[AT/Austria] clarification on ETF taxes

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Topic Author
ellaellela
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Joined: Wed Mar 18, 2020 7:43 am
Location: Austria

[AT/Austria] clarification on ETF taxes

Post by ellaellela » Tue Mar 31, 2020 10:38 am

Hi all,

I was searching for an English guide to investing in ETFs for Austrian tax residents, but since I found only scattered sources online in German, I have decided to summarize my findings here.
After six months in Austria, my German is not the best, especially the financial/tax german. So I would like to invite you to correct me if I have made any mistakes.
I also have a few questions in the end.

To clarify at the beginning, the KESt (Kapitalertragsteuer, capital gain tax) of 25% is only for deposits with banks and savings banks.
KESt of 27.5% applies to almost everything else: capital gains of shares, funds (domestic, foreign: reporting and non-reporting), dividends, bonds interests, ...
Some of securities are taxed at progressive income rate (Einkommensteuer): cryptos, investments into precious metals, ... But for some of these, progressive tax only needs to be paid if the profit has been made after one year of holding. For these, you should look further into it. A good official source can be found at: https://findok.bmf.gv.at/findok?execution=e2s2 (for funds, just search for keyword: Investmentfondsrichtlinien).
The new government announced that there might be some changes, but I think it has its hands full of some other pressing matter.

So, from now on, I will just be talking about ETFs.

In essence, all dividends are taxed at 27.5% rate (though, the question is when). Once you sell ETFs, you pay 27.5% on capital gains.

If the fund is domestic Austrian, then it does all the tax reporting for you.

If the fund is foreign, then there are two situations.

A) foreign fund is called reporting fund (Meldefond) if it has a tax representative in Austria. This representative then reports capital gains and dividends to the Austrian control bank (OeKB).
If the fund is listed here: https://www.profitweb.at/public/main/start.jsp , that means it is a reporting fund.

B) if the foreign fund is not-reporting, then you have to pay the maximum of the following two: 1) 27.5% of KESt on 90% of annual price gain, 2) 27.5% KESt on 10% of ETFs value at the end of the year. In essence, you pay something even if the price gain was negative.

For both domestic and foreign reporting funds, the following taxation is performed: 60% of substance gains of the fund is taxed at 27.5% rate immediately. The remaining 40% of the substance gains is then taxed at 27.5% rate when you sell the fund. In other words, when you pay 27.5% tax on 60% of substance gains, they pretend as if your purchasing cost got increased by the taxed amount. In the end, you don't end up being double-taxed.

This tax reporting and paying for foreign reporting funds is only performed in the case your broker is Austrian. In other words, if your broker is non-Austrian then you do your own taxes and send them to tax authority.

In case your broker is Austrian, you usually pay a bit more in fees and such, but they are obliged by law to do the tax reporting and withdraw your tax at the source when the dividend is paid. Plus, they should (not sure about this one - could anyone confirm) also take into account the tax agreement between Austria and fund's domicile country and the company's domicile country.

Since Germany and Austria share the same official language, many of the German brokers also offer services to Austrian residents. This does not mean that they do the tax reporting to Austria nor that all of the funds they have in their offer are reporting funds in Austrian sense.



Now my question is related to distributing and accumulating ETFs. In the case of distributing, it is clear that the dividend will be taxed at tax rate of 27.5% for the 100% of the dividend.
Q1: But in case of accumulating, does the above mean that if I never sell it (theoretically speaking), I would never have to pay the 27.5% tax on the 40% of the dividend (which got reinvested)?

Q2: And more importantly, in case of accumulating funds and a domestic Austrian broker: broker will notify the tax authority, which in turn means that I will just have to pay whatever the tax authority asks me to pay? In other words, I don't have to do any reporting?


Q3: And did I get everything else right?

bitmouse
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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Wed Apr 01, 2020 3:12 am

Nice summary ellaellela! I'm having an appointment with my Austrian tax advisor soon, so I will raise your questions.
For both domestic and foreign reporting funds, the following taxation is performed: 60% of substance gains of the fund is taxed at 27.5% rate immediately. The remaining 40% of the substance gains is then taxed at 27.5% rate when you sell the fund. In other words, when you pay 27.5% tax on 60% of substance gains, they pretend as if your purchasing cost got increased by the taxed amount. In the end, you don't end up being double-taxed.
What does "substance gains" mean here? I'm not familiar with this term

I see that many brokers offer "Sparplan"s. There are ETF Sparplans, Fonds, Gold etc. These don't seem to have an equivalent in the english us market. It seems that essentially they offer you a reduced trading fee per order, in exchange you must auto-invest a certain amount every month/year. Do you know much about them? Are they tax advantaged?

Topic Author
ellaellela
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Location: Austria

Re: [AT/Austria] clarification on ETF taxes

Post by ellaellela » Wed Apr 01, 2020 1:06 pm

Hi!

By "substance gains" I understood any form of gain that comes from the ownership. In other words, dividends and anything resembling dividends: if you get extra shares instead of dividends, it will be taxed as if they were dividends; if you get vouchers or whatever of value, it will be taxed as dividends. That is how I understood it, but I am not a person with tax/financial background.

The "Sparplan" I would normally translate as "ETF savings plan". I think there is no tax advantage if you use them. It might be a good advertising campaign by the brokers.
I am also looking at them, but I am unsure what is the mechanism to lower or upper the amount that is auto-invested. Also, there is not much written on the process of closing the Sparplan (any fees) nor how long do you have to have it open. And in the end, they can always change the ETF offer that is at the discount, so it might be better to think about other ETFs and not only about those that are in the current offer.
I would also check that ETFs offered by the Sparplan are reporting ones in Austria.

