Accumulating ETF - Additional Units or Increase in Price

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chaps81
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Accumulating ETF - Additional Units or Increase in Price

Post by chaps81 » Sat May 05, 2018 12:05 am

Hi all,

This may be a stupid question but one I haven't found an answer to. I am buying IWDA iShares fund that is denoted as Accumulating.

I have not seen any additional shares accumulated (reinvested) and I don't know if the price goes up. How would you compare the perforamance of IWDA versus VT for example, where VT you get paid the dividend.

Appreciate inputs

Cheers,
Chaps.

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BeBH65
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Sat May 05, 2018 12:19 am

When comparing return of funds (or any other investment for that matter) you should always compar total return (changes in price and dividendrendement received).

For a distributing fund you will receive the dividends and can buy new shares of the fund with it, and hence you will own more shares of the underlying assets.
An accumulating (or reinvesting) fund will not pay you any dividends. The fund itself will buy additional shares of the underlying assets, and hence you yourself will also own more of the underlying assets, while your number of shares of the fund remains the same.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 05, 2018 6:19 am

So what is the point of an accumulating ETF? non-accumulative allows you to do it yourself...

22twain
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by 22twain » Sat May 05, 2018 6:27 am

In the US, if the fund pays you dividends, you have to pay taxes on them, even if you reinvest them immediately. If the fund could reinvest the dividends internally, increasing the share price, you would not have to pay taxes until you sell shares of the fund. I say this hypothetically because in the US, accumulating ETFs are not allowed; all funds (in taxable accounts) must pass dividends through to the share-owner.
My investing princiPLEs do not include absolutely preserving princiPAL.

selters
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by selters » Sat May 05, 2018 6:28 am

For accumulating ETFs the reinvested dividends are reflected in the share price of the ETF. You do not receive additional shares.

imperia
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by imperia » Sat May 05, 2018 6:33 am

I use accumulation etfs because if I do not receive dividend I do not pay dividend tax.
Second one is I do not need reinvest dividend my self, so I save on trading fees.

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 05, 2018 9:42 am

A vanguard ETF on auto-reinvestment mode doesn't pay any omissions for the trading either
These a accumulation ETF is for US broker?

imperia
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by imperia » Sat May 05, 2018 12:13 pm

I use IB Broker, US company, but I also registred in many countries.
What is your resident country?

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 05, 2018 2:48 pm

I'm US based. But my point is that if you buy an accumulating ETF as an US person, how do you pay taxes on it? Or you don't?
I know in Europe you don't have to, but it's a different legal structure for funds.

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BeBH65
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Sat May 05, 2018 2:50 pm

international001 wrote:
Sat May 05, 2018 6:19 am
So what is the point of an accumulating ETF? non-accumulative allows you to do it yourself...
In many countries outside of the US An investor do not need to pay any tax for the dividends that an accumulating fund reinvests itself immediately . Your investments grow tax free, I guess similar as some of the tax-advantaged accounts in the US.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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BeBH65
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Sat May 05, 2018 2:53 pm

international001 wrote:
Sat May 05, 2018 2:48 pm
I'm US based. But my point is that if you buy an accumulating ETF as an US person, how do you pay taxes on it? Or you don't?
I know in Europe you don't have to, but it's a different legal structure for funds.
As a US person you will have difficulties buying an accumulating fund, and if you succeed you will,have a tax nightmare as these funds typically do not satisfy US reporting guidelines.
Have a look at the 'decision table' and 'pitfalls' pages referenced from Non-US_domiciles#Tax_issues
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

alex_686
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by alex_686 » Sat May 05, 2018 3:03 pm

international001 wrote:
Sat May 05, 2018 2:48 pm
I'm US based. But my point is that if you buy an accumulating ETF as an US person, how do you pay taxes on it? Or you don't?
I know in Europe you don't have to, but it's a different legal structure for funds.
I have had to do this for work. You calculate what the fund should have paid in dividends and base your taxes off of that. Not fun.

chaps81
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by chaps81 » Sun May 06, 2018 8:56 pm

