Suppose that a retiree with money to invest outside a tax-sheltered pension account, and who does not want to purchase either a UK investment trust (because of active management and high fees) or an ETF (because of the eight-year deemed disposal rule and possible estate-planning tax implications), were to implement a direct indexing strategy by seeking to track, say, the EURO STOXX Select Dividend 30 or the MSCI EMU High Dividend Yield index via individual stock purchases from a discount online broker. How much work, apart from possible periodic rebalancing, would such a strategy involve, given the complications entailed by dividend withholding taxes?
As far as I know, Ireland has a double taxation agreement in place with every country in the Eurozone. Given this—and the fact that (if I’m not mistaken) Ireland has the highest marginal dividend tax rate in Europe—am I right in thinking that none of the dividends received would be subject to double taxation, and thus that the total amount of tax paid on any dividends received would be the same as that paid on Irish dividends for an investor in the 40% tax bracket?
By way of a worked example, suppose the retiree received €100 in dividends on their holdings of a German stock. This is subject to German dividend withholding tax of 26.38% (25% plus a 5.5% “solidarity surcharge”). So their net dividend (before Irish tax) would be €73.62. When completing their Irish tax return, they would simply “gross-up” the after-tax dividends received back to €100, enter this amount in line 31 of Form 12, “Amount of gross Other Foreign Dividends,” and enter €26.38 in the “Foreign tax deducted (if any, and not refundable)” box below. Revenue would then deduct €40 income tax + (say) €4.50 USC + €0.00 PRSI (if they’re over 65) = €44.50 - a €26.38 credit for German tax = €18.12, so the total tax burden of €44.50 would be identical to that paid by an investor in the same 40% marginal tax bracket who receives Irish dividends?
In short, are there any negative dividend tax implications of investing in Eurozone shares of which I’m unaware? (I do realize that the marginal rate of tax on dividends is higher than the CGT rate of 33%.)
As far as I know, Ireland has a double taxation agreement in place with every country in the Eurozone. Given this—and the fact that (if I’m not mistaken) Ireland has the highest marginal dividend tax rate in Europe—am I right in thinking that none of the dividends received would be subject to double taxation, and thus that the total amount of tax paid on any dividends received would be the same as that paid on Irish dividends for an investor in the 40% tax bracket?
By way of a worked example, suppose the retiree received €100 in dividends on their holdings of a German stock. This is subject to German dividend withholding tax of 26.38% (25% plus a 5.5% “solidarity surcharge”). So their net dividend (before Irish tax) would be €73.62. When completing their Irish tax return, they would simply “gross-up” the after-tax dividends received back to €100, enter this amount in line 31 of Form 12, “Amount of gross Other Foreign Dividends,” and enter €26.38 in the “Foreign tax deducted (if any, and not refundable)” box below. Revenue would then deduct €40 income tax + (say) €4.50 USC + €0.00 PRSI (if they’re over 65) = €44.50 - a €26.38 credit for German tax = €18.12, so the total tax burden of €44.50 would be identical to that paid by an investor in the same 40% marginal tax bracket who receives Irish dividends?
In short, are there any negative dividend tax implications of investing in Eurozone shares of which I’m unaware? (I do realize that the marginal rate of tax on dividends is higher than the CGT rate of 33%.)
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