Also, do you know if the tax advice fees are tax deductible in Austria?

bitmouse
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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Wed Apr 01, 2020 2:43 pm

ellaellela wrote:
Wed Apr 01, 2020 1:06 pm
By "substance gains" I understood any form of gain that comes from the ownership. In other words, dividends and anything resembling dividends: if you get extra shares instead of dividends, it will be taxed as if they were dividends; if you get vouchers or whatever of value, it will be taxed as dividends. That is how I understood it, but I am not a person with tax/financial background.
Thanks, that makes sense.
ellaellela wrote:
Wed Apr 01, 2020 1:06 pm
The "Sparplan" I would normally translate as "ETF savings plan". I think there is no tax advantage if you use them. It might be a good advertising campaign by the brokers.
I am also looking at them, but I am unsure what is the mechanism to lower or upper the amount that is auto-invested. Also, there is not much written on the process of closing the Sparplan (any fees) nor how long do you have to have it open. And in the end, they can always change the ETF offer that is at the discount, so it might be better to think about other ETFs and not only about those that are in the current offer.
I would also check that ETFs offered by the Sparplan are reporting ones in Austria.
What is the primary "value-add" of a Sparplan over just investing normally? Is it just the reduced order fee? It seems they limit which ETFs you can buy.

ellaellela wrote:
Wed Apr 01, 2020 1:06 pm
Also, do you know if the tax advice fees are tax deductible in Austria?
Yes it is, I deduct all the invoices from my tax advisor. I am an Einzelunternehmer (sole-proprietor) though, so I do not know if it is different for normal individuals.

bitmouse
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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Thu Apr 02, 2020 7:04 am

Just got out of a meeting with an Austrian Tax Advisor, this is what I learned.
ellaellela wrote:
Tue Mar 31, 2020 10:38 am
In case your broker is Austrian, you usually pay a bit more in fees and such, but they are obliged by law to do the tax reporting and withdraw your tax at the source when the dividend is paid. Plus, they should (not sure about this one - could anyone confirm) also take into account the tax agreement between Austria and fund's domicile country and the company's domicile country.
Yes, the broker will take into account the tax treaties to avoid double taxation.

ellaellela wrote:
Tue Mar 31, 2020 10:38 am
Q1: But in case of accumulating, does the above mean that if I never sell it (theoretically speaking), I would never have to pay the 27.5% tax on the 40% of the dividend (which got reinvested)?
I didn't ask this hypothetical question of "if i never sold", but yes he clarified that the tax reminder on the 40% dividends from accumulating funds is paid when the asset is sold. So presumably if you never sell, there would never be tax.

In the end you pay the 27.5 KEst on the entire gain regardless, but with accumulating funds the 40% you reinvest is effectively an interest free loan you can use to hopefully realize future gains. The catch is you have to pay the tax on the 60% out of pocket.
ellaellela wrote:
Tue Mar 31, 2020 10:38 am
Q2: And more importantly, in case of accumulating funds and a domestic Austrian broker: broker will notify the tax authority, which in turn means that I will just have to pay whatever the tax authority asks me to pay? In other words, I don't have to do any reporting?
If you are using an Austrian based broker they take care of all the reporting. There is no need to prepare additional documents or send anything to the Finanzamt directly.
ellaellela wrote:
Tue Mar 31, 2020 10:38 am
Q3: And did I get everything else right?
I think so, of course I'm not 100% sure. This is a new thing for me too.

It seems accumulating ETFs are definitely the way to go, however, my question is How do I know how much the tax burden will be? This is an important question because (1) leaving cash in the brokerage account with negative interest (0.5%) isn't great and (2) the overdraft fees interest are above 8% so we want to avoid overdraft. Of course paying the negative interest rate is preferable to paying overdraft.

It seems you need to:
  • Know when dividends will payout (and be reinvested)
  • Know how long after that your Broker (flatex in my case) will get around to charging you
  • Know how much the dividends will be
  • Perform your 60% * KEst calculation
  • Transfer that amount to your brokerage account in time for it to be debited by the broker

Topic Author
ellaellela
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Location: Austria

Re: [AT/Austria] clarification on ETF taxes

Post by ellaellela » Fri Apr 03, 2020 10:01 am

Yes, I do think it is just the reduced order fee. For example, if you do a normal ETF order at flatex, you get charged 3.8 euros. If you do it via the Sparplan it is 0 if you pick the ETF that they have in their Sparplan offer, otherwise it is 1.5 euros for ETFs that are not in the Sparplan offer.

I thought the negative interest on cash was -0.4% per annum. If you have 1000 euros in in cash there, that means 4 euros of fee per year. And most of the time you can have precisely 0. You can check the distributing version of ETF (if it exists) and base your approximate calculations on the previous years.

For example, you can check here: https://www.justetf.com/de/etf-profile. ... =dividends
and see that in the past they do it every third month in the year and you can just assume the same amount and calculate it yourself. That gives you an approximating, so you can 10-20 euros more to be sure (and depends on your investment size) and remove the surplus after the tax has been collected.
Also, I believe they have some data on Vanguard's webpage. Now, it may take some time for flatex to do their books, so you will most likely get it with delay. And it would be nice if they have some sort of email notification that something happened to your account.

bitmouse
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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Fri Apr 03, 2020 11:10 am

I just saw this discussion over on Reddit about Accumulating vs Distributing ETFs in Austria:

https://www.reddit.com/r/eupersonalfina ... tradeoffs/

If I'm following their conversation, they seem to be saying a few important things we have not realized over here on bogleheads yet:
  • The 60% tax on Accumulating ETFs does NOT apply to dividends, it only applies to internal gains (made by the fund selling shares internally)
  • Dividends paid by Accumulating ETFs are taxed 100% (at the 27.5% KEst) like normal
  • The dividends tax is paid shortly after the distribution, for both Accumulating and Distributing ETFs
  • The 60% tax is paid at end of year for Accumulating ETFs
This site was used as a source: https://www.schoellerbank.at/de/vermoeg ... iv/steuern

I haven't done the math yet when looking at an actual ETF, but if the internal gains of an Accumulating ETF is very small then the benefit of investing the 40% may not be so large as I expected.

In this case the only substantial advantage to Accumulating ETFs is that you do not need to place an order to reinvest (saving on order fees, and not paying negative interest).

WienerG
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Re: [AT/Austria] clarification on ETF taxes

Post by WienerG » Fri Apr 03, 2020 4:33 pm

[*] The 60% tax on Accumulating ETFs does NOT apply to dividends, it only applies to internal gains (made by the fund selling shares internally)
[*] Dividends paid by Accumulating ETFs are taxed 100% (at the 27.5% KEst) like normal
[*] The dividends tax is paid shortly after the distribution, for both Accumulating and Distributing ETFs
[*] The 60% tax is paid at end of year for Accumulating ETFs
[/list]

This interpretation is inaccurate. The 60% tax does apply to the notional dividend, which instead was reinvested as an accumulation (see link below)

https://www.konsument.at/geld-recht/inv ... s-und-kest

Topic Author
ellaellela
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Re: [AT/Austria] clarification on ETF taxes

Post by ellaellela » Sat Apr 04, 2020 1:29 am

The way I understand it, the "capital gain" taxed at 60% mentioned in the case of accumulating funds, it the new value you gain from your new shares, which is the value of the reinvested dividend.
It would not make sense to tax every time the fund decides to rebalance the portofolio.