Thanks for the inputs BeBH65

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Tue May 08, 2018 2:11 pm

BeBH65 wrote:
Sat May 05, 2018 2:53 pm

As a US person you will have difficulties buying an accumulating fund, and if you succeed you will,have a tax nightmare as these funds typically do not satisfy US reporting guidelines.
Tx... that's what I meant.. this is not a US fund . And good luck trying to investing on it (FATCA)

As en European ETF. It has an ISIN #: IE00B4L5Y983

Dies anybody know why the taxation system is so different in Europe and US. If the funds/ETF in Europe were better, I would be tempted to renounce to US citizenship and invest tax free

Always passive
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by Always passive » Tue May 08, 2018 2:34 pm

international001 wrote:
Tue May 08, 2018 2:11 pm
BeBH65 wrote:
Sat May 05, 2018 2:53 pm

As a US person you will have difficulties buying an accumulating fund, and if you succeed you will,have a tax nightmare as these funds typically do not satisfy US reporting guidelines.
Tx... that's what I meant.. this is not a US fund . And good luck trying to investing on it (FATCA)

As en European ETF. It has an ISIN #: IE00B4L5Y983

Dies anybody know why the taxation system is so different in Europe and US. If the funds/ETF in Europe were better, I would be tempted to renounce to US citizenship and invest tax free
I manage money for Israeli citizens. In Israel you only pay taxes on realized dividends, thus the use of accumulative ETFs is very attractive. For my clients that invest in dollars, I buy accumulative iShares ETFs domiciled in Ireland because of the tax aggrement between Ireland and the US favors them. There is no taxes on bond ETFs. That, however is not true for stocks ETFs where the US taxes 15% on dividends (whatever realized or not) no matter whatever the Irish ETFs are accumulative or distributive.
Now, if you are a US citizen and decide to buy Irish ETFs, (if you can) you pay taxes on dividends (stocks and bonds) no matter what the type of ETF. Thus there is no advantage for a US citizen to buy offshore. In fact the annual expenses in Europe are higher.

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Wed May 09, 2018 4:18 am

THanks. That's a great insight. So, in summary:

For non-US person:
Better buy accumulative bond ETF domiciled in Ireland (no taxes on dividends).
Better buy stock ETFs domiciled in US. An accumulative stock ETF would have to pay internally 15% of distributons (capital gains and dividends). So it could be perhaps good if you make lots of money and your capital gains rate is 20%. Also, would the cost basis be adjusted when you finally sell your ETF shares? Is the 15% tax on dividend true also if you hold non-US stocks?

For US person:
(assuming FATCA allowed): If you buy an accumulative fund? How would you report your taxes to US? Following PFIC rules of price to market? Do you have to figure out the dividends the fund distributed, and discount the 15% if the stock ETF already paid)?

silverex
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by silverex » Wed May 09, 2018 6:21 am

According to this:
https://www.bogleheads.org/wiki/Passive ... nt_company
As a US person, you really don't want to hold any non-US domiciled funds. Any realized or unrealized gains would be taxed each year as ordinary income.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Wed May 09, 2018 6:56 am

international001 wrote:
Wed May 09, 2018 4:18 am
For non-US person: Better buy accumulative bond ETF domiciled in Ireland (no taxes on dividends).
Sometimes. It depends on your local tax regime. Some will tax dividends annually even if 'accumulated' but not paid (eg the UK and Germany).
international001 wrote:
Wed May 09, 2018 4:18 am
For non-US person: Better buy stock ETFs domiciled in US.
Sometimes. The US estate tax can make holding more than $60k in US domiciled ETFs a huge tax risk. Only a handful of countries have US estate tax treaties.
international001 wrote:
Wed May 09, 2018 4:18 am
An accumulative stock ETF would have to pay internally 15% of distributons (capital gains and dividends).
On dividends but not on capital gains. Non-US investors, and by extension non-US domiciled ETFs, do not suffer any US capital gains taxes. Only withholding on dividend distributions.
international001 wrote:
Wed May 09, 2018 4:18 am
Is the 15% tax on dividend true also if you hold non-US stocks?
Yes. Holding non-US stocks through a US domiciled ETF generates a US tax withholding on dividends that is entirely avoidable for non-US investors who can use non-US domiciled ETFs.
international001 wrote:
Wed May 09, 2018 4:18 am
For US person: (assuming FATCA allowed): If you buy an accumulative fund? How would you report your taxes to US?
Annually, expensively, and with great difficulty and a lot of accounting fees and/or lost time. The IRS estimate for form 8621 is 48 hours to complete. You would need one for each PFIC asset held.

