Key Post The Tax Treatment of ETFs for Irish residents

Im in the same position as you Fella although I dont have that much funds and most has been fully invested for years. I had been moving into ETFs as I have a US account and there is a huge variety to access there. I also started an investment in a mutual fund last year that has a long standing reputation. However the realisation now that you cannot offset losses with these funds and with many ETFs has me perplexed. If this issue is not cleared up I will have to sell the ETFs as the taxation implications are too grave. I had flirted with the idea of investing in property but I did not want the hassle and lack of diversification. Another option is to move to UK, the investment taxation regime there is much more beneficial where you are allowed £10,000 capital gains per year free of tax. This may seem extreme but I think after a few years it would be worth it. The fact that losses cannot be offset against gains with these investments are the most unfair aspect. Surely all investments should be treated equally whether it be property, shares, or investment funds.
 
From my understanding an ETF is good if it is domiciled in the EU and listed on [broken link removed] as a UCITS fund. I had a look at this register from that site http://registers.centralbank.ie/FundSearchPage.aspx . I hold ETFs in a US account, I had a look for them on this register, most were not listed on this register except for the Vanguard funds. An example of one I hold is Market Vectors Poland ETF, this is not listed. Therefore I should treat this as a bad ETF whereby it is taxed under the normal CGT rules just like company shares. Another poster has said that revenue consulted this list to determine if the fund he was enquiring about was listed there, if it wasnt they said it was then taxed under normal CGT regime. However I would think that there are many ETFs in existence not listed on the ifsra register so I dont think so called "bad ETfs" are that unusual.
 
Thanks for that info, joe sod. Does that mean if it's not on the ifsra list it's definitely a bad ETF? And does that in turn mean that it is treated exactly like a share -- CGT, no exit tax, no 8-year deemed disposal, losses can be offset etc. What about bad ETFs paying dividends/distributions? Are they taxed like share dividends? Is US withholding tax withheld on US ETF dividends, and can it be reduced to 15% with a W8-BEN? "Bad" ETFs would be quite attractive to me if treated exactly like shares, whereas "good" ETFs are useless.
 
thats my understanding, but Im no expert, this is new to me too. Another confusing thing is that some big US ETFs have a US domiciled and European domiciled version of the same ETF with very similar names. For example Vanguard have US domiciled "Vanguard Ftse Europe ETF" but also a european domiciled "Vanguard Ftse Developed Europe UCITS ETF". The european one is classed as Ucits but the US one isn't. If you look at the morningstar.com website the US ETF will have ticker VGK and when you select the "fees and expenses" tab it will show UCITS and underneath NO, meaning it is not classed as a UCITS. Therefore I think that buying ETFs with a US trading account will mean that by default you will be buying the US version and therefore this is not UCITS as it is not european domiciled. Another interesting thing is that there were some US mutual funds that I wanted to invest in but could not because I did not have a US address or social security number. However I can buy ETFs and stocks freely even though not US resident. Therefore there is a clear differential in tax treatment there between mutual funds on the one hand and stocks and ETFs on the other.
 
Yes,

US domiciled ETFs are not UCITs tick

But they are US Situs assets which means that US ETFs are subject to US Estate tax
 
Another interesting thing is that Ireland is the favourite domicile of european ETFs. In other words funds actively seek out Ireland as the domicile of choice for their european ETFs. The Irish taxation policy is designed to attract these funds here . So by domiciling in Ireland they can class themselves as Ucits and this is advantageous for other European investors. But for Irish residents to invest in these funds the taxation regime is penal. The irish government clearly does not want alot of irish money flowing there. I do not understand the whole thing but it seems a bit dodgy looking at it from the outside. Its no wonder our taxation policy is under the international spotlight.
 
Thanks everyone for all of this valuable information.

I recently purchased a number of ETF's that are UCITS or domicile in In Europe. I wanted to build a long term savings/ investment plan (10-20 years) and invest couple of thousand per month into a well balanced S&P, Europe 600, Asia and rest of world.

I know understand these will be penalised by 1) higher 41% exit tax and 2) deem exposure after 8 years and tax payable 3) no loss offsetting

That's a real blocker to my strategy.

So, if I invest in these ETF's outside of Europe I can avoid these issues??

Is so can someone recommend ETF's that are not subject to these rules and follow S&P, Developed Europe, Asia and Total Workd?

Do I need to declare when I buy into these? Every month?

Thank you,

Brian
 
I look to UK investment trusts which I'm advised are treated like shares for tax purposes.

From an investment perspective, no 8 year loss of capital is key.
 
Gordon Gekko said:
I look to UK investment trusts which I'm advised are treated like shares for tax purposes.

From an investment perspective, no 8 year loss of capital is key.
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Thanks for the reply. Do you know where I might find some information on uk investment trusts that fit my target profile ? Where can I research ?

Thanks
 
Gordon Gekko said:
Yep.

Their view is that US ETFs, EEA ETFs and OECD DTA ETFs are treated like shares (income tax etc on distributions and CGT on gains).

Their view is that ETFs domiciled elsewhere are subject to fund tax.
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Thanks. So how do ETF's domile in Europe / USA now compare to shares ? Tax wise e.g percentages ?
 
Gordon Gekko said:
Yep.

Their view is that US ETFs, EEA ETFs and OECD DTA ETFs are treated like shares (income tax etc on distributions and CGT on gains).

Their view is that ETFs domiciled elsewhere are subject to fund tax.
Click to expand...
Also, does the 8/7 year rule apply? Of can I settle any owed tax once I eventually cash out?
 
No, EU ETFs are taxed as funds (41% exit tax, 8 year rule, etc).

US ETFs are taxed like shares (straightforward).
 
Gordon Gekko said:
No, EU ETFs are taxed as funds (41% exit tax, 8 year rule, etc).

US ETFs are taxed like shares (straightforward).
Click to expand...

Thanks for clarification.

Based on my wish to pursue a regular investment plan, investing in broad ETF's that replicate major stock indices over a long term, it's clearly more advantages to use US domicile ETF's. My only concern now is the major currency exposure
 
As regards currency exposure with US domiciled ETFs, this is not an issue, for example I own a Vanguard european ETF in a Us account quoted in dollars, even though the european market has gained in the last year the ETF is basically hovering at the value it was a year ago in US dollars, but the euro has depreciated 23% therefore effectively I have ETF worth 23% more in euros than it was a year ago. Of course if I had of chosen a dollar hedged ETF it would have performed much better but I am not american so dollar hedging is not so important to me. At the end of the day you own an ETF which has a basket of shares it is irrelavant what currency those shares are quoted.
 
Marc said:
Unfortunately each time you make a purchase of a UCITs ETF its treated as a distinct investment even if it is in the same "fund"

So you will have to pay tax on your gains even if some of your investments are showing a loss

The Sunday Business Post has a supplement on fund investing this weekend which I was asked to contribute to.

Just a thought but who would be willing to sign a petition to lobby to get this crazy situation changed?
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I would absolutely sign this petition.....as a Newby investor my head is spinning with the tax implications of the various different domiciled ETFs.....
While we are on the subject what is the quickest way to find out where an ETF is Domiciled?
 
Ditto re: signing petition, total nonsense is only way to describe current situation.

Google etf name and you'll find domicile info. Once it's UCITS then it's subject to eight year rule
 
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