Dividend from ETFs vs dividend from stocks Tax treatment (DTA)

Taxes
1

Hi all

I was wondering if dividend paid by distributing ETFs are fiscally treated in the same way as dividends from individual stocks. In refer in particular to dividends coming from countries were most of ETFs are domiciled : Ireland, Luxemburg etc.

Reading the double taxation agreements in most cases there is no distition between dividends from ETF and dividends from stocks.

If we take for example Ireland, the country does not apply any witholding tax on dividends paid out by ETFs to non Irish residends. Does the same apply to individual stocks (irish domiciled / irish ISIN) bought for example via Swissquote by a non Irish resident?

Does anyone have any practical experience with this?

Thanks

2

ETF is more or less like a stock of the fund. So the dividend treatment for the dividends paid by ETF is purely dependent on ETF domicile and investor domicile.

Same as for stocks , it’s dependent on Stock domicile and investor domicile

Can’t say for sure about Ireland because it’s a tricky law which has been devised to support ETFs.

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3

Thanks for your reply.

I was wondering why some countries apply witholding tax and other not. The topic is really a mess and also so called “tax experts” seem to have opposite point of view.

4

To combat tax evasion.

Not really, just visit PWC Worldwide Tax Summaries and all the information (e.g. about WHT) for each country will be available [1].

[1] https://taxsummaries.pwc.com/

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5

Most of the info on PWC are just theoretical, in practice do not apply. I have seen this for example with dividends received from Singapore.

Today all the info are authomatically exchanged between broker and tax authority. There is practcally no chance to hide info to tax authorities. They do not even let you open an account if you do not provide to the broker your TIN.

6

The withholding tax on dividends is just to ensure that investors pay their due tax. Since foreign investors don’t file income tax returns, what would be other way to get tax collection?

Ireland is not withholding because there is no tax applicable anyways for foreign investors buying ETFs domiciled in Ireland.

7

Well of course they are theoretical, they don’t know your personal situation or what the broker does for you. Nonetheless the site is very informative for a high-level overview.

Who are the tax experts? Witholding taxes are very easy and clear to understand in my opinion, so I don’t understand how it can be a mess (?).

8

Yes, but my question was : are irish ETFs treated similarly as irish stocks? is an irish ETF the same as an irish stock (fiscally talking for a non irish resident)?

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I know what is a witholding tax. My question was slightly different. Yes the so called “tax experts” have different opinion on how a DTA can be interpreted.

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Sorry. I wouldn’t be able to confirm.
I only hold Irish ETFs like SSAC, VWRL etc but no stock from Irish companies. Actually I don’t even know any company from Ireland

11

I can’t believe you know none of 24 stocks from Ireland! :rage:
https://www.ishares.com/us/products/239662/ishares-msci-ireland-capped-etf

P.S. Actually MSCI Ireland Index (85% of the free float-adjusted market capitalization in Ireland) lists 5 constituents. 24 is their total market :exploding_head:. RYANAIR seems to be listed in US…

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Okay. I know Ryan air from these 24 ….
Don’t report me for not knowing others :wink:

Full disclose until you shared this, I thought Ryan air is from England ….

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I will report you to Ireland Financial Oversight Authority and you will be forever banned from drinking Guinness! Which belong to a British company, anyway :scream:.

Actually I might think in investing in this company. They are British, so no withholding tax!

Diageo plc, together with its subsidiaries, engages in the production, marketing, and sale of alcoholic beverages. It offers scotch, gin, vodka, rum, raki, liqueur, wine, tequila, Chinese white spirits, cachaça, and brandy, as well as beer, including cider and flavoured malt beverages. The company also provides Canadian, Irish, American, and Indian-Made Foreign Liquor whiskies, as well as ready to drink and non-alcoholic products. It provides its products primarily under the Johnnie Walker, Guinness, Tanqueray, Baileys, Smirnoff, Captain Morgan, Crown Royal, Don Julio, Cîroc, Buchanan’s, Casamigos, J&B, and Ketel One brands. The company operates in the United States, the United Kingdom, Turkey, Australia, Korea, India, Greater China, Brazil, Mexico, South Africa, Nigeria, and internationally. Diageo plc was incorporated in 1886 and is headquartered in London, the United Kingdom.

Doesn’t it make your mouth water?

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I would assume that they are not treated the same. Irish resident companies must normally withold 25% WHT [1] on dividends - that’s simply the law (but can be reduced to 0%).