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Wed May 09, 2018 5:49 pm

Thanks.. But I think I'm confused now
A non-US person getting an iShare ETF of stocks domiciled in Ireland, does it have a 15% witholding on dividends or not? (and does it depend on wether the stocks are US or non-US)

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BeBH65
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Thu May 10, 2018 1:57 am

There are 3 levels of dividend (withholding) taxation:
- by the country of the asset
- by the country of the fund
- by the country where the investor is domiciled.

In your example:
- for us assets: the US will levy 15% withholding tax, Ireland does not tax, your country will tax whatever they do
- for assets of other countries: the country of the asset will tax between 0 and say 30%, depending on local law and tax treaties, Ireland does not tax, your country will tax whatever they do
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

Always passive
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by Always passive » Thu May 10, 2018 2:32 am

silverex wrote:
Wed May 09, 2018 6:21 am
According to this:
https://www.bogleheads.org/wiki/Passive ... nt_company
As a US person, you really don't want to hold any non-US domiciled funds. Any realized or unrealized gains would be taxed each year as ordinary income.
Some offshore, Cayman Island, etc., hedge funds are SEC registered to allow US citizens to invest. I think (not shure) that those pay taxes like if they were in the states.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Thu May 10, 2018 3:52 am

BeBH65 wrote:
Thu May 10, 2018 1:57 am
There are 3 levels of dividend (withholding) taxation:
- by the country of the asset
- by the country of the fund
- by the country where the investor is domiciled.

In your example:
- for us assets: the US will levy 15% withholding tax, Ireland does not tax, your country will tax whatever they do
- for assets of other countries: the country of the asset will tax between 0 and say 30%, depending on local law and tax treaties, Ireland does not tax, your country will tax whatever they do
So if the stock belongs to the US, the US gets 15% and that's internal to the ETF
Ireland does not charge
In my country you don't pay taxes till you sell the asset (based on the price you bought it at, and based on your personal tax for capital). Let's say 20%

So I I buy $1000 in a ETF fund for US stocks and it gets me $100 of dividends reinvested, and then I sell. I would have to pay:
- $15 to US (15% x 100). This is internal to the fund. I'll just see the value of the fund going to $1075
- $215.6 to investor home residency (20% * $1075) after I sell the fund

Isn't this some double taxation?

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Thu May 10, 2018 3:55 am

Always passive wrote:
Thu May 10, 2018 2:32 am
silverex wrote:
Wed May 09, 2018 6:21 am
According to this:
https://www.bogleheads.org/wiki/Passive ... nt_company
As a US person, you really don't want to hold any non-US domiciled funds. Any realized or unrealized gains would be taxed each year as ordinary income.
Some offshore, Cayman Island, etc., hedge funds are SEC registered to allow US citizens to invest. I think (not shure) that those pay taxes like if they were in the states.
Only if the fund is a QEF. But this is unusual
But if you use the next best option (mark to market), you have to pay like regular income and you cannot let capital growth w/o paying taxes. Did it once. Huge mistake.

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BeBH65
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Thu May 10, 2018 6:57 am

international001 wrote:
Thu May 10, 2018 3:52 am
So I I buy $1000 in a ETF fund for US stocks and it gets me $100 of dividends reinvested, and then I sell. I would have to pay:
- $15 to US (15% x 100). This is internal to the fund. I'll just see the value of the fund going to $1075. correct
- $215.6 to investor home residency (20% * $1075) after I sell the fund this seems incorrect. I cannot imagine your country taxing the full investment. In many countries the capital gain is taxed. In that case you would be taxed on 1075-1000=75 --> 15