So, unless you have other plans with the dividends and you don't mind paying the tax out of your pocket until you sold the ETF, I would choose accumulating version of the ETF because you are free from the hassle of collecting and reinvesting.

And if you look at the dividend and the price of the ETF, the yearly dividend is approximately 2% of the ETF's price for the ETF mentioned as example a few posts back (there are other high dividend yield funds where it is different). So, it is 2% of your total investment taxed at 16.5% annually (which is approximately 0.33% of your total investment). In other words, you have to pay 0.33% of your investment in taxes every year out of your own pocket.

WienerG
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Re: [AT/Austria] clarification on ETF taxes

Post by WienerG » Sat Apr 04, 2020 1:41 am

ellaellela wrote:
Sat Apr 04, 2020 1:29 am
The way I understand it, the "capital gain" taxed at 60% mentioned in the case of accumulating funds, it the new value you gain from your new shares, which is the value of the reinvested dividend.
It would not make sense to tax every time the fund decides to rebalance the portofolio.

So, unless you have other plans with the dividends and you don't mind paying the tax out of your pocket until you sold the ETF, I would choose accumulating version of the ETF because you are free from the hassle of collecting and reinvesting.

And if you look at the dividend and the price of the ETF, the yearly dividend is approximately 2% of the ETF's price for the ETF mentioned as example a few posts back (there are other high dividend yield funds where it is different). So, it is 2% of your total investment taxed at 16.5% annually (which is approximately 0.33% of your total investment). In other words, you have to pay 0.33% of your investment in taxes every year out of your own pocket.
Exactly.... Overtime this is better than a full distribution which is taxed at 27.5 %.

WienerG
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Re: [AT/Austria] clarification on ETF taxes

Post by WienerG » Sat Apr 04, 2020 1:42 am

ellaellela wrote:
Sat Apr 04, 2020 1:29 am
The way I understand it, the "capital gain" taxed at 60% mentioned in the case of accumulating funds, it the new value you gain from your new shares, which is the value of the reinvested dividend.
It would not make sense to tax every time the fund decides to rebalance the portofolio.

So, unless you have other plans with the dividends and you don't mind paying the tax out of your pocket until you sold the ETF, I would choose accumulating version of the ETF because you are free from the hassle of collecting and reinvesting.

And if you look at the dividend and the price of the ETF, the yearly dividend is approximately 2% of the ETF's price for the ETF mentioned as example a few posts back (there are other high dividend yield funds where it is different). So, it is 2% of your total investment taxed at 16.5% annually (which is approximately 0.33% of your total investment). In other words, you have to pay 0.33% of your investment in taxes every year out of your own pocket.
Exactly.... Overtime this is better than a full distribution which is taxed at 27.5 %. Therefore you can roll the 40% deferred tax forwards, which accumulates over time...

WienerG
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Re: [AT/Austria] clarification on ETF taxes

Post by WienerG » Sat Apr 04, 2020 1:43 am

ellaellela wrote:
Sat Apr 04, 2020 1:29 am
The way I understand it, the "capital gain" taxed at 60% mentioned in the case of accumulating funds, it the new value you gain from your new shares, which is the value of the reinvested dividend.
It would not make sense to tax every time the fund decides to rebalance the portofolio.

So, unless you have other plans with the dividends and you don't mind paying the tax out of your pocket until you sold the ETF, I would choose accumulating version of the ETF because you are free from the hassle of collecting and reinvesting.

And if you look at the dividend and the price of the ETF, the yearly dividend is approximately 2% of the ETF's price for the ETF mentioned as example a few posts back (there are other high dividend yield funds where it is different). So, it is 2% of your total investment taxed at 16.5% annually (which is approximately 0.33% of your total investment). In other words, you have to pay 0.33% of your investment in taxes every year out of your own pocket.
Exactly.... Overtime this is better than a full distribution which is taxed at 27.5 %. Therefore you can roll the 40% deferred tax forwards, which accumulates over time...

Tylenol Jones
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Re: [AT/Austria] clarification on ETF taxes

Post by Tylenol Jones » Fri Apr 17, 2020 11:28 am

These are quite high taxes on dividends and capital gains. I wonder if there is some kind of progressive taxation for someone living off of their investments only?

Topic Author
ellaellela
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Re: [AT/Austria] clarification on ETF taxes

Post by ellaellela » Tue Apr 21, 2020 1:39 am

I am really not sure how the tax authority considers dividends if you have no other source of income (salary, pension, renting income). You should ask the tax authority (Finanzamt) or a tax advisor.

bitmouse
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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Tue Apr 28, 2020 5:37 am

I wanted to calculate how large the out of pocket tax bill to Finanzamt could get.

Assumptions:
This table shows how the money grows. The red column is how much the investor pays, out of pocket, in tax every year. Note that the Dividends are not added to Growth or Year End column, they are assumed to be inside the growth.

Image

This second table shows how, if the 10k EUR contribution is really all the investor can spare, how it eats into their returns as they contribute less.
Image

investmentSloth
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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 6:25 am

I was personally considering distributing funds bcz of simplicity

bitmouse
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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Tue Apr 28, 2020 6:44 am

It is an interesting tradeoff indeed.

On the accumulating side:
  • (+) No dividend cash lying there getting penalized in your deposit account
  • (+) The tax is deferred on 40% of the dividend, being compounded over time
  • (-) You have to pay a tax bill out of pocket
  • (-) You'll have to move money around to pay the tax bill, which might accrue deposit fees
For distributing funds (assuming you reinvest 100% of the dividend):
  • (+) No out-of-pocket cash needed to pay tax bill
  • (+) Simpler, simply pay the tax bill with dividend money
  • (-) You lose out on the tax deferred compounding of 40% of your dividends
  • (-) You'll have dividend cash sitting in your deposit account accruing fees until its time to contribute/rebalance
Maybe I should make a spreadsheet showing just how big that compounded 40% is..

investmentSloth
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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:17 am

(+) Simpler, simply pay the tax bill with dividend money
In the case of flatex - would this tax be withheld? or do they pay out the full dividend and then send you a tax bill?
(-) You lose out on the tax deferred compounding of 40% of your dividends
I guess this is the biggest concern. For me I go through waves of being really keen and interested in investing and then my interest wanes and moves over to other topics. I want to keep my setup as simple as possible so that I can focus on the rest of life :happy
(-) You'll have dividend cash sitting in your deposit account accruing fees until its time to contribute/rebalance
aaah - so if I understand correctly, do brokers like flatex actually charge you for cash in your acc? I'm with degiro and have cash sitting there, but don't get charged for it. After how long do they charge you for this cash? Couldn't you simply withdraw it and re-invest with the next month's contribution?

