Tax treatment of ISEQ ETF Dividends

Brendan Burgess

Brendan Burgess

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Does anyone know for definite how this works and what I put down on my tax return if anything?

This is what NCB says in their

8. What is the tax treatment of the ISEQ® 20 ETF?


Distributions will be paid gross from the ETF to Shareholders. Distributions to Irish individual investors from the ISEQ® 20 ETF are subject to tax. As the ETF is a UCITS structured Fund these dividend payments are subject to a tax rate of 20% currently.

Gains realised on the disposal, transfer, redemption or cancellation of shares in the ETF are subject to an exit tax, which is currently at a rate of 23% (the standard rate of tax plus 3%).
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I have a dividend cert from July 2007 which says
Gross dividend : €x
Income tax: €0

The February 08 dividend certificate says:

Gross dividend: €x
Income tax: €0

But the February cert has the following note:

"This dividend has been calculated on a net income basis. Previous dividends have been calculated on a gross income basis".

Any idea what this means? I will ask NCB.

Brendan
 
Not sure, Boss. My guess is that the latter "gross"/"net" refers to gross/net of charges and not gross/net of tax. In short, I am pretty sure you still have to declare the €x as income received from which Irish tax was not deducted but since it is from these special UCITS it is only subject to 20% tax and not full marginal rate.
 
Re: Tax rates on non Irish Shares and ETFs?

I got a helpful response from NCB

  • The correct tax treatment for the ISEQ 20 ETF is as follows:

For taxpayers the gross dividend is taxable at 20%. This is the full extent of tax liability irrespective of the individual’s marginal rate of tax. An investor should account for this to the Revenue and include the gross amount of the dividend on his/her tax return. By way of example, on the Form 11 for 2007, the relevant section where the gross amount of the dividends should be entered is panel 316 (a), “Offshore Funds – Relevant payment taxable @ 20%. While the ETF is not an offshore fund, our tax consultants have advised the use of that Panel as the ETF is set up under legislation similar to offshore funds.


  • Explanation of the note accompanying the February cert:

The dividend amount for the second half of 2007 was calculated based on net income i.e. the amount paid to shareholders was based on the dividend income received by the Fund less the expenses incurred
by the Fund. Previous dividends had been calculated by reference to the dividend income received by the Fund without deduction of the expenses.
 
Re: Tax rates on non Irish Shares and ETFs?

Below is my understanding of the capital gains tax treatment of the ISEQ 20 ETF, which is an Irish domiciled/authorised fund.

Capital gains tax at 23% is calculated on each individual disposal and should be accounted for to the Revenue in the tax period in which it arises (on a self assessment basis).

Because shares in the ISEQ 20 ETF are held in a recognised clearing system (Crest) the 8 year deemed disposal rule alluded to does not apply. Capital gains tax is calculated and payable only when there is a disposal of shares.
 
Re: Tax rates on non Irish Shares and ETFs?

Hi jams

That is very interesting. I presume from the detail in your post, that you have a detailed knowledge and that the 23% rate of CGT is not a typo?

Is it still CGT at 23%? Can losses on other shares be set against gains in the ETF and vice versa?

Brendan
 
Re: Tax rates on non Irish Shares and ETFs?

Brendan said:
Hi jams

That is very interesting. I presume from the detail in your post, that you have a detailed knowledge and that the 23% rate of CGT is not a typo?

Is it still CGT at 23%? Can losses on other shares be set against gains in the ETF and vice versa?

Brendan
Click to expand...

In attempting to directly answer uiop’s questions (as it would apply to the ISEQ 20 ETF) I continued to use the Capital Gains Tax terminology where in fact the ISEQ 20 ETF, and other similar authorised Irish investment undertakings (Irish Funds), are covered under different tax legislation. My post may therefore cause confusion which I would to like to now clear up.

An investment in Irish Fund is subject to income tax. Tax is due on chargeable events. Chargeable events include distributions by the company (including deemed disposals – which are not relevant to the ISEQ 20 ETF), and the realisation of gains on disposal or transfer.

Where distributions occur annually, or at more frequent intervals (e.g. dividends), income tax is payable at the standard rate of tax.

On any other distribution, or where there is a gain arising on the transfer of the shares then income tax is payable at the standard rate + 3% (currently 23%).

The investor must account for any tax arising on a self-assessment basis.

In answer to your second question, gains on shares cannot be offset against losses on the ETF or vice versa as they are subject to different tax regimes. Each disposal of the ETF should be considered on a stand alone basis and income tax is payable if a gain has arisen.
 
I am doing my return on ROS and I have entered the income in this box:

Offshore Funds

Offshore Funds (Part 27 Ch4 TCA 1997)
In respect of each material interest in Offshore Funds in the EU or EEA, or in a Member State of the OECD with which Ireland has a Double Taxation Agreement state:Relevant payment taxable @ 20%(Section 747D(a)(i)(I)(B) TCA 1997)

But when I press calculate, it is effectively taxing it at the marginal rate. I can't get through to Revenue.

Brendan
 
I have figured it out.

They increase the 20% tax band by the amount of the income.

They don't charge PRSI on it, but they do charge the Health Levy.

Brendan
 
Can anyone direct me to any info or Revenue links which deal with Irish resident tax eligibility on Irish-domiciled ETFs in a more general sense?
 
Brendan said:
I am doing my return on ROS and I have entered the income in this box:

Offshore Funds

Offshore Funds (Part 27 Ch4 TCA 1997)
In respect of each material interest in Offshore Funds in the EU or EEA, or in a Member State of the OECD with which Ireland has a Double Taxation Agreement state:Relevant payment taxable @ 20%(Section 747D(a)(i)(I)(B) TCA 1997)

But when I press calculate, it is effectively taxing it at the marginal rate. I can't get through to Revenue.

Brendan
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If you treat it as an offshore fund, then that means you are liable to 40% CGT on any gains arising from sale of these ETFs? The 'Capital Gains' section of ROS has a box for:

Offshore Funds (Section 747A TCA 1997) chargeable at 40%
 
Copied from another thread - Brendan

Dividends payments are treated as a chargeable event - the 41% exit tax applies.
 
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Just out of curiosity, if dividends are paid twice a year for this or another EU based ETF, then I assume dividend withholding tax comes off at source at 20%?
Are you saying then the additional amount which takes it up to your marginal rate of tax is paid after 8 years.....sorry still confused on this.
 
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No, 41% is the current rate of exit tax payable on a taxable event (including receipt of a dividend payment) in respect of an EU-based ETF shareholding - it's not income tax.

There is no withholding on distributions from the (Irish domiciled) ETF itself. Withholdings may apply to distributions from the underlying portfolio shares held by the ETF.

So, you would have to self-account to Revenue in respect of any distribution or gain on transfer and pay exit tax at a rate of 41%. In addition, there is a deemed disposal every eight years where you pay 41% tax on any unrealised gains (as though you had sold the ETF shares).

The tax regime for investment funds (including ETFs) is pretty draconian which is why I am of the view that investment trusts are generally a better option for collective investment in equities outside of a pension fund.
 
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Hi Sarenco

This is very interesting.

I had the old ISEQ 20 ETF and it changed to Wisdom Tree.

Am I right in saying that nothing has changed (except the exit tax rate)

I have stuck it down on Form 11 as
Offshore Fund Relevant payment (s 747D(a)(i)(I)(b) taxable at 33% in 2013.

So that does seem to be the right box for it.
 
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That looks right to me Brendan. I think it would be returned at section 319(e) of From 11 but I'm certainly open to correction on that point.
 
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