Isn't this some double taxation?
The advantage of accumulating funds becomes a lot more powerful when you look at it over multiple years, and maybe add in some price changes as well
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Thu May 10, 2018 2:38 pm

Sure.. it's like an after-tax 401k. tax advantage

But that was not my question. If there is double taxation, all or part of the benefits may be lost

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Thu May 10, 2018 5:51 pm

international001 wrote:
Thu May 10, 2018 3:52 am
Isn't this some double taxation?
Not really. One is normally a tax credit and the other effectively a tax deduction. A tax credit reduces your tax bill directly, a tax deduction reduces the amount of income on which you pay tax and may reduce your tax bill indirectly. A credit is more use to you than a deduction.

Say you are a US non-resident alien, your local tax rate is 20% and your country's US tax withholding rate on dividends is 15% by treaty.

If you buy a US domiciled ETF that holds only US stocks and which pays $100 in dividend, the US will take $15 in tax on the dividend paid by the ETF, and you would owe your home country $5 (20% of $100 less $15 paid to the US and claimed as a 'foreign tax credit'), leaving you $80. If you buy an Ireland domiciled ETF holding the precise same stocks, the US will take 15% in tax on the dividends paid to the ETF by these stocks, but you would (probably) owe 20% local tax on the remaining $85, leaving you $68. Worse, but not exactly double-taxed; that would be $100 - $15 - $20 = $65 remaining. Win for the US.

Watch what happens if the ETF holds only non-US stocks though. Say only UK stocks. The UK does not tax dividends paid to non-residents. Now, if you use a US domiciled ETF you lose $15 to US tax and pay $5 locally for $80 remaining. Or, if you hold an Ireland domiciled ETF the ETF pays nothing internally, you receive the full $100, and pay $20 locally for the same outcome. So it's a wash in this case.

What about people who live in countries where the local tax rate is below the US rate? Hong Kong does not tax investment income at all, and has no tax treaty with the US, so the US withholding rate for investors there is 30%. If they buy a US domiciled ETF holding only US stocks they lose $30 of their $100, for $70 remaining. If they buy an Ireland domiciled ETF holding only US stocks they lose $15 internally in the ETF, for $85 remaining. Win for Ireland.

For an ETF holding non-US stocks the contrast is even more stark. For the UK-only stocks ETF, they would again lose $30 if using a US domiciled ETF, for $70 remaining, but $0 if using an Ireland domiciled one, so $100 remaining. Bigger win for Ireland.

On top of all this, the US has a vicious estate tax for non-resident aliens, starting at just $60k of holdings for countries without a US estate tax treaty. The end result is that for residents of many countries who are not US citizens, US domiciled ETFs are actually a really poor choice of investment vehicle. And that's before you consider any marginal advantage from accumulating ETFs (none of which would be US domiciled in any case, due to US regulation of funds).

US citizens have no realistic choice but to use US domiciled ETFs no matter where they live, because of the intersection of the US's citizenship-based taxation with the insane US PFIC tax rules.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by silverex » Fri May 11, 2018 2:40 am

TedSwippet wrote:
Thu May 10, 2018 5:51 pm
Watch what happens if the ETF holds only non-US stocks though. Say only UK stocks. The UK does not tax dividends paid to non-residents. Now, if you use a US domiciled ETF you lose $15 to US tax and pay $5 locally for $80 remaining. Or, if you hold an Ireland domiciled ETF the ETF pays nothing internally, you receive the full $100, and pay $20 locally for the same outcome. So it's a wash in this case.
Yes, except many countries do not tax $20 locally if you hold accumulating fund, so you get the full $100. It will be taxed when you sell using capital-gains rate, then again some countries have capital-gains tax breaks. For long-term investments, that's a major advantage.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by msk » Fri May 11, 2018 3:17 am

Think of an accumulating ETF as a stock that never pays dividends (e.g. Microsoft in olden days or Berkshire Hathaway till now). The company pays taxes according to whatever jurisdiction it or its subsidiaries operate in. Its net worth increases and its share price reflects that. I.e. the share price increases without its having to issue new shares to "pay" its shareholders. I trust Warren Buffett to find the most tax advantaged ways each of BRK subsidiaries pays taxes.

