none to Indonesia ... This means the tax on the dividend is equal to ireland domiciled etf...
On the US stock component of your holdings, yes. But not on the non-US component. There you would pay lower effective US taxes with an Ireland domiciled ETF.

For example, suppose you hold an ETF that tracks the S&P500. If it is US domiciled then the broker takes 15% of your dividends in US tax. If it is Ireland domiciled the ETF pays 15% internally to the US and your broker takes nothing further, so both are equal.

Now, suppose instead you hold an ETF that tracks the UK FTSE 100 stocks. The UK does not tax dividends paid out by stocks to non-UK residents. If that FTSE 100 tracker ETF is US domiciled you lose 15% of your dividends to US taxes. However, if Ireland domiciled you lose nothing to tax, so you are far better off here holding the Ireland domiciled ETF. Even without considering how you also avoid the potential for rapacious US estate taxes by doing so.

Because SWDA, VWRD and so on contain a mixture of US and non-US stocks, what you get with your dividends on these is a mixture of the two cases above. You will effectively lose 15% of some portion of the dividends received by an Ireland domiciled ETF, but get to keep the rest. But losing 15% of some of your dividend to US tax beats losing 15% of all of your dividend to US tax, as would happen with US domiciled versions of these ETFs.
Neus wrote: Wed Feb 07, 2018 4:51 amI’m thinking that since Indonesian has 0% inheritance tax, can this strategy below work? ... What if i gave access to my IB account to my spouse/kids on my will, and with those access she can liquidate all ETF, redeem the cash to my Indonesian bank account, inherit the bank account and paid 0% tax, then reinvest at IB on her account?
Legally? Not under US tax laws. Practically? Perhaps, providing your broker does not enforce US estate tax regulations on non-resident aliens.

Will they? Being a US broker, I imagine Interactive Brokers might. As for non-US brokers, who knows?. And anyway, if not now, read this recent and rather feverish CNBC article and then make a judgement call on how long you think it might be before they do.

Personally I would not risk this. The tiny cost differential between US domiciled and Ireland domiciled is truly minor in comparison with the huge potential loss to completely unnecessary and entirely avoidable US estate taxes. Your choice, of course.
Last edited by TedSwippet on Wed Feb 07, 2018 8:46 am, edited 1 time in total.
msk
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by msk »

I have a very similar situation but with no tax treaty with the USA. What I did:
Liquidated all my holdings in TDAmeritrade, opened an account at IB. This account is Joint with Survivor Rights (with my wife)
Mulled over between VWRD and Black Rock/iShares, all Ireland domiciled. Chose iShares because wife has nil interest and if I pass away before her then the dividends will be reinvested automatically
Bought 90% IWDA (world developed) and 10% EIMI (Emerging Markets), both in USD traded in London Stock Exchange. IWDA rose 20+% during 2017 and EIMI rose 30+%. Me happy. No bonds
We are not exposed to estate taxes anywhere and no capital gains taxes. Only tax paid is by iShares on the dividends before reinvestment. I never see it and I do not care since at max it is 15% on a dividend that is itself small, slightly above 2%.

Remaining issue: How to get wife to learn how to sign on ?! I wrote the instructions in detail and put them in a safe. Since IB will only transfer cash to our named joint account in our home country, the instructions, in theory, are useless to a burglar who is unable to access our bank account. I also gave her the names of two people who also use IB and are very familiar with the signing-on process. One mentioned that I should video it for DW. I want to video her going through the signing on process herself. So far she has not had "time"! Another issue: what happens if we both die simultaneously in a plane crash? My kids are even less interested! Anyone know if IB will open a Joint Account with Survivor Rights for 3 individuals? I'll pick a kid who hardly ever travels with us...
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Wed Feb 07, 2018 8:04 am
Neus wrote: Wed Feb 07, 2018 4:51 amI just got confirmation that due to tax treaty, by filling w8-ben form, an Indonesian citizen only pays 15% dividend tax to us and none to Indonesia ... This means the tax on the dividend is equal to ireland domiciled etf...
On the US stock component of your holdings, yes. But not on the non-US component. There you would pay lower effective US taxes with an Ireland domiciled ETF.

