Most tax-efficient way to invest in US shares?

I am considering investing quite a large amount of money in US shares.

If I bought the shares directly, I would be subject to 15% US Withholding tax and Irish income tax on dividends. Upon sale of the shares I would be subject to Irish CGT at 20% (minus the yearly allowance).

If I invested the money through an investment fund, I would pay 23% on gains in exit tax on any withdrawals. The dividends from the companies held by the investment fund would be reinvested in the fund by the management company. What tax does the management company pay on the dividends?

So what I'm wondering is what would be the most tax-efficient way to invest in the US shares?

Thank you.

fluppet said:

If I bought the shares directly, I would be subject to 15% US Withholding tax

Click to expand...

Not if you are not a US resident and you fill in a W-8BEN form to avoid such witholding taxes.

and Irish income tax on dividends.

Click to expand...

You are assessable for income tax on dividends regardless of what way you buy shares.

If I invested the money through an investment fund, I would pay 23% on gains in exit tax on any withdrawals.

Click to expand...

On any growth!

The dividends from the companies held by the investment fund would be reinvested in the fund by the management company. What tax does the management company pay on the dividends?

Click to expand...

Not sure - I think they do.

So what I'm wondering is what would be the most tax-efficient way to invest in the US shares?

Click to expand...

Other threads including some in the key posts deal with the tax treatment of different forms of equity investment.

ClubMan said:

Not if you are not a US resident and you fill in a W-8BEN form to avoid such witholding taxes.

Click to expand...

Are you sure about this?
I am quite sure that US Witholding Tax is ~30% unless you fill out a W8-BEN which reduces it to 15%.
Here is the relevant part of the actual tax treaty:

---
Article 10 Dividends
1. Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, except as otherwise provided in this Article, the tax so charged shall not exceed:
(a) 5 percent of the gross amount of the dividends if the beneficial owner is a company that owns at least 10 percent of the voting stock of the company paying the dividends;
(b) 15 percent of the gross amount of the dividends in all other cases.
---


The US obviously charges the maximum that they are entitled to under the treaty - 15%.

I already own US shares and after filling out the W8-BEN form I am charged 15% tax on dividends.


What I am wondering is whether the investment funds have some way of paying less tax on dividends. If this is the case then in some circumstances it may mean that even with 23% exit tax it may be more efficient to buy through an investment fund.

fluppet said:

Are you sure about this?
I am quite sure that US Witholding Tax is ~30% unless you fill out a W8-BEN which reduces it to 15%.

Click to expand...

I have filled in the form and never been subject to any US taxes. then again this would only have applied to capital gains since I never received dividends from US shares. Obviously I was still assessable for the relevant taxes in Ireland.

What I am wondering is whether the investment funds have some way of paying less tax on dividends. If this is the case then in some circumstances it may mean that even with 23% exit tax it may be more efficient to buy through an investment fund.

Click to expand...

Have you read the key posts?

You are referring, I believe, to this thread. It assumes that the dividends in the fund will be reinvested without paying tax at that point (the only tax paid is the 23% exit tax on profits). I would like to know whether this is the case when the fund is investing in US shares - will the fund be exempt from the 15% US Withholding tax on dividends, and still not have to pay any Irish taxes?