Etfs Ireland Tax: A Comprehensive Guide

In Ireland, ETFs are considered securities and are subject to capital gains tax (CGT) when sold.

The tax rate on capital gains from selling ETFs in Ireland is 33% for higher-income individuals and 20% for lower-income individuals.

You'll need to report any capital gains on your tax return, and you may be able to offset losses against gains.

The tax implications of selling ETFs in Ireland can be complex, but understanding the basics can help you make informed decisions.

Investing in Ireland domiciled ETFs can be a smart move for US nonresident aliens. You can benefit from a lower tax rate on dividends and interest compared to US nonresident aliens in countries without a US tax treaty.

The US/Ireland tax treaty rate is a significant advantage, saving you 15% on dividends and 0% on interest paid to Irish corporations. This can add up to a substantial amount over time.

Ireland domiciled ETFs can also shield you from US estate taxes of up to 40% of the balance of US situated assets above $60,000. This is a major consideration for those with significant assets in the US.

US domiciled ETFs holding non-US securities can suffer double tax withholding, a process that can be complex and costly. Ireland domiciled ETFs avoid this double taxation.

Non-residents of Ireland are not liable to Irish gift tax or inheritance tax, providing additional peace of mind for investors.

For Europeans, the 2018 European MiFID and PRIIPs regulations have made it difficult to buy US domiciled funds. This has led many to seek out Ireland domiciled ETFs as a more accessible option.

ETFs in Ireland are subject to specific tax rules. Irish residents can buy shares in Investment Trusts, and the dividends will be taxed at their marginal rate of income tax, while gains will be taxed at the Capital Gains Tax rate of 33%, with the first €1270 of gain exempt.

Ireland domiciled ETFs are taxed internally on the dividends they receive from individual stocks they hold. The calculation of dividend tax withholding is complex, with three levels of possible tax: Level 1 tax withholding by the security's home country, Level 2 tax withholding by the fund's domicile, and Level 3 tax withholding by the investor's home country.

Here's a simplified breakdown of the tax withholding percentages for some popular Ireland domiciled ETFs:

Note: L1TW stands for Level 1 tax withholding percentage.

Ireland has become the premier domicile for ETFs, thanks to its favorable tax environment.

Since 2000, Ireland has consistently built its reputation as a hub for ETFs.

The combination of tax advantages and regulatory support has made Ireland a go-to choice for global investors.

This is particularly true for investors seeking exposure to US assets.

When investing in Ireland domiciled ETFs, there are a few things to keep in mind. US domiciled ETFs may have lower expense ratios, which can save you money in the long run.

One potential drawback of Ireland domiciled ETFs is that they may have narrower bid/ask spreads. This can make it more difficult to buy and sell shares at a fair price.

However, some Ireland domiciled USD denominated ETFs have rather low daily trading volumes. But, as we'll discuss later, this may not be a problem in all cases.

ETF options are limited, but they are sufficient to build simple portfolios and more complex portfolios. You can still achieve your investment goals with the available options.

Be aware that buying Ireland domiciled ETFs may incur a higher transaction cost, depending on your broker. Additionally, some brokers may have annual custody fees, which can add up over time.

It's worth noting that some EU domiciled ETFs are synthetic. This means they use derivatives to track an index, rather than holding the underlying securities.

Here are some key points to consider when investing in Ireland domiciled ETFs:

Level 1 dividend tax withholding is a crucial factor to consider when investing in ETFs. It's the tax withheld by a security's home country on dividends distributed by that security to the fund.

The Vanguard FTSE Developed World UCITS ETF (VEVE) has a Level 1 dividend tax withholding of 12.3% since its inception in 2014. This means that for every dollar of dividend yield, 12.3 cents are lost to Level 1 tax withholding.

The Level 1 dividend tax withholding rates for various ETFs can be seen in the table below:

These rates can vary over time, so it's essential to check the current rates before making investment decisions.

If you're an investor looking to minimize tax liabilities, you're in luck with Ireland domiciled ETFs.

Ireland doesn't apply a capital gains tax to any Ireland domiciled ETFs that you hold, unless you're an Irish resident.

You can buy and hold Ireland domiciled ETFs on various exchanges, such as the London Stock Exchange, without worrying about UK capital gains tax or inheritance tax.

The exchange you choose won't add any new capital gains tax, gift tax, or estate or inheritance tax risks.

This means you can use the exchange that's most convenient for you, such as Frankfurt, Paris, and so on.

The Vanguard S&P 500 ETF (VOO) and Vanguard S&P 500 UCITS ETF (VUSA) are two popular ETFs that track the S&P 500 index.

VOO is US domiciled, holding US securities, which means it has a L1TW of 0% and a L2TW of 30% for nonresident aliens without a US tax treaty.

VUSA, on the other hand, is Ireland domiciled, holding US securities, which results in a L1TW of 15% and a L2TW of 0%.

The estimated YIELD for both ETFs is 1.74%, used for comparison purposes.

VOO has a TER of 0.03%, while VUSA has a TER of 0.07%.

Here's a comparison of the total costs for nonresident aliens without a US tax treaty:

For this investor, VUSA is the better holding due to its lower total cost.

Irish domiciled ETFs have some tradeoffs to consider, but they're generally more cost-effective in the long run. One major tradeoff is that Irish Domiciled ETFs will have lower trading volumes, resulting in a higher bid-ask spread compared to their US counterparts.