VT and IWDA are not equivalent. IWDA is for Developed markets (i.e. only large companies in large Western-style stock markets), while VT is for the entire world. The equivalent to VT for a nonUSA holder is VWRD, but that also pays dividends. I own the following that are almost equivalent, in different accounts, to cover the whole world:

Accumulating, non-dividend paying:
76% IWDA, 12% WSML (World Small Cap stocks), 12% EIMI (Emerging Markets)

Dividend paying, but I expect that I will have no taxes imposed on MY dividend receipts (YMMV depending on your own tax jurisdiction):
VWRD

The second one has the built-in nuisance of reinvesting dividends every 3 months, but the advantage that if the constituent countries in EIMI include new countries and/or include China in a new, much larger percentage, then I still do not need to pay attention. With the triumvirate in the Accumulating I "may" have to adjust my percentage allocations every few years. I do not expect to see any significant difference between the two approaches over the next decade or two. They all have very low Expense Ratios. I use the two approaches in different accounts to verify that indeed there is no difference in the way I get treated tax-wise over a full annual cycle. I can only tell you about that next year...

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Fri May 11, 2018 10:56 am

TedSwippet wrote:
Thu May 10, 2018 5:51 pm
If you buy a US domiciled ETF that holds only US stocks and which pays $100 in dividend, the US will take $15 in tax on the dividend paid by the ETF, and you would owe your home country $5 (20% of $100 less $15 paid to the US and claimed as a 'foreign tax credit'), leaving you $80.

If you buy an Ireland domiciled ETF holding the precise same stocks, the US will take 15% in tax on the dividends paid to the ETF by these stocks, but you would (probably) owe 20% local tax on the remaining $85, leaving you $68. Worse, but not exactly double-taxed; that would be $100 - $15 - $20 = $65 remaining.

Win for the US.
In certain countries you will pay 20% on the dividends you receive.
- So for us-funds 20% will be deducted from the 85$ that is paid to you. Hence you receive 85-17=68$
- and for Irish domiciled fund you will also receive 85-17=68$
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

international001
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Fri May 11, 2018 2:40 pm

sure.. but I was trying to make it simple ;-)

So do you confirm for a fact that there is double taxation?

Would we be able to see the difference on returns (because of the 15% taxes) of an SP500 domiciled in Ireland vs VOO ?

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BeBH65
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Fri May 11, 2018 3:09 pm

Even triple Dividend taxation if you choose a fund domiciled in a country that taxes the dividends that the funds distribute.
I believe Belgium is one of them. needless to say the Belgian domiciled funds have very few customers outside of Belgium :-)

For more background see our wiki:
EU_investing#Dividend_taxation
Nonresident_alien_with_no_US_tax_treaty_and_Irish_ETFs#Double_tax_withholding
Nonresident_alien_with_no_US_tax_treaty_and_Irish_ETFs#Calculating_tax_withholding_as_a_ratio
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Fri May 11, 2018 5:38 pm

BeBH65 wrote:
Fri May 11, 2018 3:09 pm
Even triple Dividend taxation if you choose a fund domiciled in a country that taxes the dividends that the funds distribute.
I believe Belgium is one of them. needless to say the Belgian domiciled funds have very few customers outside of Belgium.
Or perhaps a transaction tax if you choose an ETF domiciled in a country with one and without an exemption for ETFs. The UK prior to 2014, for example.

As far as I know, there are still few-to-none UK domiciled ETFs. While the UK tried to somewhat level the playing field here, there doesn't seem to be any particular reason for an ETF to choose the UK as its domicile when Ireland will do perfectly well and has the historical advantage -- the UK offers nothing beyond what Ireland offers. So much for 'luring' funds to the UK, then.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 12, 2018 6:27 am

TedSwippet wrote:
Fri May 11, 2018 5:38 pm
BeBH65 wrote:
Fri May 11, 2018 3:09 pm
Even triple Dividend taxation if you choose a fund domiciled in a country that taxes the dividends that the funds distribute.
I believe Belgium is one of them. needless to say the Belgian domiciled funds have very few customers outside of Belgium.
Or perhaps a transaction tax if you choose an ETF domiciled in a country with one and without an exemption for ETFs. The UK prior to 2014, for example.

