Dividend withholding tax on Euro stocks

[dub_nerd]

Would appreciate some advice about investing in individual European stocks. My aim is to earn some money that is taxed at income tax rates. I am not in employment so currently pay no income tax, and can therefore take advantage of Ireland's very low tax rate on low to medium income. Currently my only income is from deposits which are taxed at 45% (including PRSI) on every cent. For the same reason I have no interest in ETFs with their 41% exit tax.

So my thought is to buy a range of dividend-paying European equities, probably following the components of an index like the Euro Stoxx 50, but buying the stocks myself instead of the index. The thing I am not sure about is the complexity of withholding tax on this. The Stoxx 50 equities are spread around a number of eurozone countries plus the UK, and Switzerland. From what I have read online it sounds like each country applies its own withholding tax, and I may have to apply for refunds from each. (I understand that some of it can be written off against Irish tax liability, but not always all of it, depending on country, from what I've read).

Am I understanding this right? Might my broker (Saxo UK) be able to do something to simplify it? I've a further question about shares traded on multiple exchanges. Suppose I buy a Swiss share on a German exchange (there are specific examples, like Nestle and Novartis). Do I pay Swiss or German withholding tax. Are there any implications for dividend payments?

 

[Brendan Burgess]

I have shares in Aryzta(formerly IAWS) which is a Swiss company. I get the dividends gross and I declare them on my income tax return and pay tax at my marginal rate.

I also have shares in a German company. I get a certificate from the stock broker showing the gross dividend, and then "foreign tax" at 26.4% deducted from it. I declared the gross amount and claim the tax deducted as a credit.

The French system is described in this
Tax treatment of French Dividends

To be honest, the whole area is so complicated already, that you are asking for trouble, by using a Danish stock broker, to buy Swiss shares on a German exchange.

Many years ago I had different German shares and I gave up on them because it was so hard to get the tax deducted back. From memory, they deducted 35% at source. The Irish Revenue allowed credit for 20% and I had to apply to German Revenue for 15%. It was a nightmare. I couldn't get the paperwork I needed from my stockbroker to pursue the claim, so in the end I just wrote it off.

"So my thought is to buy a range of dividend-paying European equities,"

Obviously, Irish shares offer the same tax advantage. You get all the DWT back.

Brendan

 

[landlord]

If you are avoiding ETFs because of the 41% tax issue. You are mistaken !!!
You can buy dividend paying European funds at standard 33% tax with loss relief etc...

 

[Marc]

Hi Dub,

You are in fact correct, any UCITS ETFs will be subject to exit tax at a flat rate of 41% irrespective of your marginal rate of income tax.

We have created a tax optimised portfolio which is geared to Income tax and capital gains tax and which is based on collectives.

I wrote a detailed white paper a few years ago on the impact of DWT for Irish resident investors.

You even receive an Irish income tax credit for dividend withholding tax taken at source which isn't the case with a UCITs fund so it really is a genuinely tax optimised solution.

I'd be happy to waive our normal advice fees in recognition of the fantastic work you did on Prize Bonds.

I always caution against attempting DIY investing but even more so when it comes to non-pension portfolios.

 

[dub_nerd]

Thanks folks. I have carefully followed the other AAM threads on ETFs, especially this one (here), which you all (and I) contributed to, and also landlord's summary of investment costs thread (here). Until now I thought I had finally understand all of that, which is why I started this separate thread to ask specifically about dividends and withholding tax. As I mentioned, I have no other income and so can earn up to several tens of k from dividends before average tax rate goes above 20%, even including USC and PRSI.

Brendan, thanks for relating your experience. That concords with what I've read. As far as I know, French shares are the same as your German ones -- more is withheld than is credited by Revenue here, so you have to apply for a refund from France. So I could end up having to do this for several countries. I'm finding it hard to believe that it's so complicated. Do Irish people not have diversified portfolios in general? I understand that this would be simpler with Irish shares, but the ISE has a much more limited range of stocks. Also, my current exposure to stocks is in a single company on the ISE and I would like some diversification. (EDIT: I see you added a link to a thread about French withholding tax, thanks; I had read that previously and it was the last post in that thread that led me to wonder if my broker might be able manage all the withholding and refunds. However, my broker's website (Saxo) implies that it is my responsibility to deal with claiming from foreign tax authorities myself).

landlord, thanks for that list of ETFs. I presume in order to qualify for CGT rates on gains and income tax on dividends, those would have to be so-called "bad" ETFs? But they seem to be Euro-area ones, so why are they "bad". Is it because they are not on the ifsra list? I'm confused again. (Btw, your list of investment costs, which I thought I'd understood, has been very useful).

Marc, many thanks for your very generous offer. I have to say, I would prefer to be in a situation to understand and manage all this myself. (I'm trying to lay the groundwork for that here, for when my 2012 deposits at good rates all run out over the next year or so. I am not anxious to dive into markets immediately anyway given current turmoil). What does it mean to be "geared to Income tax and capital gains tax and [be] based on collectives"? Does collectives refer to UCITS, and are they not all taxed at 41% under gross roll-up and deemed disposal?

 

[maturin]

What does it mean to be "geared to Income tax and capital gains tax and [be] based on collectives"? Does collectives refer to UCITS, and are they not all taxed at 41% under gross roll-up and deemed disposal?

ETFs registered in Europe are typically UCITS compliant and are subject to 41% exit tax and the 8 year rule. ETFs which are not UCITS compliant (e.g. most US ETFs) are generally believed to be subject to income and capital gains tax. However, if you buy US ETFs, you may be subject to US withholding tax, inheritance tax, etc - you would need to check this out.

Another class of collectives is UK Investment Trusts. These are subject, like any other UK share, to income tax and capital gains tax. You can find some basic information at theaic.co.uk

 

[dub_nerd]

If you are avoiding ETFs because of the 41% tax issue. You are mistaken !!!
You can buy dividend paying European funds at standard 33% tax with loss relief etc...
This ETF screener website is great.
I have filtered for your requirements. Just push filter to make changes.

https://www.justetf.com/de-en/find-...setClass=class-equity&equityStrategy=Dividend

landlord, hope you are still looking at this thread. How are the UCIT ETFs in your link subject to standard CGT with loss relief? They all appear to be euro area ETFs subject to gross roll up. Am I missing something?

 

[dub_nerd]

Just for anyone revisiting this thread, landlord answered my question on this other thread, to the effect that the list of ETFs posted above is the wrong one, and he is talking about US-based ETFs which are indeed treated like shares (but subject to currency risk).