For example, suppose you hold an ETF that tracks the S&P500. If it is US domiciled then the broker takes 15% of your dividends in US tax. If it is Ireland domiciled the ETF pays 15% internally to the US and your broker takes nothing further, so both are equal.

Now, suppose instead you hold an ETF that tracks the UK FTSE 100 stocks. The UK does not tax dividends paid out by stocks to non-UK residents. If that FTSE 100 tracker ETF is US domiciled you lose 15% of your dividends to US taxes. However, if Ireland domiciled you lose nothing to tax, so you are far better off here holding the Ireland domiciled ETF. Even without considering how you also avoid the potential for rapacious US estate taxes by doing so.

Because SWDA, VWRD and so on contain a mixture of US and non-US stocks, what you get with your dividends on these is a mixture of the two cases above. You will effectively lose 15% of some portion of the dividends received by an Ireland domiciled ETF, but get to keep the rest. But losing 15% of some of your dividend to US tax beats losing 15% of all of your dividend to US tax, as would happen with US domiciled versions of these ETFs.

Tedswippet,

You're correct i forgot about non-US component tax benefit
Neus wrote: Wed Feb 07, 2018 4:51 amI’m thinking that since Indonesian has 0% inheritance tax, can this strategy below work? ... What if i gave access to my IB account to my spouse/kids on my will, and with those access she can liquidate all ETF, redeem the cash to my Indonesian bank account, inherit the bank account and paid 0% tax, then reinvest at IB on her account?
Legally? Not under US tax laws. Practically? Perhaps, providing your broker does not enforce US estate tax regulations on non-resident aliens.

Will they? Being a US broker, I imagine Interactive Brokers might. As for non-US brokers, who knows?. And anyway, if not now, read this recent and rather feverish CNBC article and then make a judgement call on how long you think it might be before they do.

Personally I would not risk this. The tiny cost differential between US domiciled and Ireland domiciled is truly minor in comparison with the huge potential loss to completely unnecessary and entirely avoidable US estate taxes. Your choice, of course.
I see, if so i wouldn't risk it either

Anyway i read about this David Swensen Portfolio https://www.bogleheads.org/blog/david-s ... l-success/

And the backtest portfolio result in more gains with less loss (Portfolio 1 is Basic 3 fund, Portolio 2 is David Swensen), with quite significant difference despite Basic 3 Fund has more equity
Image

Any suggestion for tax treaty NRA wishing to compose equivalent of these portfolio allocation with ireland domiciled ETF?
Image

I think the first 3 component is covered by VTI (total US), VEA (foreign developed), VWO (emerging) and With MSK suggestion it can be covered by IWDA and EIMI with some proportion

I still have no idea the equivalent for:
REIT (US = VNQ)
Intermediate treasury fund (US ??)
Inflation protected securities fund (US ??)
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

msk wrote: Wed Feb 07, 2018 8:37 am I have a very similar situation but with no tax treaty with the USA. What I did:
Liquidated all my holdings in TDAmeritrade, opened an account at IB. This account is Joint with Survivor Rights (with my wife)
Mulled over between VWRD and Black Rock/iShares, all Ireland domiciled. Chose iShares because wife has nil interest and if I pass away before her then the dividends will be reinvested automatically
Bought 90% IWDA (world developed) and 10% EIMI (Emerging Markets), both in USD traded in London Stock Exchange. IWDA rose 20+% during 2017 and EIMI rose 30+%. Me happy. No bonds
We are not exposed to estate taxes anywhere and no capital gains taxes. Only tax paid is by iShares on the dividends before reinvestment. I never see it and I do not care since at max it is 15% on a dividend that is itself small, slightly above 2%.