As far as I know, there are still few-to-none UK domiciled ETFs. While the UK tried to somewhat level the playing field here, there doesn't seem to be any particular reason for an ETF to choose the UK as its domicile when Ireland will do perfectly well and has the historical advantage -- the UK offers nothing beyond what Ireland offers. So much for 'luring' funds to the UK, then.
So this was kind of the Tobin tax?
Intersting... a good argument for countries not just to have good taxing/economic policies, but for arriving there first

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by Always passive » Sat May 12, 2018 8:23 am

international001 wrote:
Fri May 11, 2018 2:40 pm
sure.. but I was trying to make it simple ;-)

So do you confirm for a fact that there is double taxation?

Would we be able to see the difference on returns (because of the 15% taxes) of an SP500 domiciled in Ireland vs VOO ?
The Irish strategy is effective for BOND ETFs, where there is zero US taxation. With respect to stocks, I agree with you that you are subject to double taxation on the portion of the ETF that is invested in US stocks. But, you can invest in ex US stocks and benefit from the accumulative concept

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sun May 13, 2018 10:30 am

BeBH65 wrote:
Fri May 11, 2018 3:09 pm
Even triple Dividend taxation if you choose a fund domiciled in a country that taxes the dividends that the funds distribute.
I believe Belgium is one of them. needless to say the Belgian domiciled funds have very few customers outside of Belgium :-)

For more background see our wiki:
EU_investing#Dividend_taxation
Nonresident_alien_with_no_US_tax_treaty_and_Irish_ETFs#Double_tax_withholding
Nonresident_alien_with_no_US_tax_treaty_and_Irish_ETFs#Calculating_tax_withholding_as_a_ratio
Thanks for the great info. I had not seen those links

Just some doubts.

For VUSA, L1TW is 15% because this is what the Ireland/USA treaty says, right?
Why for is just 10.3%. It would seem since it has ~51% of US stocks, should be at least 51%*15%=7.65%. But how is calculated for the rest of the world assets?
L2TW = 30% seems a worse case scenario, right? Browsing treaties, most countries seem to have 15% max

Did you mean that a Belgian fund (holding US assets and subject to L1TW) would still be subject to also L2TW. Why would it make a difference if you are Belgian resident or not?

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Mon May 14, 2018 4:05 pm

international001 wrote:
Sun May 13, 2018 10:30 am
Did you mean that a Belgian fund (holding US assets and subject to L1TW) would still be subject to also L2TW. Why would it make a difference if you are Belgian resident or not?
Belgian funds (have to) withhold dividend tax when they pay out dividends L2TW, I believe this is largely independent of L1TW and is 15% or 30% if you are not a Belgian National. Depending on your home country you might or might not have your own dividend taxation.

For a Belgian fund holder the dividend withholding tax l2wt is 30%, and there is no furter dividend taxation by the Belgian state.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Tue May 15, 2018 5:21 pm

I see.. I'll just buy chocolates next time I go to Belgium.

When you are a US person and you hold US fund, you can claim a tax credit in your income tax. So effectively, you are paying the lesser of the taxes
What typically happens if you are not a US person and you have to pay taxes in a European country? Let's say you own an Irish fund investing in SP500. That 15% on dividends you are internally paying... Can you ask credit for it? I would assume not, and it would be particularly difficult if they are accumulation funds and you only have to pay taxes when you sell your shares

So, assuming no capital distribution for a SP500 fund, the net effect on taxes is the same for a US fund and for an accumulation fund in Ireland. 15% on dividends paid annually, and capital gain when you sell your shares.

I guess you cannot go lower than 15%. I see Germany treaty mentions 5% (!), but it must have other pitfalls.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Thu May 17, 2018 7:42 am

To continue on the difference in tax legislation per country, and why it is important to check the tax regime of your country and to define what is the best way for you to invest.