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alpine_boglehead
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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 7:22 am

Tylenol Jones wrote:
Fri Apr 17, 2020 11:28 am
These are quite high taxes on dividends and capital gains. I wonder if there is some kind of progressive taxation for someone living off of their investments only?
Yes, there is this option in Austrian tax law. You can opt to have your capital gains taxed at income tax rates (Regelbesteuerungsoption). This would mean that you pay 0% on the first €11k, 25% on the next €7k, 35% on the next €13k. That means if you have e.g. 10k taxable capital income (dividends, gains), you could save €10k x 27,5% i.e. €2750 in taxes. The caveat is that you then need to report all capital income - each cent in interest paid in bank accounts etc.

There's some small print regarding sole income provider deduction (Alleinverdienerabsetzbetrag), if you're interested you should read the small print e.g. in the relevant form E1kv - Beilage zur Einkommensteuererklärung E1 für Einkünfte aus Kapitalvermögen.

I have no experience in actually doing this and don't know anyone doing this either.

investmentSloth
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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:28 am

ellaellela wrote:
Wed Apr 01, 2020 1:06 pm
I am also looking at them, but I am unsure what is the mechanism to lower or upper the amount that is auto-invested. Also, there is not much written on the process of closing the Sparplan (any fees) nor how long do you have to have it open. And in the end, they can always change the ETF offer that is at the discount, so it might be better to think about other ETFs and not only about those that are in the current offer.
I would also check that ETFs offered by the Sparplan are reporting ones in Austria.
Hi ellaellela - have you found out any new info regarding flatex's Sparplan account especially with "auto-investment sums", closing fees & miminum account duration?

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 7:29 am

investmentSloth wrote:
Tue Apr 28, 2020 7:17 am
(+) Simpler, simply pay the tax bill with dividend money
In the case of flatex - would this tax be withheld? or do they pay out the full dividend and then send you a tax bill?
Yes, it is automatically withheld (for flatex and likely all other brokerage accounts which do automatic tax reporting in Austria), so you get a reduced amount of dividends when they are paid out.
investmentSloth wrote:
Tue Apr 28, 2020 7:17 am
(-) You'll have dividend cash sitting in your deposit account accruing fees until its time to contribute/rebalance
aaah - so if I understand correctly, do brokers like flatex actually charge you for cash in your acc? I'm with degiro and have cash sitting there, but don't get charged for it. After how long do they charge you for this cash? Couldn't you simply withdraw it and re-invest with the next month's contribution?
Flatex charges you -0.4% from the moment there's a positive balance in the account. And -4.9% when there is a negative balance.

It's the only broker that does that as far as I know, but also, as far as I know, flatex is the only tax-reporting broker in Austria that has no AUM fee, other charge a "small" AUM fee, e.g. dadat 0.09% per year, Hello Bank 0.12%, easybank 0.012%, and it gets only worse from there. So the -0.4% on the account balance is not really bad as you can just keep it close to zero.

investmentSloth
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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:39 am

alpine_boglehead wrote:
Tue Apr 28, 2020 7:29 am
Flatex charges you -0.4% from the moment there's a positive balance in the account. And -4.9% when there is a negative balance.

It's the only broker that does that as far as I know, but also, as far as I know, flatex is the only tax-reporting broker in Austria that has no AUM fee, other charge a "small" AUM fee, e.g. dadat 0.09% per year, Hello Bank 0.12%, easybank 0.012%, and it gets only worse from there. So the -0.4% on the account balance is not really bad as you can just keep it close to zero.
Thanks for the insights! Surely it then makes sense to just withdraw any dividends and then re-invest them with your next larger purchase (say monthly)? or do they charge withdrawl fees?

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 7:40 am

bitmouse wrote:
Thu Apr 02, 2020 7:04 am

It seems you need to:
  • Know when dividends will payout (and be reinvested)
  • Know how long after that your Broker (flatex in my case) will get around to charging you
  • Know how much the dividends will be
  • Perform your 60% * KEst calculation
  • Transfer that amount to your brokerage account in time for it to be debited by the broker
If you have a broker that allows overdraft (e.g. flatex), you would just need to know the date, and transfer the necessary amount when it gets deducted (with the tradeoff of paying the 4.9% overdraft interest rate for one or two days until your transfer settles).

investmentSloth
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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:42 am

alpine_boglehead wrote:
Tue Apr 28, 2020 7:40 am
bitmouse wrote:
Thu Apr 02, 2020 7:04 am

It seems you need to:
  • Know when dividends will payout (and be reinvested)
  • Know how long after that your Broker (flatex in my case) will get around to charging you
  • Know how much the dividends will be
  • Perform your 60% * KEst calculation
  • Transfer that amount to your brokerage account in time for it to be debited by the broker
If you have a broker that allows overdraft (e.g. flatex), you would just need to know the date, and transfer the necessary amount when it gets deducted (with the tradeoff of paying the 4.9% overdraft interest rate for one or two days until your transfer settles).
so with a distrubuting etf you can avoid the overdraft interest rate, but might incur the positive balance interest rate

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 7:44 am

investmentSloth wrote:
Tue Apr 28, 2020 7:39 am
alpine_boglehead wrote:
Tue Apr 28, 2020 7:29 am
Flatex charges you -0.4% from the moment there's a positive balance in the account. And -4.9% when there is a negative balance.

It's the only broker that does that as far as I know, but also, as far as I know, flatex is the only tax-reporting broker in Austria that has no AUM fee, other charge a "small" AUM fee, e.g. dadat 0.09% per year, Hello Bank 0.12%, easybank 0.012%, and it gets only worse from there. So the -0.4% on the account balance is not really bad as you can just keep it close to zero.
Thanks for the insights! Surely it then makes sense to just withdraw any dividends and then re-invest them with your next larger purchase (say monthly)? or do they charge withdrawl fees?
Yes, that makes sense. Although for small amounts it may not be worth the effort. E.g. if you have €10k invested and have 2% dividends pay year, after taxes that's €145, which will earn you 58 cents in negative interest over the course of one year.

No, there is no fee on withdrawals.

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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:46 am

alpine_boglehead wrote:
Tue Apr 28, 2020 7:44 am
investmentSloth wrote:
Tue Apr 28, 2020 7:39 am
alpine_boglehead wrote:
Tue Apr 28, 2020 7:29 am
Flatex charges you -0.4% from the moment there's a positive balance in the account. And -4.9% when there is a negative balance.