Remaining issue: How to get wife to learn how to sign on ?! I wrote the instructions in detail and put them in a safe. Since IB will only transfer cash to our named joint account in our home country, the instructions, in theory, are useless to a burglar who is unable to access our bank account. I also gave her the names of two people who also use IB and are very familiar with the signing-on process. One mentioned that I should video it for DW. I want to video her going through the signing on process herself. So far she has not had "time"! Another issue: what happens if we both die simultaneously in a plane crash? My kids are even less interested! Anyone know if IB will open a Joint Account with Survivor Rights for 3 individuals? I'll pick a kid who hardly ever travels with us...
msk,

Thank you for sharing

I understand your situation as my spouse is not interested to learn either :oops:

What is the difference between IWDA and SWDA? I can't find IWDA prospectus page as looking for IWDA result in either SWDA https://www.ishares.com/uk/individual/e ... ts/251882/ or IWDA page but in dutch/french

At IB IWDA cost about $54,85 per share so if the two are equal i think IWDA is more affordable as SWDA cost about $3947 per share
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Wed Feb 07, 2018 10:25 amWhat is the difference between IWDA and SWDA?
They are the same fund, IE00B4L5Y983, traded on the LSE. The only difference is the trading currency. IWDA trades in USD, SWDA in GBP. See: https://www.blackrock.com/uk/individual ... -en-gb.pdf
Neus wrote: Wed Feb 07, 2018 10:25 am... as SWDA cost about $3947 per share.
No. It's currently $54.06. See:
https://www.blackrock.com/uk/individual ... individual
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Wed Feb 07, 2018 10:59 am
Neus wrote: Wed Feb 07, 2018 10:25 amWhat is the difference between IWDA and SWDA?
They are the same fund, IE00B4L5Y983, traded on the LSE. The only difference is the trading currency. IWDA trades in USD, SWDA in GBP. See: https://www.blackrock.com/uk/individual ... -en-gb.pdf
Neus wrote: Wed Feb 07, 2018 10:25 am... as SWDA cost about $3947 per share.
No. It's currently $54.06. See:
https://www.blackrock.com/uk/individual ... individual
TedSwippet,

Oh i see, i still don't understand why SWDA ticker at IB result at $3947/share but IWDA seems better with it's USD currency

Still regarding taxation, yesterday i read somewhere at bogleheads forum (still search for the link) that IB account location matters too? My IB account is in Hong Kong which mentioned at that post "an account created with IB Hong Kong means creating account with IB USA (Interactive brokers LLC)"

Any ideas how this HK/USA IB account affecting ireland domiciled ETF's taxation benefit on dividend and estate?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by msk »

SWDA is quoted in GBP (Pence!), IWDA is quoted in $. I have not checked but I expect that any moment the conversion of GBP pence to USD will give you the same price.At this time Bloomberg quotes are:
SWDA 3939.5
IWDA 54.715
USD/GBP 1.3898
Convert the SWDA GBP pence to USD, you get $54.75
Close enough. It does not matter which one you buy. Just use the currency you handle most often. You can also use Euro. The gain and losses will, for all practical purposes, be identical.

By the way, for a TDAmeritrade account (in the USA and exposed to both a 30% withholding tax on dividends and US estate tax! We live and learn...) my preference would be VT (covers the world, including Emerging Markets with one holding). For a non US investor the equivalent is VWRD using IB. My preference for IWDA+EIMI is the simplicity in automatic dividend reinvestment.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Wed Feb 07, 2018 8:57 pmOh i see, i still don't understand why SWDA ticker at IB result at $3947/share but IWDA seems better with it's USD currency
Covered already above (twice).

