Key Post The Tax Treatment of ETFs for Irish residents

jeanneau39

Registered User
Messages
13
Hi,

I'm finally filing the form 11 in the ROS (time until the 14 nov. this year).

Thanks to all the suggestions received in this forum I can summarize that:

1)Gains on Irish-EU ETF are taxed at 41% as investment undertaking line 409 (a) (TCA 739 E 1 b ii). If the investor is not domiciled in Ireland, this should not follow under remittance basis.

There are some other points of view that the ETF (Irish or EU) should be allocated under the line 322 (c) (TCA 747 E 1 b ii) as offshore funds (regulated).

This point is still to clarify..

2)Non EU funds are (like US or other OECD) follow under the CGT

3)Non Eu funds in particular location (singapore - jersey...) follow under the TCA 745 and apply the income tax + PRSI and USC. If the investor is not domiciled in Ireland this should be under remittance basis.

4)ETC follow under the CGT.

Can somebody confirm-share the knowledge on these points?

thank you in advance to everybody for the help provided, this form is a very good tool to understand better this difficult task!

regards,
 

balckstream

Registered User
Messages
1
Hi jeanneau,

I just wanted to ask if you could clarify your point 1)?

"1)Gains on Irish-EU ETF are taxed at 41% as investment undertaking line 409 (a) (TCA 739 E 1 b ii). If the investor is not domiciled in Ireland, this should not follow under remittance basis.

There are some other points of view that the ETF (Irish or EU) should be allocated under the line 322 (c) (TCA 747 E 1 b ii) as offshore funds (regulated).

This point is still to clarify.."

Regards,
 

PMU

Frequent Poster
Messages
955
The 'Revenue Guidance Note on Exchange Traded Funds (ETFs)' as amended in June 2015, clearly states concerning both income and gains on Irish domiciled ETFs that “ Such income and gains do not attract Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) liabilities.”. Is this advice still valid? I've just received a request from Revenue for PRSI and USC on both gains and income for Irish domiciled ETFs.
 

spanners

Frequent Poster
Messages
58
Does as anybody know what the position re UK ETFs is likely to be post Brexit. The current guidance suggests that they will be treated as CGT and income but that seems a bit too good to be true?!
 

StephenJ

New Member
Messages
4
I've written a blog post on a guide to ETF taxation in Ireland. It also contains a link to an Excel model comparing US domiciled ETF returns to EU domiciled ETFs (both accumulating and non-accumulating). I'd be interested in any feedback if there are inaccuracies.
I'm not allowed to post a link so just add w_o_r_d_p_r_e_s_s_d_o_t c_o_m after the following: anirishinvestorsguide
 

jpd

Frequent Poster
Messages
1,678
The web address to use is not at all clear. I tried various combinations and none of them worked
 

StephenJ

New Member
Messages
4
And even more specificially add "/2018/10/27/taxation-of-etfs-in-ireland/" to the end of notthatkeen's link. It would be great if someone could just post the full working URL.
 

orka

Frequent Poster
Messages
1,010
I've written a blog post on a guide to ETF taxation in Ireland. It also contains a link to an Excel model comparing US domiciled ETF returns to EU domiciled ETFs (both accumulating and non-accumulating). I'd be interested in any feedback if there are inaccuracies.
I've only looked at your 'US Income ETF (or shares)' tab and it looks like you are missing out dividends on reinvested dividends. Your first 1,920 net dividend should produce a 4% dividend as well as growing by 6% - so the second net dividend should be (48% of 4% of (106,000 + 1,920) = 2,072) and not just (48% of 4% of 106,000 = 2,035). And so on for each subsequent reinvested net dividend.
 

StephenJ

New Member
Messages
4
Thanks for spotting Orka. I added in dividends on dividends and I independently checked my calculations using an independent spreadsheet model. I'll update my blog in the morning if any of the key messages have changed. Please let me know if you have any other feedback.
 

Dardania

Registered User
Messages
28

StephenJ

New Member
Messages
4
Ok, updated the projections with two improvements - (a) Dividends on dividend reinvestments (per Orca's feedback above) and (b) DeGiro fees are applied to each dividend reinvestment. I've also got an independent check on the figures and the new spreadsheet can be found at my blog (linked by Thos above).

Summary:
  1. DeGiro fees make little to no difference. It's only approx €2-€4 fee on €1k - €5k investment, so when compounded over time and applied to multiple reinvestments it still only amounts to a few hundred Euro and doesn't impact the key message at all.
  2. Dividends on dividends does make a sizeable difference.
  3. US ETFs are the (very) clear winner in a scenario assuming long-term ETF returns of 6% capital gains and 2% dividend yield. I think this is a reasonable assumption for an S&P 500 ETF using the last 20 years as a guide when dividend yields have been much lower than historically.
The performance of US ETFs over EU domiciled ETFs is so sizeable that I'm tempted to open a US brokerage account to gain access to US domiciled ETFs. Does anyone know if there is alternative way (other than having a professional money manager make trades on your behalf?).

Please continue to point out any shortcomings in my analysis.
 

Gordon Gekko

Frequent Poster
Messages
3,610
The spouse of someone who opens a US brokerage account to save a couple of percent here and there will get a nice surprise when that person dies and there’s US inheritance tax...

You also need to look at turnover within the portfolio and the fact that EU-based ETFs are better for higher yielding stuff (e.g. bond funds).
 

Investor

Registered User
Messages
21
@StephenJ: Regarding the comment on your blog that it may still be possible (post PRIIPs) to pay 33% CGT by investing in US domiciled ETFs via Interactive Brokers, as far as I know that loophole has been closed. Interactive Brokers no longer allow EU residents to buy ETFs that don’t have KIDs and unfortunately I don’t think there’s any way now for retail (non-professional) Irish investors to avoid the 41% DIRT tax and the other downsides associated with UCITS ETFs, though I'd be happy to be corrected. I don’t have enough posts for permission to include a link, but if you google…

Bogleheads Interactive brokers screws EU customers

…you should be able to find the relevant thread on the Bogleheads forum.
 

Jimmy Dee

Frequent Poster
Messages
51
You also need to look at turnover within the portfolio and the fact that EU-based ETFs are better for higher yielding stuff (e.g. bond funds).
Hi Gordon, I would like to see some clarification of why you think that there is a better choice of "higher yielding stuff..." bond funds in UCITS? Is that what you really mean?
Jimmy
 
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Gordon Gekko

Frequent Poster
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3,610
Hi Gordon, I would like to see some clarification of why you think that there is a better choice of "higher yielding stuff..." bond funds in UCITS? Is that what you really mean?
Jimmy
I don’t understand the question.

Unless someone’s income is very low, it’s actually better to get income at 41% rather than 40% plus 4% plus 8%.
 

Jimmy Dee

Frequent Poster
Messages
51
What makes you think that EU UCITS bond funds are higher yielding? I don't understand what you mean?

In regards to the tax there are other factors such as income level, reliefs and costs to take into account.
 
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