US Dividend ETF strategy

Discussion in 'Exchange Traded Funds (ETFs)' started by smarts, Mar 11, 2018.

  1. smarts

    smarts Registered User

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    Hi All,
    I’d appreciate your feedback on my investing strategy. I would have preferred to just stick my money in a European roboadvisor but because of my tax residency situation it makes more sense to do it myself.

    Tax residency - Irish non resident but ordinary resident for next three years, Portugal NHR status (no income tax on dividends, capital gains at 28%)
    Investments - property in Ireland valued about €315k, rent €18k, mortgage 66k 0.6%
    Savings - €50k

    I want to invest my €50k savings, I realise some would advise putting it towards my mortgage but I don’t think that makes sense given my low mortgage rate and the rental income being reliable (Dublin city centre apartment).

    My strategy is to DIY invest in US ETFs that have a high dividend but low volatility for the following reasons:
    - US ETFs over EU ETFs as they will not be liable for 41% tax in Ireland (just 15% US DWT)
    - avail of €3810 foreign income tax free allowance in Ireland
    - dividend income is tax free with my Portugal NHR status
    - low volatility as I am not sure how much longer this bull market can last, I want to be moderately conservative with my capital and focus on earning dividend income since it will have less tax liability for me
    - plan to use Firstrade to reduce fees etc.

    Any thoughts? I am a newbie to all this and have come up with this strategy based on about a week of research so am sure I have missed some things.
     
  2. joe sod

    joe sod Frequent Poster

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    What's this 3810 foreign income tax free allowance, I've never heard of this. I am resident in Ireland but I have foreign dividends, does it apply to foreign dividends?
     
  3. Gordon Gekko

    Gordon Gekko Frequent Poster

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    I think that if you’re non-resident but ordinarily resident, foreign income is exempt unless it exceeds €3,810.
     
  4. joe sod

    joe sod Frequent Poster

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    thanks for that i just googled it, if your foreign income is lower than 3810 euro you can avail of this, however if it is above this threshold the income is then taxable at full amount. Seems a bit strange as exchange rates etc are not exact and open to interpretation depending on whether you use monthy averages or exact rates on the day of dividend, so if you are 1 euro over this threshold you are then fully taxable.
     
  5. smarts

    smarts Registered User

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    12
    Yes it’s quite tight really, also I am exposed to currency risk generally on the investment given the strengthening euro. Although over the longer term maybe currency risk is less of an issue.

    I have also just read about EU accumulating ETFs being taxed by Ireland as gross roll-up. Does this mean if I re-invest the dividends I would not pay 41% tax on them i.e. only tax is at exit or deemed disposal?
     
  6. smarts

    smarts Registered User

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    12
    Ok so as far as I understand now, if I buy accumulating i.e. non distributing Irish or EU ETFs and hold on to them beyond my 3 year ordinary residence period, I will not be liable for any Irish tax on them, just capital gains tax in Portugal assuming I am still living here when I sell them. Does that sound right? Seems like it would be easier to manage as could be done through a European investing platform and has less tax implications.

    However, this is not really maximizing the Portuguese dividend tax exemption which would seem like a missed opportunity. I assume the ETF fund itself pays tax on the dividends from the equities it holds?
     
  7. SBarrett

    SBarrett Frequent Poster

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    As far as I know, you are taxed where you are resident.

    US ETF's are off the table Europe wide at the moment as a KID has to be provided to a customer buying them. As US domiciled funds don't produce them, they can't be sold in Europe. I was talking to a contact last week who said there is lobbying going on that the effective banning of US domiciled funds is an unforeseen consequence of PRIPPS regulation. Not sure if it will have any effect or if so, when.


    Steven
    www.bluewaterfp.ie
     
  8. smarts

    smarts Registered User

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    Thanks Steven. I have seen several posters on boards.ie say that it is still possible for Europeans to invest in US ETFs using a US broker. I am not sure if this means the US brokers are not in compliance or what, I guess it could suddenly change if the regulators catch up with them.

    I’ll check with my account re: the ordinary residence part, I think I still have some liability because of it.
     
  9. SBarrett

    SBarrett Frequent Poster

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    If a US broker will open an account for you, you can buy them. From my conversations with them, they will open accounts for people who are US domiciled but not for just anyone around the world. Maybe some of them will....


    Steven
    www.bluewaterfp.ie
     
  10. smarts

    smarts Registered User

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    12
    I have realized now that although I can open a trading account I cannot open a cash management account and therein lies the problem. So the search continues....it may not be a viable option after all