Neus wrote: Wed Feb 07, 2018 8:57 pmStill regarding taxation, yesterday i read somewhere at bogleheads forum (still search for the link) that IB account location matters too? My IB account is in Hong Kong which mentioned at that post "an account created with IB Hong Kong means creating account with IB USA (Interactive brokers LLC)" .. Any ideas how this HK/USA IB account affecting ireland domiciled ETF's taxation benefit on dividend and estate?
It should have no effect. Aside from holding US domiciled ETFs, another US tax trap for non-resident aliens is cash held in a US broker account. From the sound of things, IB have set you up with a non-US broker account, so it looks like you are clear on that (though you might want to double-check with them). Otherwise, it is a much lesser issue than the US estate tax on US domiciled ETFs anyway -- you would not normally keep a large cash balance in a broker account for anything other than a very short period such as sell, buy, or rebalance.

For no good reason at all, under US tax laws cash held in a US bank by a non-resident alien is not subject to US estate taxes, but cash in a US broker held by that same person is.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Thu Feb 08, 2018 2:38 am
Neus wrote: Wed Feb 07, 2018 8:57 pmOh i see, i still don't understand why SWDA ticker at IB result at $3947/share but IWDA seems better with it's USD currency
Covered already above (twice).

Neus wrote: Wed Feb 07, 2018 8:57 pmStill regarding taxation, yesterday i read somewhere at bogleheads forum (still search for the link) that IB account location matters too? My IB account is in Hong Kong which mentioned at that post "an account created with IB Hong Kong means creating account with IB USA (Interactive brokers LLC)" .. Any ideas how this HK/USA IB account affecting ireland domiciled ETF's taxation benefit on dividend and estate?
It should have no effect. Aside from holding US domiciled ETFs, another US tax trap for non-resident aliens is cash held in a US broker account. From the sound of things, IB have set you up with a non-US broker account, so it looks like you are clear on that (though you might want to double-check with them). Otherwise, it is a much lesser issue than the US estate tax on US domiciled ETFs anyway -- you would not normally keep a large cash balance in a broker account for anything other than a very short period such as sell, buy, or rebalance.

For no good reason at all, under US tax laws cash held in a US bank by a non-resident alien is not subject to US estate taxes, but cash in a US broker held by that same person is.
Tedswippet,

Thank you for the explanation

To sum up, US stock portion of Total World ETF domiciled in ireland such as VWRD is taxed by irish government at 15%, but the non US portion is not taxed by irish government, correct?
If so, but does the country of residence, in my case Indonesia, will take a cut on non US portion dividend?
In case of US domiciled ETF, indonesian government didn't take his cut because US already take 15%, so if ireland didn't take 15% on non US portion, i suppose Indonesian government will take his cut?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Fri Feb 09, 2018 8:53 amTo sum up, US stock portion of Total World ETF domiciled in ireland such as VWRD is taxed by irish government at 15%, but the non US portion is not taxed by irish government, correct?
Not quite. Dividends from the US stock portion of an ETF such as VWRD are taxed by the US at 15%. This happens before the fund even receives them. Other countries might have similar tax withholding on dividends paid to an Ireland domiciled ETF. No portion of the dividends received by the ETF is taxed by Ireland. Nor does Ireland apply any tax to the dividends paid out by the ETF.

And for completeness, Ireland does not apply an 'estate tax' or 'inheritance tax' on non-Irish residents who die while holding Ireland domiciled ETFs. Ireland domiciled ETFs are fully 'tax-neutral' to the investor.
Neus wrote: Fri Feb 09, 2018 8:53 am... does the country of residence, in my case Indonesia, will take a cut on non US portion dividend?
I don't know. Indonesian tax laws are not my area. You will have to investigate for yourself how your own local tax position fits into all of this.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Fri Feb 09, 2018 9:37 am
Not quite. Dividends from the US stock portion of an ETF such as VWRD are taxed by the US at 15%. This happens before the fund even receives them. Other countries might have similar tax withholding on dividends paid to an Ireland domiciled ETF. No portion of the dividends received by the ETF is taxed by Ireland. Nor does Ireland apply any tax to the dividends paid out by the ETF.