It's the only broker that does that as far as I know, but also, as far as I know, flatex is the only tax-reporting broker in Austria that has no AUM fee, other charge a "small" AUM fee, e.g. dadat 0.09% per year, Hello Bank 0.12%, easybank 0.012%, and it gets only worse from there. So the -0.4% on the account balance is not really bad as you can just keep it close to zero.
Thanks for the insights! Surely it then makes sense to just withdraw any dividends and then re-invest them with your next larger purchase (say monthly)? or do they charge withdrawl fees?
Yes, that makes sense. Although for small amounts it may not be worth the effort. E.g. if you have €10k invested and have 2% dividends pay year, after taxes that's €145, which will earn you 58 cents in negative interest over the course of one year.

No, there is no fee on withdrawals.
:thumbsup

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 7:47 am

investmentSloth wrote:
Tue Apr 28, 2020 7:42 am
alpine_boglehead wrote:
Tue Apr 28, 2020 7:40 am
bitmouse wrote:
Thu Apr 02, 2020 7:04 am

It seems you need to:
  • Know when dividends will payout (and be reinvested)
  • Know how long after that your Broker (flatex in my case) will get around to charging you
  • Know how much the dividends will be
  • Perform your 60% * KEst calculation
  • Transfer that amount to your brokerage account in time for it to be debited by the broker
If you have a broker that allows overdraft (e.g. flatex), you would just need to know the date, and transfer the necessary amount when it gets deducted (with the tradeoff of paying the 4.9% overdraft interest rate for one or two days until your transfer settles).
so with a distrubuting etf you can avoid the overdraft interest rate, but might incur the positive balance interest rate
You should not let the small negative interest rate on positive account balances tail wag the potentially bigger dog of tax savings depending on your fund choice :D

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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:48 am

alpine_boglehead wrote:
Tue Apr 28, 2020 7:47 am
You should not let the small negative interest rate on positive account balances tail wag the potentially bigger dog of tax savings depending on your fund choice :D
True :) are you then a supporter / prefer accumulating funds?

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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Tue Apr 28, 2020 7:50 am

bitmouse wrote:
Tue Apr 28, 2020 6:44 am

Maybe I should make a spreadsheet showing just how big that compounded 40% is..
... and here it is:

Austria Investors - Accumulating or Distributing ETFs?

I would categorize the difference as substantial.

If you want a true "simple" or hands off approach, then you're leaving lots of :moneybag on the table.
Last edited by bitmouse on Tue Apr 28, 2020 7:54 am, edited 1 time in total.

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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue Apr 28, 2020 7:53 am

bitmouse wrote:
Tue Apr 28, 2020 7:50 am
I would categorize the difference as substantial :moneybag
:shock:

so this quote from the EU Perdonal Finance Sub-Reddit would be incorrect?
In many other countries accumulating funds (which reinvest dividends) have a tax advantage over funds that distribute dividends. This is not the case in Austria where reinvested dividends are treated like paid-out dividends. Therefore you will probably want to invest into a distributing fund (otherwise you'll pay taxes each year despite not getting any payouts) additional information that might suggest that accumulating ETFs are more tax-efficient.

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 8:56 am

bitmouse wrote:
Tue Apr 28, 2020 7:50 am
bitmouse wrote:
Tue Apr 28, 2020 6:44 am

Maybe I should make a spreadsheet showing just how big that compounded 40% is..
... and here it is:

Austria Investors - Accumulating or Distributing ETFs?

I would categorize the difference as substantial.

If you want a true "simple" or hands off approach, then you're leaving lots of :moneybag on the table.
The numbers are really interesting, but I'm not yet completely sold on that it is a fact that accumulated dividends are taxed only at 60%.

Do you have an authoritative source for this? There seems to be quite some articles stating that they are fully taxed.
  • The aforementioned Konsument article says that accumulated dividends are taxed at 27.5% (as ausschüttungsgleiche Erträge) and the 60% rule only applies to share sales within the fund.
  • The mentioned reddit thread also seems to conclude that only share sales are subject to only 60% taxation.
  • This article claims that there is no substantial difference between distributing and accumulating funds anymore.
  • This article also claims that it's the same (see first comment by the Author in the comments section).
Now, here come the big bludgeon:

Austrian tax code says in Investmentfondsgesetz 2011 § 186
Die ausgeschütteten Erträge aus Einkünften im Sinne des § 27 des Einkommensteuergesetzes 1988 abzüglich der damit in Zusammenhang stehenden Aufwendungen [...] sind beim Anteilinhaber steuerpflichtige Einnahmen. [...]

1. a) Erfolgt keine tatsächliche Ausschüttung im Sinne des Abs. 1 oder werden nicht sämtliche Erträge im Sinne des Abs. 1 ausgeschüttet, gelten die nicht ausgeschütteten Erträge aus der Überlassung von Kapital im Sinne des § 27 Abs. 2 des Einkommensteuergesetzes 1988 sowie 60 vH des positiven Saldos aus Einkünften im Sinne des § 27 Abs. 3 und 4 Einkommensteuergesetz 1988 abzüglich der damit in Zusammenhang stehenden Aufwendungen eines Kapitalanlagefonds an die Anteilinhaber in dem aus dem Anteilrecht sich ergebenden Ausmaß nach Maßgabe der lit. b als ausgeschüttet (ausschüttungsgleiche Erträge).
I read this as "everything mentioned in § 27 (2) is taxed normally, everything in § 27 (3) and (4) is taxed at 60%.

And the referenced passages for categorizing the capital income that are interesting for us regarding normal taxation or 60% ("60 vH") taxation ("§ 27 Abs. 2 des Einkommensteuergesetzes 1988", "sowie 60 vH des positiven Saldos aus Einkünften im Sinne des § 27 Abs. 3 und 4 Einkommensteuergesetz 1988") are the following

§ 27 Einkommenssteuergesetz 1988
(2) Zu den Einkünften aus der Überlassung von Kapital gehören:
1. a) Gewinnanteile (Dividenden)
[...]
(3) Zu den Einkünften aus realisierten Wertsteigerungen von Kapitalvermögen gehören Einkünfte aus der Veräußerung, Einlösung und sonstigen Abschichtung von Wirtschaftsgütern [...]
(4) Zu den Einkünften aus Derivaten gehören [...]
(2) would be dividends, (3) realized capital gains and (4) income from derivatives.

So there would be advantage for accumulating funds, but not on dividends, only on capital gains.

Please prove me wrong, I'd be happy to know that by investing in accumulating funds we could save lots of taxes.


