Case study Why do dividend withholding taxes matter?

Marc

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The following is from a presentation I gave at Alan Moore's Tax and Wealth seminar in 2019


Joe and Mary are aged 71 and each have State Pension income of €12,000pa and rental income of €10,000pa

They have €500,000 to invest for income

Assuming a yield of 2% this will generate additional passive investment income of €10,000pa

Rank the following funds in order of suitability for Joe and Mary

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US or Canadian dividend income and ROS for personal investments

The tax credit allowed under the US or Canadian/Ireland double tax agreement is 15%.

Therefore, when including the dividends on the ROS return there is a specific box for the US or Canadian dividends under the foreign income section. There are two boxes under this section for Canadian tax dividends -one for dividends where Irish encashment tax is also suffered on the payment and one for dividends where there was no Irish tax deducted from the payment. The gross amount of the Canadian dividends should be entered in the relevant box and the ROS return will automatically allow a 15% tax credit in line with the double tax agreement.

This 15% tax credit is allowable against income tax and USC but it cannot be offset against PRSI (the same as the credit for US tax).

Therefore, if the individual had an effective Income Tax rate of less than 15% the excess withholding tax can be used against USC.

NOTE No credit is given for DWT in a gross-roll up fund or Pension. The DWT credit is lost and has the effect of an additional cost for investors

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Note Luxembourg has a DWT rate of 30% with the USA whereas Ireland has a 15% rate. This is why the JPM fund has a relatively high effective rate of tax

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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Marc,
Does US inheritance tax not apply to to a US listed fund which is held? From what I've seen online only the first $60k is exempt but I may be ignorant of the nuances of it.
K
 
Yes, that's correct so you need to then ask does that impact me?

a) I have the same exemption as US Citizens which is over $5M so I'm fine holding US assets
b) If you are a widow or widower or not married or in a civil partnership then you don't need to worry about the spouse to spouse exemption issue as it is not relevant
c) If you have a smaller portfolio or are younger and in good health maybe you could arrange a term life insurance to cover the risk
d) If you have a very substantial portfolio and have a spouse or civil partner, you could always arrange for a QDOT on first death which deals with the issue
e) failing all those, we use Canadian ETFs which have the same tax treatment as set out above but removes the risk of the US Estate Tax
 
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