In Belgium,
- We only have capital gains tax on bondfunds, not on individual bonds, not on equity(funds). There is also no way to build up a credit for losses - no carry over (you only pay :-) )
- We do have a transaction tax on the full amount of the transaction 0.12%, 0.35% or even 1.35% for accumulating non-exchange traded funds; it is only 0.35% for ETF not-registred in Belgium
- We also have a yearly tax on the amount of your taxable accounts, currently 0.15% starting from 500kEuro
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Fri May 18, 2018 11:42 am

BeBH65 wrote:
Thu May 17, 2018 7:42 am
To continue on the difference in tax legislation per country, and why it is important to check the tax regime of your country and to define what is the best way for you to invest.

In Belgium,
- We only have capital gains tax on bondfunds, not on individual bonds, not on equity(funds). There is also no way to build up a credit for losses - no carry over (you only pay :-) )
- We do have a transaction tax on the full amount of the transaction 0.12%, 0.35% or even 1.35% for accumulating non-exchange traded funds; it is only 0.35% for ETF not-registred in Belgium
- We also have a yearly tax on the amount of your taxable accounts, currently 0.15% starting from 500kEuro

Really? So what you end up doing? Buying individual bonds and growth stocks?

Is anyplace better for investment than US?

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Fri May 18, 2018 12:42 pm

Actually it is not that bad.

For Stocks I buy Accumulating ETF not registered in Belgium IWDA, EIMI, ... --> no dividend taxation, no capital gain tax, but 0.35% tax when I sell, whenever that will be.
For Bonds I have a combination of distributing ETF funds --> 30% dividend tax, no 30% capital gains tax
and high(ish) yield savings accounts.

Edit correction on capital gains tax for bond funds
Last edited by BeBH65 on Tue Jun 26, 2018 8:46 am, edited 1 time in total.
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Fri May 18, 2018 1:03 pm

international001 wrote:
Fri May 18, 2018 11:42 am
Is anyplace better for investment than US?
Good heavens, yes! Plenty of countries beat the US hands-down when it comes to providing an attractive environment for investors.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 19, 2018 8:18 am

Can you give me an example? And how much you would pay on taxes for an Index fund?

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Sat May 19, 2018 10:03 am

international001 wrote:
Sat May 19, 2018 8:18 am
Can you give me an example? And how much you would pay on taxes for an Index fund?
How about this list as a starting point? In any one of these thirteen countries, the answer to your second question would be, zero.

And even in the UK, not exactly known for its low tax rates, the tax on the average investor holding index funds is very likely to be less than for a US investor holding the same thing. The UK has both a decently sized annual tax shelter, £20k/year into an ISA (compare to just $5.5k/year in a US IRA), and an annual tax-free allowance of over £11k available on capital gains before any capital gains tax would be due (compare to $0 in the US). In practice these two things often mean that many -- perhaps most -- average investors in the UK never have to tangle with or pay investment taxes at all.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 19, 2018 11:42 am

Do any of this countries have stocks you want to invest to ( a diversified portfolio with Andorran's companys may be difficult to achieve)?

From the tax treat, if a UK person invests in US stocks, it seems he would still be taxed at 15%

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Sat May 19, 2018 12:32 pm

international001 wrote:
Sat May 19, 2018 11:42 am
Do any of this countries have stocks you want to invest to ( a diversified portfolio with Andorran's companys may be difficult to achieve)?
Oh, you're considering inward investment by foreigners, rather than a country to live in that treats investors well. I misunderstood your question, based on the context of the previous couple of posts. Sorry.

There is a table of dividend withholding rates by country here. Actual rates will vary depending on treaty and so on, but from this table you can see that at 30% standard rate, the US is close to the highest when it comes to dividend withholding taxes. Only very few countries have tax withholding rates that are higher than 30%. Most have considerably lower rates.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sat May 19, 2018 1:42 pm

TedSwippet wrote:
Sat May 19, 2018 12:32 pm
international001 wrote:
Sat May 19, 2018 11:42 am
Do any of this countries have stocks you want to invest to ( a diversified portfolio with Andorran's companys may be difficult to achieve)?
Oh, you're considering inward investment by foreigners, rather than a country to live in that treats investors well. I misunderstood your question, based on the context of the previous couple of posts. Sorry.