Having fund-internal capital gains taxed only at 60% would still be an advantage. I'd expect this to play a bigger role for active funds that change their positions frequently (i.e. trigger capital gains), but for broad-market index funds with a low turnover it should not be a big issue. Vanguard reports a -11.4% turnover on their ETF page for Vanguard FTSE All World Distributing - I'd take this with a grain of salt (they could effectively mean the ratio of capital gains distributions, which could be negative if they sold at a loss), but expect turnover to be in the low single digits for such an all-world fund, comparable to a turnover of 4% for VTSAX.

I guess there are also two other ways to find out the definite truth: holding identical funds (share classes of the same fund), one accumulating and one distributing for some time (more than a year), or deciphering and comparing the tax report excel sheets on profitweb.at for such twin funds.

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 9:06 am

There might be one other difference between accumulting and distributing ETFs depending on your situation/broker. Many funds distribute in USD, and this money has to be converted to EUR when it hits your account. Conversion rates may vary, but you can assume that most brokers will have some fee on that (like 0.20%).

Until some time ago, one Austrian broker (dadat) also had some fixed fee on distributions, but it seems they have removed that.

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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Tue Apr 28, 2020 9:14 am

alpine_boglehead wrote:
Tue Apr 28, 2020 8:56 am
Do you have an authoritative source for this?
I hope so! My Austrian tax advisor.

But I see the evidence you presented is compelling, in particular the Konsument article and snippets from the Investmentfondsgesetz. I'm forwarding this to my tax advisor to see what his thoughts on this are.

This is is probably good time to remind everyone reading that you should get tax advice from a professional, not internet people. Internet people can be wrong. :happy

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 9:21 am

bitmouse wrote:
Tue Apr 28, 2020 9:14 am
alpine_boglehead wrote:
Tue Apr 28, 2020 8:56 am
Do you have an authoritative source for this?
I hope so! My Austrian tax advisor.

But I see the evidence you presented is compelling, in particular the Konsument article and snippets from the Investmentfondsgesetz. I'm forwarding this to my tax advisor to see what his thoughts on this are.

This is is probably good time to remind everyone reading that you should get tax advice from a professional, not internet people. Internet people can be wrong. :happy
Not on bogleheads :twisted:

Looking forward to your advisor's reply, this is a topic that has always confused me.

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Re: [AT/Austria] clarification on ETF taxes

Post by Tylenol Jones » Tue Apr 28, 2020 12:54 pm

alpine_boglehead wrote:
Tue Apr 28, 2020 7:22 am
Tylenol Jones wrote:
Fri Apr 17, 2020 11:28 am
These are quite high taxes on dividends and capital gains. I wonder if there is some kind of progressive taxation for someone living off of their investments only?
Yes, there is this option in Austrian tax law. You can opt to have your capital gains taxed at income tax rates (Regelbesteuerungsoption). This would mean that you pay 0% on the first €11k, 25% on the next €7k, 35% on the next €13k. That means if you have e.g. 10k taxable capital income (dividends, gains), you could save €10k x 27,5% i.e. €2750 in taxes. The caveat is that you then need to report all capital income - each cent in interest paid in bank accounts etc.

There's some small print regarding sole income provider deduction (Alleinverdienerabsetzbetrag), if you're interested you should read the small print e.g. in the relevant form E1kv - Beilage zur Einkommensteuererklärung E1 für Einkünfte aus Kapitalvermögen.

I have no experience in actually doing this and don't know anyone doing this either.
Thanks for the details. Do these income taxes include social insurance, retirement, health insurance, and so on or you guys pay that extra? Actually, let's say an Austrian saves enough to do early retirement at let's say 40 years old and wants to live on a mix of dividends and capital gains. Would he get some social security payments or unemployment at that age or he'd not qualify since he has significant assets. If income taxes include various social insurance payments, would choosing to treat investment income as employment income imply that you continue to contribute to your retirement, provide you with health insurance, and so on.

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Tue Apr 28, 2020 1:17 pm

Tylenol Jones wrote:
Tue Apr 28, 2020 12:54 pm
alpine_boglehead wrote:
Tue Apr 28, 2020 7:22 am
Tylenol Jones wrote:
Fri Apr 17, 2020 11:28 am
These are quite high taxes on dividends and capital gains. I wonder if there is some kind of progressive taxation for someone living off of their investments only?
Yes, there is this option in Austrian tax law. You can opt to have your capital gains taxed at income tax rates (Regelbesteuerungsoption). This would mean that you pay 0% on the first €11k, 25% on the next €7k, 35% on the next €13k. That means if you have e.g. 10k taxable capital income (dividends, gains), you could save €10k x 27,5% i.e. €2750 in taxes. The caveat is that you then need to report all capital income - each cent in interest paid in bank accounts etc.

There's some small print regarding sole income provider deduction (Alleinverdienerabsetzbetrag), if you're interested you should read the small print e.g. in the relevant form E1kv - Beilage zur Einkommensteuererklärung E1 für Einkünfte aus Kapitalvermögen.

I have no experience in actually doing this and don't know anyone doing this either.
Thanks for the details. Do these income taxes include social insurance, retirement, health insurance, and so on or you guys pay that extra? Actually, let's say an Austrian saves enough to do early retirement at let's say 40 years old and wants to live on a mix of dividends and capital gains. Would he get some social security payments or unemployment at that age or he'd not qualify since he has significant assets. If income taxes include various social insurance payments, would choosing to treat investment income as employment income imply that you continue to contribute to your retirement, provide you with health insurance, and so on.
No, these taxes are just that, income tax. For insurance (health insurance, and maybe pension insurance if you haven't got your 15 required contribution years to qualify for a pension), you have to look elsewhere, e.g. self-insure, have insurance via self-employment, work a small job above the limit for social insurance so you're just normally insured, or a small job below the limit for social insurance and self-insure (called opt-in). Unemployment benefits include health insurance and contributions to pension insurance. After unemployment benefits are used up, you can get "emergeny aid" (social security), but as an early retiree you'd hardly qualify (you have to be able and willing to work to qualify). And you (obviously) only get unemployment or social security after having worked in Austria for some time.

In Austria it seems that your assets are not touched, but e.g. in Germany you only qualify for extended unemployment benefits (Hartz 4) when you have used up every asset (real estate, cash etc.).