And for completeness, Ireland does not apply an 'estate tax' or 'inheritance tax' on non-Irish residents who die while holding Ireland domiciled ETFs. Ireland domiciled ETFs are fully 'tax-neutral' to the investor.
TedSwippet,

Oh, thank you for correcting my misunderstanding

Here i try to sum up again but there's still 3 points i'm not understand yet, marked with red point
Image
how to upload a photo on internet

TedSwippet wrote: Fri Feb 09, 2018 9:37 am I don't know. Indonesian tax laws are not my area. You will have to investigate for yourself how your own local tax position fits into all of this.
Yes, i'll investigate further on our local taxation


Anyway i notice today that while last night US Stock and International Stock represented by VTI and VXUS are UP, the Ireland Domiciled ETF such as VWRD, VUSD, IWDA are DOWN

Image

Is this the tracking error mentioned at some post, but if so why the difference is so contrast, for more clear comparation, VUSD and VOO is supposed to have perfect correlation but last night the difference is very contrast (VOO UP 1.54% while VUSD DOWN 2.26%)
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by msk »

Trading on Ireland based ETFs close earlier in the day (UK local time?) than US based ETFs (Eastern US time?). That may explain minor differences in daily gains/losses following sessions with great volatility.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Fri Feb 09, 2018 10:48 pmHere i try to sum up again but there's still 3 points i'm not understand yet, marked with red point.
The answers are: A: None, and B and C: Other country withholding based on that country's tax treaty with the US (for C) or Ireland (for B), weighted by proportion of holding. Note that not all countries do tax dividends paid to non-residents. The UK for example does not. So estimating the number for B and C is tricky. However, from some PWC research it seems that around 7.5% might be a decent number to use.

From this, you can see that for non-US stocks, the US domiciled ETF produces a double-taxed outcome that is considerably worse than the Ireland domiciled ETF would return for the same underlying assets. For US stocks, the fund domicile is at best neutral, except for the ugly spectre of US estate tax.

Note also that in the case of US domiciled ETFs any double-tax rules apply sequentially -- that is, the ETF internally pays some other country tax on dividends for all non-US holdings (so around 7.5%), and then the US will take a further 15% from what remains afterwards. There are levels of tax that apply at different transaction points along the chain from the stock to the investor, and they accumulate. The trick is to minimise them.

Finally, you have to consider Indonesian income tax on these (if any, not my area). If a country taxes the investor again on these dividends, then which ETF is better can depend on how and when they do, and whether any local tax credit can be claimed against these ETF taxes or not. Generally, any direct ETF tax paid can probably be claimed, so perhaps your 15% in rows 1 and 2. Indirect tax paid by the fund or ETF (rows 3 and 4) is trickier though, and countries vary a lot here. US investors can reclaim this if the fund provides the relevant details. UK investors never can. And so on.

So, at least three levels of tax on dividends. From the stock to the ETF, from the ETF to the investor, and then local country investor income tax. All involving different countries, different tax regimes, different treaties, and different rates. Complicated.

Fortunately (or rather, unfortunately), the US estate tax often hugely outweighs this and so simplifies things considerably. The basic rule of thumb for non-US investors in countries without a US estate tax is generally: avoid US domiciled ETFs.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Sat Feb 10, 2018 3:44 am
Neus wrote: Fri Feb 09, 2018 10:48 pmHere i try to sum up again but there's still 3 points i'm not understand yet, marked with red point.
The answers are: A: None, and B and C: Other country withholding based on that country's tax treaty with the US (for C) or Ireland (for B), weighted by proportion of holding. Note that not all countries do tax dividends paid to non-residents. The UK for example does not. So estimating the number for B and C is tricky. However, from some PWC research it seems that around 7.5% might be a decent number to use.

From this, you can see that for non-US stocks, the US domiciled ETF produces a double-taxed outcome that is considerably worse than the Ireland domiciled ETF would return for the same underlying assets. For US stocks, the fund domicile is at best neutral, except for the ugly spectre of US estate tax.

