Hi. I plan to start my investment journey towards retirement. I did some research, the wiki for non-us investors was very helpful but i still have some questions and i'd like to know if my information is correct. Any input is appreciated.
My domicile is in Romania and I plan to invest for long term wealth accumulation. I want to leverage the bogleheads approach to accumulate a large enough portfolio to fund my retirement.
In the past did some small-scale investing in local mutual funds, the easiest route available to me at the time. I had no access to international stock/bond options at that time, so i was pleasantly surprised that these days plenty of local institutions offer international portfolios. The catch is that the fees are exorbitant, 5% upfront + 2% annually for the funds i'd be interested in, making them a non-starter.
Excluding local mutual funds it looks like my best course is using an international online broker to invest in Ireland based global index ETFs, like Vanguard FTSE All-World UCITS ETF USD Acc. Even though Romania has an advantageous WHT treaty with the US of 10%, there's no estate tax treaty and EU regulation makes it difficult to invest in US domiciled ETFs anyway, so the 5% saving on tax isn't worth it. A couple of things aren't clear for me here:
- Do all ETFs, or rather, all/most US securities in an ETF pay dividends? It seems like an easy way to sidestep WHT is to have ETFs that just don't pay any dividends. I'm sure there are plenty of practical reasons why something like that isn't widely used.
- I checked and that Vanguard ETF pays ~1% dividends yearly. Is the WHT tax applied on that? Meaning the theoretical difference between the 15% and 10% treaty rates comes down to 0.05% of the portfolio size? That seems fairly negligible all things considered.
- Non-US ETFs come in two flavors: distributing and accumulating. My understanding is that's not the case for US ETFs, i.e. they always pay dividends? For my goals accumulating is more beneficial since Romania only taxes distributed dividends so accumulations makes sure 100% of dividends compound. Is this not an option for US ETFs?
In terms of local taxation, in Romania you pay 8% dividend tax on distributed dividends, so with a set of accumulating ETFs i wouldn't have to pay any local taxes during accumulation. I think this is normal for most EU countries?
The current tax law says you pay 1%-3% capital gains tax if you sell your assets to a local entity, and 10% if it's an international entity. This raises the question of broker location when the time comes for liquidating some assets to fund retirement. Obviously the tax code will change in the next 10, 20, 30 years but as things stand, it'd be most beneficial to invest with a broker with local presence (XTB) and keep accumulating etfs, periodically - maybe quarterly - sell off some shares to benefit from a total of 3% L3 taxation. Is this assumption correct? Is it commonplace to rely on capital gains as opposed to dividends to fund retirement?
My income currency is in USD, and most of the stocks in my preferred ETFs (like S&P 500) are in USD, so i'm assuming having a USD brokerage account and picking USD-based ETFs makes most sense. Am i wrong?
My broker of choice would be IB, which doesn't have a local branch, which puts me in a pickle with the above 3% tax benefit. As i said, odds are taxation will change a lot, but can i have my cake and eat it too by opening a secondary xtb account and periodically transferring shares so i can get "local" payout with the tax benefit? Are there any gotchas with something like that?
Finally, IB has multiple branches in multiple countries (US, Ireland, etc) and as far as i can tell i don't have a say in which branch my account would be opened. Does broker domicile matter at all? I know the domicile of the ETFs matters way more, but also that there's differences in regulation, customer protection, who knows what else.
tl;dr: Is opening an IB account, buying Ireland based market tracking USD accumulating ETFs, never distributing dividends and transferring + selling shares through a local broker to benefit from 3% capital gains tax my best course of action?
Thanks, and any input is appreciated.
My domicile is in Romania and I plan to invest for long term wealth accumulation. I want to leverage the bogleheads approach to accumulate a large enough portfolio to fund my retirement.
In the past did some small-scale investing in local mutual funds, the easiest route available to me at the time. I had no access to international stock/bond options at that time, so i was pleasantly surprised that these days plenty of local institutions offer international portfolios. The catch is that the fees are exorbitant, 5% upfront + 2% annually for the funds i'd be interested in, making them a non-starter.
Excluding local mutual funds it looks like my best course is using an international online broker to invest in Ireland based global index ETFs, like Vanguard FTSE All-World UCITS ETF USD Acc. Even though Romania has an advantageous WHT treaty with the US of 10%, there's no estate tax treaty and EU regulation makes it difficult to invest in US domiciled ETFs anyway, so the 5% saving on tax isn't worth it. A couple of things aren't clear for me here:
- Do all ETFs, or rather, all/most US securities in an ETF pay dividends? It seems like an easy way to sidestep WHT is to have ETFs that just don't pay any dividends. I'm sure there are plenty of practical reasons why something like that isn't widely used.
- I checked and that Vanguard ETF pays ~1% dividends yearly. Is the WHT tax applied on that? Meaning the theoretical difference between the 15% and 10% treaty rates comes down to 0.05% of the portfolio size? That seems fairly negligible all things considered.
- Non-US ETFs come in two flavors: distributing and accumulating. My understanding is that's not the case for US ETFs, i.e. they always pay dividends? For my goals accumulating is more beneficial since Romania only taxes distributed dividends so accumulations makes sure 100% of dividends compound. Is this not an option for US ETFs?
In terms of local taxation, in Romania you pay 8% dividend tax on distributed dividends, so with a set of accumulating ETFs i wouldn't have to pay any local taxes during accumulation. I think this is normal for most EU countries?
The current tax law says you pay 1%-3% capital gains tax if you sell your assets to a local entity, and 10% if it's an international entity. This raises the question of broker location when the time comes for liquidating some assets to fund retirement. Obviously the tax code will change in the next 10, 20, 30 years but as things stand, it'd be most beneficial to invest with a broker with local presence (XTB) and keep accumulating etfs, periodically - maybe quarterly - sell off some shares to benefit from a total of 3% L3 taxation. Is this assumption correct? Is it commonplace to rely on capital gains as opposed to dividends to fund retirement?
My income currency is in USD, and most of the stocks in my preferred ETFs (like S&P 500) are in USD, so i'm assuming having a USD brokerage account and picking USD-based ETFs makes most sense. Am i wrong?
My broker of choice would be IB, which doesn't have a local branch, which puts me in a pickle with the above 3% tax benefit. As i said, odds are taxation will change a lot, but can i have my cake and eat it too by opening a secondary xtb account and periodically transferring shares so i can get "local" payout with the tax benefit? Are there any gotchas with something like that?
Finally, IB has multiple branches in multiple countries (US, Ireland, etc) and as far as i can tell i don't have a say in which branch my account would be opened. Does broker domicile matter at all? I know the domicile of the ETFs matters way more, but also that there's differences in regulation, customer protection, who knows what else.
tl;dr: Is opening an IB account, buying Ireland based market tracking USD accumulating ETFs, never distributing dividends and transferring + selling shares through a local broker to benefit from 3% capital gains tax my best course of action?
Thanks, and any input is appreciated.
Statistics: Posted by aszilveszter — Sat Aug 17, 2024 4:05 am — Replies 0 — Views 66