There is a table of dividend withholding rates by country here. Actual rates will vary depending on treaty and so on, but from this table you can see that at 30% standard rate, the US is close to the highest when it comes to dividend withholding taxes. Only very few countries have tax withholding rates that are higher than 30%. Most have considerably lower rates.
I'm thinking in a typical stock fund

So, if you leave in Andorra and you invest in US stocks, US will withhold 30%, right? (Andorra does not have a treaty; if you were living in France, it would be 15%)

How is this better?

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by BeBH65 » Sat May 19, 2018 1:59 pm

There are many levels of taxation, that need to be looked at as a whole.

Some taxations levels for people living in France (from memory and a few years old)
- 30% taxation on the dividends received (on top of the 15% the US already withheld)
- 36,2% capital gains tax
- 0,5% Tobin transaction tax on every transaction
- 0,5% yearly wealth tax ( for those with net wealth of 1000000, higher % if you are worth more).

If you have the choice to live in Andorra (which has almost no such Taxation, or France ),
then financially Andorra seems better.

In which country do you live? How are investments taxed there?
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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Sat May 19, 2018 2:08 pm

international001 wrote:
Sat May 19, 2018 1:42 pm
So, if you leave in Andorra and you invest in US stocks, US will withhold 30%, right? (Andorra does not have a treaty; if you were living in France, it would be 15%)
You asked: "Is anyplace better for investment than US?"

Well, suppose you do live in Andorra. If you invest in US stocks you will pay 30% in tax to the US. If you invest in a basket of non-US stocks you will pay some blended rate to those other countries, but if you look at the dividend withholding table I linked to in my last post it is clear that the blended rate you will pay on non-US stocks will be below -- and probably well below -- 30%.

The US is pretty much half of global market cap, meaning that non-US is the other half. So a simplistic answer to the question "is anyplace better for investment than US?" could well be "yes, non-US countries". Not just one non-US country in particular, but all of them in aggregate are more tax-efficient locations for non-US investors to invest into. Some will have small markets that concentrate risk, some less so, but when taken together they should produce a more attractive investment opportunity because their tax structures are overall more investor-friendly (and that is without even mentioning the US's ridiculously confiscatory estate tax regime for non-resident aliens).

Now, by using an Ireland domiciled fund to hold US stocks, our mythical Andorran investor could cut their effective US tax rate to 15%, which is probably on a par with the tax drag on non-US stocks held in an index fund. That still does not make the US the best, though -- as in, there is nowhere better -- but only around average.

Does this cover your question? If not, then sorry -- perhaps I have simply lost track of what you are now asking.

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by international001 » Sun May 20, 2018 6:26 pm

Sorry.. I meant to compare a US resident investing vs an Andorran resident
If both invest in a SP500 fund, US resident has to pay less taxes overall. Even if the Andorran uses an Irish accumulating fund.

Would you agree?

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Re: Accumulating ETF - Additional Units or Increase in Price

Post by TedSwippet » Mon May 21, 2018 3:17 am

international001 wrote:
Sun May 20, 2018 6:26 pm
Sorry.. I meant to compare a US resident investing vs a <no-tax-country> resident. If both invest in a SP500 fund, US resident has to pay less taxes overall. ... Would you agree?
It depends.

If the US resident's income falls into the federal 0%, 10% or 12% brackets -- rather than the 22%, 24%, 32%, 35% or 37% brackets -- and if the US resident lives in one of the nine no-income tax states, and if the US resident can arrange to be in a 0% federal capital gains tax bracket and a 0% capital gains tax state when they sell fund units, then perhaps yes. These US rates undercut the 15% that is the minimum US tax on dividends that a US non-resident alien can usually achieve. The US does not tax capital gains of non-resident aliens holding US stocks.

Otherwise, no. And higher earning residents of higher-tax states such as California, New York and so on might find themselves facing tax liabilities that approach 50% due to the combination of federal tax, state tax, city tax, NIIT, and excess medicare tax.

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