This can be considered a hidden fee of sorts, but it's essential to weigh it against the benefits of lower withholding taxes and exemption from estate taxes. According to Example 7, Irish domiciled ETFs will still be more cost-effective in the long run, maximizing our returns.

Another tradeoff is that commissions for the London Stock Exchange (LSE) will be higher than those of the US markets. However, the benefits of lower taxes and estate tax exemption often outweigh this difference.

To give you a better idea of the tradeoffs, here's a summary:

Keep in mind that these tradeoffs are relatively minor compared to the significant benefits of Irish domiciled ETFs, such as lower withholding taxes and exemption from estate taxes.

Choosing a brokerage and trading can be a daunting task, but don't worry, I've got you covered. To buy Irish Domiciled ETFs, you'll need to choose a broker that meets your needs.

You can't go wrong with Interactive Brokers (IBKR), which is now the best brokerage to purchase Irish Domiciled ETFs in my opinion. They offer competitive trading commission fees and zero or low management fees.

If you're looking for a more cost-effective option with assets less than $100,000, Saxo Markets might be the way to go. However, keep in mind that their interface can be slightly hard to navigate initially.

If you're buying €1000 worth of an EU ETF each quarter for 5 years, then selling for €30000, the total share dealing fees and commissions will vary depending on the broker you choose. Here's a comparison of the fees charged by some online stock trading platforms available in Ireland:

Lightyear offers the lowest fees for regular purchases of ETFs in Euros, making it a great option to consider.

Before you start trading, make sure to check the fees and commissions charged by your chosen broker, as they can add up quickly.

ETFs can be an easier and more cost-effective way for investors to achieve returns from a specific stock market or index without having to purchase all the individual stocks.

ETFs offer a lot more diversification than you'd ever hope to achieve by building your own portfolio of shares, which is especially important for small investors with a limited number of shares.

Accumulating ETFs reinvest any dividends to buy other stocks, but this has implications for taxation, with a 41% tax on ETF dividends in Ireland.

ETFs typically aim to track a specific stock market or index, such as the FTSE 100 or S&P 500, and have charges built in to cover the fund manager's operational costs, which tend to be very low, often below 0.2% a year.

Here are some key points to consider when choosing between accumulating and distributing ETFs:

Diversification is key to building a stable investment portfolio. It's a way to spread your investments across different asset classes, sectors, or geographic regions to minimize risk.

ETFs can be an easier and more cost-effective way to achieve diversification. They allow you to invest in a specific stock market or index, such as the FTSE 100 or S&P 500, without having to purchase individual stocks.

ETFs typically aim to track a specific stock market or index, offering a convenient alternative to building your own portfolio of shares. This is often more cost-effective than managing a big portfolio of self-selected shares.

ETFs have charges built in to cover the fund manager's operational costs, which tend to be very low, often below 0.2% a year.

Accumulating vs Distributing ETFs can have a significant impact on your investment strategy.

Accumulating ETFs reinvest any dividends to buy other stocks, which can lead to a snowball effect and faster growth over time.

In Ireland, however, this strategy comes with a catch: there's a 41% tax on ETF dividends.

This tax implication is something to consider when deciding between accumulating and distributing ETFs.

Accumulating ETFs can be beneficial for long-term investors who want to maximize their returns, but it's essential to weigh this against the potential tax burden.

If you're unsure which approach to take, consider your individual financial situation and goals before making a decision.

When buying €1000 of an EU listed ETF once a month for 5 years and selling for €90,000, the fees can add up quickly.

Lightyear offers free share dealing fees and commissions, including stamp duty, making it an attractive option for long-term investors.

Etoro charges €4.40 in total share dealing fees and commissions, including stamp duty, when depositing and withdrawing USD.

DEGIRO has a more complex fee structure, with free ETF selection resulting in a total fee of €12.50, while non-free ETF selection costs €165.

Etoro's deposit and withdrawal fees in Euro are significantly higher, at €180.

Interactive Brokers charge €260 in total share dealing fees and commissions, including stamp duty.

Here's a comparison of the total fees for each platform:

These fees can have a significant impact on your investment returns over time, so it's essential to choose a platform that suits your needs and budget.

The FTSE All-World UCITS (USD) Accumulating fund is a great choice for those looking to diversify their portfolio. It's a type of exchange-traded fund (ETF) that aims to track the performance of the FTSE All-World Index.

This fund has a total expense ratio of 0.22%, which is relatively low compared to other ETFs. However, it's worth noting that the reported fund return is only 0.01% lower than the net index return, which is a surprise given the expense ratio.

The main difference between the reported fund return and the gross index benchmark return is due to the tax index benchmark used to obtain the net index return. This benchmark overestimates the 15% withholding tax tariff on US dividends, resulting in a difference of almost 0.7%.

Here's a breakdown of the estimated costs and taxation incurred by the fund:

It's interesting to compare this fund with other similar funds, such as the Vanguard Total World Stock ETF (VT). According to calculations, the total cost of VT is 0.71% for a nonresident alien with no US tax treaty, while the total cost of VWRL (the Ireland domiciled version of the FTSE All-World UCITS ETF) is 0.43%. This makes VWRL a more cost-effective option for this type of investor.