ETFs on the other hand, are not companies/stocks, but a type of collective investment scheme, which is traded on a stock exchange. They fall under categories of persons exempt from DWT (Section 172C TCA 1997) [2] if they are of a certain type, like UCITS [3]:

  1. Categories of persons exempt from DWT (Section 172C TCA 1997)
    7.1 Exempt Resident Persons (“Excluded Persons”)
    The following categories of persons are excluded persons exempted from the DWT legislation (all legislative references refer to the TCA 1997):
    […]
    e) A collective investment undertaking within the meaning of section 734, an
    undertaking for collective investment within the meaning of 738, and an
    investment undertaking within the meaning of section 739B. However, if any such
    undertaking is also an offshore fund within the meaning of section 743, the
    exemption does not apply (see Definitions section under paragraph 3 of this Tax
    Instruction for a definition of a Collective Investment Undertaking).
    […]

“collective investment undertaking” is —
• a unit trust scheme authorised under the Unit Trusts Act, 1990,
• a collective investment vehicle set up under the European Communities
(Undertakings for Collective Investment in Transferable Securities) Regulations
1989 – known as the “UCITS Regulations” (this could include investment
companies having a fixed or variable capital),
[…]

For an easier explanation, you can also take a look at the ETF Guide from Maples Group [4], which gives a dense summary about the (tax) advantage of Irish-domiciled ETFs.

But for you as a Swiss-domiciled investor it’s not really important, because thanks to the treaty between Switzerland and Ireland the DWT would be 0% [5].

Dividenden unterliegen in Irland einer Quellensteuer von 25 (20 % vor dem 1. Januar 2020). Prozent. Sofern der Empfänger jedoch in einem Staat ansässig ist, mit dem Irland ein Doppelbesteuerungsabkommen abgeschlossen hat, wird gemäss innerstaatlichem Recht keine Quellensteuer erhoben. Deshalb sind Dividendenzahlungen einer irischen Gesellschaft an eine in der Schweiz ansässige Person in
der Regel frei von irischer Quellensteuer und begründen daher keinen Anspruch auf Anrechnung ausländischer Quellensteuern in der Schweiz.

Disclaimer: Everything I say is definitely not financial advice.

[1] Dividend Withholding Tax (DWT)
[2] https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-06/06-08a-01.pdf
[3] https://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/tca/part27.pdf (page 8)
[4] https://maples.com/-/media/files/pdfs/guides/etfs---a-guide-to-exchange-traded-funds-in-ireland.pdf
[5] https://www.estv.admin.ch/dam/estv/de/dokumente/international/laender/int-laender-irland-de.pdf.download.pdf/int-laender-irland-de.pdf

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16

Thanks for the info. I actually reside in Portugal and based DTA Ireland - Portugal I do not see (maybe wrongly) that dividends from ETFs are treated differently from dividend from dividend from stocks. Am I right?
Here the DTA: https://www.revenue.ie/en/tax-professionals/documents/double-taxation-treaties/p/portuguese-republic.pdf

17

According to the DTA (Article 10, paragraph 2) you will pay 15% WHT on dividends from companies:

[…] However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed 15 percent of the gross amount of the dividends […].

Degiro states, that the witholding tax is 25% for the dividends you receive [1], but you can request back 10% so that you get down to 15%. PWC Tax Summaries also gives me the 15% number [2].

In conclusion, yes - I still think that they are not treated the same. Irish UCITS ETFs are exempt from WHT, but normal company stocks not. PWC tax summaries also has a note about that:

image
image1041Ă—574 83.2 KB

Again, everything I say is definitely not financial advice.

[1] Qual é a taxa legal de retenção na fonte aplicada ao rendimento de dividendos na minha conta? | DEGIRO
[2] Ireland - Corporate - Withholding taxes

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18

I recognised Ryanair and Kerry (I like/buy their butter). :wink:
But there was a trend a while back to move Hq from US to Ireland for tax reasons. Linde and Medtronic are 2 well-known/big companies that did, and are now incorporated in Ireland. If I remember correctly Pfizer’s move was then blocked by the Obama government, to stop these “tax optimisation games”.
I wonder why Linde with an Irish ISIN IE… isn’t part of the Irish index then?

19

I own a few Irish company shares.

Dividend withholding tax there is 25% (recently increased from 20%).

I filled in a form supplied by Irish tax authorities and sent to my Canton (SZ) to prove residence in CH and sent the completed form to my Broker.

I now receive the dividends with 0% DWT deducted.

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Could you share if the broker is in CH or IE?

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That’s weird but good for you. As per the DTA, the withholding tax should be 15% on dividends. The 0% rate is reserved to very limited situations.