Looks like someone is considering Austria for early retirement :D

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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Wed Apr 29, 2020 11:49 am

alpine_boglehead wrote:
Tue Apr 28, 2020 9:21 am
Looking forward to your advisor's reply, this is a topic that has always confused me.
+1

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Re: [AT/Austria] clarification on ETF taxes

Post by Tylenol Jones » Thu Apr 30, 2020 12:07 am

alpine_boglehead wrote:
Tue Apr 28, 2020 1:17 pm

No, these taxes are just that, income tax. For insurance (health insurance, and maybe pension insurance if you haven't got your 15 required contribution years to qualify for a pension), you have to look elsewhere, e.g. self-insure, have insurance via self-employment, work a small job above the limit for social insurance so you're just normally insured, or a small job below the limit for social insurance and self-insure (called opt-in). Unemployment benefits include health insurance and contributions to pension insurance. After unemployment benefits are used up, you can get "emergeny aid" (social security), but as an early retiree you'd hardly qualify (you have to be able and willing to work to qualify). And you (obviously) only get unemployment or social security after having worked in Austria for some time.

In Austria it seems that your assets are not touched, but e.g. in Germany you only qualify for extended unemployment benefits (Hartz 4) when you have used up every asset (real estate, cash etc.).

Looks like someone is considering Austria for early retirement :D
I visited Vienna once and I found it to be an amazing city, but all this really adds up to 50% or more of your income for anyone bringing in more than 50-60K/year. As such it's probably very unfriendly environment for the early retirement :-). Not sure what the average salaries there are, but it's probably very unfriendly for any significant asset accumulation too. Probably most don't even bother investing with such conditions.

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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Thu Apr 30, 2020 4:45 am

Tylenol Jones wrote:
Thu Apr 30, 2020 12:07 am
Not sure what the average salaries there are, but it's probably very unfriendly for any significant asset accumulation too. Probably most don't even bother investing with such conditions.
These two statements are true. However there are significant other benefits to Austria, high taxes (EU wide) notwithstanding.. but that's not a topic for this forum.

To support the last statement, if you're interested, here is some reading on how Austrians typically save:

2018-10 "the actual shareholder ratio in Austria is only around 5%" - Vienna Stock Exchange

2015-10 only 25% of Austrians save anything substantial, and mostly in "savings books" or Bausparen Erste Bank (the german pdf has more figures)

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Re: [AT/Austria] clarification on ETF taxes

Post by nick_r » Fri May 01, 2020 3:45 am

It sounds to me that if you are retiring in Austria and living off your investments, you only pay the 27.5% tax on the capital gains (when you sell) and that weird in-ETF dividend tax, also deferred when you sell.

What other taxes you need to pay? Pension and unemployment are outside of this discussion since you are already retired on your own means, no?

Is health care state provided or what is a ball-park figure for health insurance?

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Sun May 03, 2020 2:05 am

nick_r wrote:
Fri May 01, 2020 3:45 am
It sounds to me that if you are retiring in Austria and living off your investments, you only pay the 27.5% tax on the capital gains (when you sell) and that weird in-ETF dividend tax, also deferred when you sell.

What other taxes you need to pay? Pension and unemployment are outside of this discussion since you are already retired on your own means, no?

Is health care state provided or what is a ball-park figure for health insurance?
That would be it, there's no other taxes on capital income.

Health care is state provided, but not free. It's largely tied to employment, but you e.g. can self-insure. If you go the way to e.g. declare yourself as self-employed (but have no income), you would pay in the ballpark of €1600 per year (which is really cheap) and a 20% out-of-pocket quota for doctor's visits.

However, things are evolving towards a two-class health system, with many people getting additional insurance (which is about €100 per month) from private insurance companies to pay for lower waiting-times, better rooms (fewer patients per room) in hospitals, more choice of doctors etc.

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Re: [AT/Austria] clarification on ETF taxes

Post by bitmouse » Tue May 05, 2020 6:12 am

alpine_boglehead wrote:
Tue Apr 28, 2020 9:21 am
Looking forward to your advisor's reply, this is a topic that has always confused me.
I come bearing news.

The confusing matter of accumulating vs distributing funds in Austria has been settled after a conversation with a Tax Advisor.

alpine_boglehead's reading of the situation is correct, that is:
  • Generally speaking Austria has a tax regime where the holder of a fund is treated as if they themselves hold individually fund's underlying assets.
  • Dividends from Accumulating funds are taxed like those from Distributing funds, that is 100% basis @ KEst
  • The 60/40 rule applies to internal capital gains in Accumulating funds (when the fund sells internally for a gain)
Conclusion: There is a small advantage to Accumulating funds when it comes to Austrian tax, but how much depends on the turnover of the fund. If you hold an Austrian domiciled accumulating fund ( :shock: ) then the fund is required to at least distribute enough to cover your KEst liability. For all other domiciles, you must provide the liquidity to cover the tax obligation (as we've discussed).

(aside: If you're holding Austrian domiciled funds, share with us what they are and why you're holding them!)

Summarizing the considerations:
  • (-) Accumulating requires you to pay the tax bill out of pocket
  • (+) Accumulating results in less time out of the market
  • (+) Accumulating has small tax advantage via 60/40 rule on internal capital gains
  • (+) Distributing, you'll never need to pay tax out of pocket
  • (-) Distributing might introduce extra trading costs when reinvesting dividends (if you wouldn't other wise invest more money)
  • (-) Distributing results in (minuscule) fees to Flatex as they sit in the cash account
  • (-) Distributing from USD funds results in forex and possibly forex fees
One can download the excel for each meldefond from https://www.profitweb.at , someone whose German is better than mine, could probably parse this document and figure out how much the internal capital gains was on previous years.

If someone wants to do that for iShares Core MSCI World UCITS ETF USD (Acc) it would be illuminating, the ISIN is IE00B4L5Y983. Profitweb has reports for 2016-2019.

The reports all seem to be similar, so if we can identify where in the excel the bit is that reports capital gains, anyone can look up their own fund and get an idea if the internal capital gains 60/40 rule would be large or small.

Personally I haven't decided which to favor yet. I'm leaning towards Distributing, because not having to pay out of pocket is now a larger advantage than the tax savings and the extra fees from Distributing are probably small. That said, the out of pocket tax wouldn't likely be more than a 1000 EUR for over 10 years. On the other hand, by the time the out of pocket tax becomes a burden, "rebalancing" from Acc to Dist would be a big pain.

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Re: [AT/Austria] clarification on ETF taxes

Post by investmentSloth » Tue May 05, 2020 11:56 am

First off a huge thank you for getting back to us on this topic!

It seems the info that you got 100% reflects the status & discussions happening on a similar thread on reddit.