Note also that in the case of US domiciled ETFs any double-tax rules apply sequentially -- that is, the ETF internally pays some other country tax on dividends for all non-US holdings (so around 7.5%), and then the US will take a further 15% from what remains afterwards. There are levels of tax that apply at different transaction points along the chain from the stock to the investor, and they accumulate. The trick is to minimise them.

Finally, you have to consider Indonesian income tax on these (if any, not my area). If a country taxes the investor again on these dividends, then which ETF is better can depend on how and when they do, and whether any local tax credit can be claimed against these ETF taxes or not. Generally, any direct ETF tax paid can probably be claimed, so perhaps your 15% in rows 1 and 2. Indirect tax paid by the fund or ETF (rows 3 and 4) is trickier though, and countries vary a lot here. US investors can reclaim this if the fund provides the relevant details. UK investors never can. And so on.

So, at least three levels of tax on dividends. From the stock to the ETF, from the ETF to the investor, and then local country investor income tax. All involving different countries, different tax regimes, different treaties, and different rates. Complicated.

Fortunately (or rather, unfortunately), the US estate tax often hugely outweighs this and so simplifies things considerably. The basic rule of thumb for non-US investors in countries without a US estate tax is generally: avoid US domiciled ETFs.
Tedswippet,

Thank you for your thorough explanation

Hereby i try to summed up again:
Image

Indeed the Non US stock, Ireland domiciled is clearly wins with 15% tax saving.. Makes me wonder is there really no Ireland domiciled ETF similar to VXUS?

The reason i prefer separate International ex US stock is because i think US Stock is quite expensive right now and International stock that's represented in VXUS is relatively cheaper, because my current accumulating method is "buy what's cheaper now until reach target allocation", i think it's important to find ireland domiciled equivalent/similar to VXUS instead of total world
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

msk wrote: Sat Feb 10, 2018 12:46 am Trading on Ireland based ETFs close earlier in the day (UK local time?) than US based ETFs (Eastern US time?). That may explain minor differences in daily gains/losses following sessions with great volatility.
msk,

I initially thought LSE opens 24 hours because google says so but it seems indeed there's open hour and "trading hour"

Image

LSE trading hours are 03:00 AM – 11:30 AM Eastern Time

So in my understanding LSE trading ends first at 11.30 AM ET while NYSE still trades up to 4 PM ET

So during 11.31 to 4 PM ET, VOO bounce back from Negative to Positive

How does this affect next day ETF prices at LSE? Does the LSE price will open with NYSE equivalent price, which means it will jumps quite a lot and results in different candlestick?
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by BeBH65 »

Hi Neus,


What you could do in your table is to put tax witholdings in sequence:

- first there is the country of the asset that will withold its taxes before the dividends are passed to the funds. The % depends on the legislation in the country of the asset and any treaty of between the country of the asset and the country of the fund.
- second there is the country of the fund that will take its witholding before passing the taxes to the individual investor. The % depends on the legislation in the country of the fund and any treaty of between the country of the fund and the country of the investor.
- any taxation by the country of the investor. In some countries you will get credit for the taxes paid inohter countries.

I guess you need to look at the following cases for the international investor
A- US assets - held by US fund
B- US assets - held by Irish fund
C- International assets - held by US fund
D- International assets - held by Irish fund

I think the witholding % respectively by the country of the asset and the country of the fund
A- 0% - and then 15% ( assuming W-BEN8 completed by investor)
B- 15% - and then 0%
C- 7.5%(*) and then 15%
D- 7.5%(*) and then 0%
(*) basing myself on the info in this thread for this %. If you invest a lot in one country best to do the analysis for the country.
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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Re: Can non US citizen create corporation in US to invest in vanguard

Post by TedSwippet »

Neus wrote: Sun Feb 11, 2018 7:37 amIndeed the Non US stock, Ireland domiciled is clearly wins with 15% tax saving.. Makes me wonder is there really no Ireland domiciled ETF similar to VXUS?
My guess is just because not many people would want this. The primary reason for an ex-<country> fund or ETF is to allow residents of that country to balance domestic against foreign (to them) holdings. So there are several ex-US funds domiciled in the US and marketed in the US, several ex-UK ones domiciled in the EU and marketed in the UK, and so on.

A US investor or US citizen in particular would find a non-US domiciled but ex-US stock ETF to be a huge tax landmine thanks to the US's horrible PFIC tax rules. That alone may explain a lot of why there are no non-US domiciled ex-US ETFs.
Neus wrote: Sun Feb 11, 2018 7:37 amThe reason i prefer separate International ex US stock is because i think US Stock is quite expensive right now and International stock that's represented in VXUS is relatively cheaper, because my current accumulating method is "buy what's cheaper now until reach target allocation", i think it's important to find ireland domiciled equivalent/similar to VXUS instead of total world.
Vanguard Canada offers an ex-US ETF, VDU. I am reasonably sure that this ETF is Canada domiciled, making it free of US estate tax entanglements. I have not looked into it closely though, so if you do think this might suit your requirements you will want to investigate the tax angles on it thoroughly.

Otherwise, the cleanest way to hold ex-US stocks is probably to simply combine several ETFs that cover the various major non-US regions -- typically Europe, Japan, Pacific ex-Japan, and Emerging Markets -- in proportion to how they appear in VXUS.
Last edited by TedSwippet on Sun Feb 11, 2018 8:44 am, edited 1 time in total.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Bylo Selhi »

I'm late to the discussion so pardon any repetition...

Re non-US holdco, you have to investigate the cost of set up and annual costs of filing corporate tax returns. The tax treatment of investment income (and any US tax withheld at source) may vary between securities owned personally and those owned in a holdco. This stuff also depends on tax treaties between US and the other country, which also can change from time to time.

Re US estate taxes, recognize that the regulations, especially the exemption thresholds, tax rates, etc. seemingly change with every administration. What may be attractive today may not be so attractive four years from now, let alone 10 or 20 or 40 years from now. This also presents a quandary if many years in the future the US estate tax regime becomes oppressive and the capital gains on the securities has created a serious CG tax liability should you want to sell and switch to non-US-domiciled securities.

Re VDU, yes, it's domiciled in Canada. That's great for people who are Canadian residents for tax purposes. It may not be so good for people residing elsewhere. Again there are tax treaties between Canada and that country to consider.

Many developed countries have locally-domiciled ETFs that invest in the same broad market indexes as Vanguard's US-domiciled ETFs. To be sure, their ERs will be higher. The benefit is simplicity. When it comes to complex issues like taxation, never mind cross-border taxation, simplicity is worth paying a few 10s of bps for.
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Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

TedSwippet wrote: Sun Feb 11, 2018 8:09 am
Neus wrote: Sun Feb 11, 2018 7:37 amIndeed the Non US stock, Ireland domiciled is clearly wins with 15% tax saving.. Makes me wonder is there really no Ireland domiciled ETF similar to VXUS?
My guess is just because not many people would want this. The primary reason for an ex-<country> fund or ETF is to allow residents of that country to balance domestic against foreign (to them) holdings. So there are several ex-US funds domiciled in the US and marketed in the US, several ex-UK ones domiciled in the EU and marketed in the UK, and so on.

A US investor or US citizen in particular would find a non-US domiciled but ex-US stock ETF to be a huge tax landmine thanks to the US's horrible PFIC tax rules. That alone may explain a lot of why there are no non-US domiciled ex-US ETFs.
Neus wrote: Sun Feb 11, 2018 7:37 amThe reason i prefer separate International ex US stock is because i think US Stock is quite expensive right now and International stock that's represented in VXUS is relatively cheaper, because my current accumulating method is "buy what's cheaper now until reach target allocation", i think it's important to find ireland domiciled equivalent/similar to VXUS instead of total world.
Vanguard Canada offers an ex-US ETF, VDU. I am reasonably sure that this ETF is Canada domiciled, making it free of US estate tax entanglements. I have not looked into it closely though, so if you do think this might suit your requirements you will want to investigate the tax angles on it thoroughly.