JFYI - I'm personally going with the Distributing option and rather have a positive balance in my flatex account (-0.4%) than a negative one bcz I miscalculated the tax owed. I am however toying with adding a fund that is only available in Acc after someone mentioned the idea / suggestion on reddit. I wonder if this could be an interesting option where you have some dist funds and some acc. The distributions would ideally cover the tax due for the accumulating funds - just a thought and definitely not an exact science.

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Re: [AT/Austria] clarification on ETF taxes

Post by nick_r » Wed May 06, 2020 5:50 am

bitmouse wrote:
Tue May 05, 2020 6:12 am
alpine_boglehead wrote:
Tue Apr 28, 2020 9:21 am
Looking forward to your advisor's reply, this is a topic that has always confused me.
I come bearing news.
Thank you so much for the info! Really appreciate it.

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Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Thu May 07, 2020 3:29 pm

bitmouse wrote:
Tue May 05, 2020 6:12 am
alpine_boglehead wrote:
Tue Apr 28, 2020 9:21 am
Looking forward to your advisor's reply, this is a topic that has always confused me.
I come bearing news.
Thanks very much, very illuminating.
bitmouse wrote:
Tue May 05, 2020 6:12 am

One can download the excel for each meldefond from https://www.profitweb.at , someone whose German is better than mine, could probably parse this document and figure out how much the internal capital gains was on previous years.

If someone wants to do that for iShares Core MSCI World UCITS ETF USD (Acc) it would be illuminating, the ISIN is IE00B4L5Y983. Profitweb has reports for 2016-2019.
If I read this correctly, the number we're looking for here is row 3.6 of the profitweb excel sheets ("Erst bei Ausschüttung in Folgejahren bzw. bei Verkauf der Anteile steuerpflichtige Einkünfte gem. § 27 Abs. 3 und 4 EStG 1988 (inkl. Altemissionen)". It also matches up to be 0.66 % of row 4.3 ("In den steuerpflichtigen Einkünften enthaltene Einkünfte aus Kapitalvermögen gem. § 27 Abs. 3 und 4 EStG 1988 des laufenden Jahres").

So, we'd get the following amounts (USD):

2019: 0,136
2018: 0,3306
2017: 0,1563
2016: 0,0252

For reference, the price of this ETF is currently EUR 50.79, i.e. ca. USD 55.

So, a short estimate could look like this: on average there's USD 0.16 per share tax-deferred capital gains per year, deferring taxes of 0.044. That's miniscule, i.e. 0.08%.

We can expect that this amount will rise as accumulated capital gains get bigger (so e.g. at 5% per year). At the same time, these deferred capital gains stay in the fund and accumulate at e.g. 6.5% (5% capital gains, 1.5% after-tax dividends). With a naive calculation, you'd have accrued USD 2.9 of taxes which were not distributed. You still need to pay these when finally selling. At the same time, this reinvested money would have grown to about USD 6.7. So you'd be left with an advantage of USD 3.8 per share, i.e. 7% at the current price. So it might be a worthwhile advantage over distributing funds. On the other hand, it's not world-moving, a difference in expense ratios (or maybe other tax advantages, e.g. lower withholding tax leakage) would have comparable effects.

But ...Vanguard FTSE All-World (IE00B3RBWM25), which is distributing, also has data for the same period, but zero in these rows in these 4 years. Now, either these rows are only filled for accumulating funds, or Vanguard somehow managed to produce zero capital gains.

What would be interesting to know is whether Vanguard ETFs in Europe also has the same option in the US, i.e. getting rid of capital gains by swapping out shares with capital gains through ETF share creation/destruction.

But, hard to say, as there are tons of numbers in these sheets (and some quite interesting stuff, e.g. dividends per country), and it's not clear how they have to be interpreted.
bitmouse wrote:
Tue May 05, 2020 6:12 am
On the other hand, by the time the out of pocket tax becomes a burden, "rebalancing" from Acc to Dist would be a big pain.
Yep, that's a problem, you'd be taking a huge tax hit. But perhaps we get lucky and have a decades-long bear market, so we could switch funds in taxable at any time :P

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Re: [AT/Austria] clarification on ETF taxes

Post by casually average » Fri May 22, 2020 6:25 am

Hi,

I'm invested since Jan 18. I will modify my current ETF-savings plan from
SPDR MSCI ACWI Acc: IE00B44Z5B48
to
VGD FTSE All World Acc: IE00B44Z5B48
because the TER is only 0,22% compared to 0,40%.

I will be charged with tax on two seperate dates now (even more when if I decide to include more/cheaper ETFs to my portfolio). Whenever I receive the mail reminder, I will transfer the money. The - 0,4% don't really matter. I have not payed more than 1 € in negative interest per year so far.

I highly recommend to not overweight these implications in your investment decisions: The current (annual) expenses make the big difference (TER). You should be able to invest in the whole market and expose yourself to beta (market risk) for 0,5% - 0,001% annual costs.

Tax laws will change (quite frequently). Broker conditions will change (even more frequently). You can also transfer your portfolio to another Austrian broker at no cost.

TLDR: Broker fees and tax implications matter, but please do not make the mistake to make investment decisions for the long run based on those.
"What‘s the intellectual basis for indexing? Gross return minus costs equals net return. Period. What‘s the intellectual basis for active management? I‘ve never heard one." - John C. Bogle

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alpine_boglehead
Posts: 400
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: [AT/Austria] clarification on ETF taxes

Post by alpine_boglehead » Sun May 24, 2020 1:52 pm

casually average wrote:
Fri May 22, 2020 6:25 am
Hi,

I'm invested since Jan 18. I will modify my current ETF-savings plan from
SPDR MSCI ACWI Acc: IE00B44Z5B48
to
VGD FTSE All World Acc: IE00B44Z5B48
because the TER is only 0,22% compared to 0,40%.

I will be charged with tax on two seperate dates now (even more when if I decide to include more/cheaper ETFs to my portfolio). Whenever I receive the mail reminder, I will transfer the money. The - 0,4% don't really matter. I have not payed more than 1 € in negative interest per year so far.

I highly recommend to not overweight these implications in your investment decisions: The current (annual) expenses make the big difference (TER). You should be able to invest in the whole market and expose yourself to beta (market risk) for 0,5% - 0,001% annual costs.

Tax laws will change (quite frequently). Broker conditions will change (even more frequently). You can also transfer your portfolio to another Austrian broker at no cost.

TLDR: Broker fees and tax implications matter, but please do not make the mistake to make investment decisions for the long run based on those.
You're right, we should not let the tax tail wag the bigger portfolio dog. This was more of an academic discussion for me. If accumulating funds would really have had a huge difference in the tax treatment, it really would have made a difference for choice of distributing vs accumulating. But there's no big difference anyway.

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