Otherwise, the cleanest way to hold ex-US stocks is probably to simply combine several ETFs that cover the various major non-US regions -- typically Europe, Japan, Pacific ex-Japan, and Emerging Markets -- in proportion to how they appear in VXUS.
TedSwippet,

So i'm ready to conclude that VWRD is a great alternative to VT and plans to use 2 fund portfolio, but somehow at my IB, the yield difference between VWRD and VT is quite a lot (1.9% vs 2.7%)

I check that VT does indeed has 7985 stock while VWRD only has 3094 stocks, but still the yield difference is confusing, the implication is even after 15% tax difference, VT still deliver more yield than VWRD

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Note: i initially thought that Bogleheads is about investing low cost index fund and live off it's dividend, turns out recommended path is investing to low cost index fund and withdraw at determined save withdrawal rate, so it seems that dividend rate is not so important in this strategy
Last edited by Neus on Tue Feb 13, 2018 10:26 pm, edited 2 times in total.
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Topic Author
Neus
Posts: 496
Joined: Fri Sep 22, 2017 2:12 am
Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

BeBH65 wrote: Sun Feb 11, 2018 7:57 am Hi Neus,

What you could do in your table is to put tax witholdings in sequence:

- first there is the country of the asset that will withold its taxes before the dividends are passed to the funds. The % depends on the legislation in the country of the asset and any treaty of between the country of the asset and the country of the fund.
- second there is the country of the fund that will take its witholding before passing the taxes to the individual investor. The % depends on the legislation in the country of the fund and any treaty of between the country of the fund and the country of the investor.
- any taxation by the country of the investor. In some countries you will get credit for the taxes paid inohter countries.

I guess you need to look at the following cases for the international investor
A- US assets - held by US fund
B- US assets - held by Irish fund
C- International assets - held by US fund
D- International assets - held by Irish fund

I think the witholding % respectively by the country of the asset and the country of the fund
A- 0% - and then 15% ( assuming W-BEN8 completed by investor)
B- 15% - and then 0%
C- 7.5%(*) and then 15%
D- 7.5%(*) and then 0%
(*) basing myself on the info in this thread for this %. If you invest a lot in one country best to do the analysis for the country.
BeBH65,

Thank you for your suggestion
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Topic Author
Neus
Posts: 496
Joined: Fri Sep 22, 2017 2:12 am
Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Re: Can non US citizen create corporation in US to invest in vanguard

Post by Neus »

Bylo Selhi wrote: Sun Feb 11, 2018 8:43 am I'm late to the discussion so pardon any repetition...

Re non-US holdco, you have to investigate the cost of set up and annual costs of filing corporate tax returns. The tax treatment of investment income (and any US tax withheld at source) may vary between securities owned personally and those owned in a holdco. This stuff also depends on tax treaties between US and the other country, which also can change from time to time.

Re US estate taxes, recognize that the regulations, especially the exemption thresholds, tax rates, etc. seemingly change with every administration. What may be attractive today may not be so attractive four years from now, let alone 10 or 20 or 40 years from now. This also presents a quandary if many years in the future the US estate tax regime becomes oppressive and the capital gains on the securities has created a serious CG tax liability should you want to sell and switch to non-US-domiciled securities.

Re VDU, yes, it's domiciled in Canada. That's great for people who are Canadian residents for tax purposes. It may not be so good for people residing elsewhere. Again there are tax treaties between Canada and that country to consider.

Many developed countries have locally-domiciled ETFs that invest in the same broad market indexes as Vanguard's US-domiciled ETFs. To be sure, their ERs will be higher. The benefit is simplicity. When it comes to complex issues like taxation, never mind cross-border taxation, simplicity is worth paying a few 10s of bps for.
Bylo,

Thank you for the affirmation and explanation on VDU
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
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