ETF domicile

Aidanmc

Is there still 30% US withholding tax on dividends in ETF's domiciled in Luxembourg?

So is it better if possible to have one thats domiciled in Ireland.

I was looking at Amundi prime Global ETF has low ocf at 0.05% but domiciled in Luxembourg.

masonic

It depends. Holding in a pension, or opting for a synthetic ETF can get around WHT. But if it is to be paid, my understanding is to go with an Irish ETF where the DTA reduces it to 15%. S&P500 yield is about 1.5%. 15% of that is 0.23% and 60% of that is 0.14%, so yes it would make the Amundi fund less cheap. Of course the Amundi fund uses a different index to avoid paying MSCI or FTSE Russell, so actual yield and country weighing may differ.

Aidanmc

Is there synthetic all world/developed world etf's. Any examples?

Is synthetic got to do with replication method or is that something different?

masonic

Aidanmc said:

Is there synthetic all world/developed world etf's. Any examples?

Is synthetic got to do with replication method or is that something different?

Of course, the two cheapest are MXWS and XWD1, fees are 0.19%, so not as cheap as other options.

Synthetic is a replication method. Instead of holding the underlying investments, the ETF holds a derivative that matches the performance of the relevant total return index. Of course that introduces counterparty risk, but eliminates tracking error and WHT.

Personally I do regional ETFs, but I just have an Irish domiciled fully replicated S&P500 ETF and take the hit on the 15% WHT (probably end up losing about 0.3% in fees and taxes overall). Whereas synthetic MXUS charges 0.05%. Maybe I should reconsider my stance on synthetic ETFs...

GeoffTF

Aidanmc said:

Is there still 30% US withholding tax on dividends in ETF's domiciled in Luxembourg?

So is it better if possible to have one thats domiciled in Ireland.

I was looking at Amundi prime Global ETF has low ocf at 0.05% but domiciled in Luxembourg.

Yes, according to this:

https://www.justetf.com/uk/news/passive-investing/how-etfs-are-taxed-in-the-uk.html

GeoffTF

masonic said:

It depends. Holding in a pension, or opting for a synthetic ETF can get around WHT. But if it is to be paid, my understanding is to go with an Irish ETF where the DTA reduces it to 15%. S&P500 yield is about 1.5%. 15% of that is 0.23% and 60% of that is 0.14%, so yes it would make the Amundi fund less cheap. Of course the Amundi fund uses a different index to avoid paying MSCI or FTSE Russell, so actual yield and country weighing may differ.

You avoid withholding tax if you hold a US based ETF in a pension and the pension provider is willing to claim it back. UK retail investors are not allowed to hold US based ETFs unless they issue a KIID, however, which none of them do. Holding an Ireland or Luxembourg based ETF in a pension does not avoid withholding tax.

masonic

GeoffTF said:

masonic said:

It depends. Holding in a pension, or opting for a synthetic ETF can get around WHT. But if it is to be paid, my understanding is to go with an Irish ETF where the DTA reduces it to 15%. S&P500 yield is about 1.5%. 15% of that is 0.23% and 60% of that is 0.14%, so yes it would make the Amundi fund less cheap. Of course the Amundi fund uses a different index to avoid paying MSCI or FTSE Russell, so actual yield and country weighing may differ.

You avoid withholding tax if you hold a US based ETF in a pension and the pension provider is willing to claim it back. UK retail investors are not allowed to hold US based ETFs unless they issue a KIID, however, which none of them do. Holding an Ireland or Luxembourg based ETF in a pension does not avoid withholding tax.

Are you saying that a Luxembourg or Ireland domiciled swap-based ETF that holds no US shares wouldn't match the return of the total return index without WHT? Because I don't see anything else that doesn't agree with what I posted.

GeoffTF

masonic said:

GeoffTF said:

masonic said:

It depends. Holding in a pension, or opting for a synthetic ETF can get around WHT. But if it is to be paid, my understanding is to go with an Irish ETF where the DTA reduces it to 15%. S&P500 yield is about 1.5%. 15% of that is 0.23% and 60% of that is 0.14%, so yes it would make the Amundi fund less cheap. Of course the Amundi fund uses a different index to avoid paying MSCI or FTSE Russell, so actual yield and country weighing may differ.

You avoid withholding tax if you hold a US based ETF in a pension and the pension provider is willing to claim it back. UK retail investors are not allowed to hold US based ETFs unless they issue a KIID, however, which none of them do. Holding an Ireland or Luxembourg based ETF in a pension does not avoid withholding tax.

Are you saying that a Luxembourg or Ireland domiciled swap-based ETF that holds no US shares wouldn't match the return of the total return index without WHT? Because I don't see anything else that doesn't agree with what I posted.

You posted:
"Holding in a pension, or opting for a synthetic ETF can get around WHT."

That is a little vague. Someone might interpret it as saying that holding any ETF in a pension will get round WHT, which would not be accurate.

"Are you saying that a Luxembourg or Ireland domiciled swap-based ETF that holds no US shares wouldn't match the return of the total return index without WHT?"

I have not posted about that. Other countries levy WHT. Swaps avoid WHT only for the US. There are tax treaties with countries other than the US. I have not checked to see whether they differ for Ireland and Luxembourg. Some indexes deduct WHT. Others do not.

masonic

GeoffTF said:

masonic said:

GeoffTF said:

masonic said:

It depends. Holding in a pension, or opting for a synthetic ETF can get around WHT. But if it is to be paid, my understanding is to go with an Irish ETF where the DTA reduces it to 15%. S&P500 yield is about 1.5%. 15% of that is 0.23% and 60% of that is 0.14%, so yes it would make the Amundi fund less cheap. Of course the Amundi fund uses a different index to avoid paying MSCI or FTSE Russell, so actual yield and country weighing may differ.

You avoid withholding tax if you hold a US based ETF in a pension and the pension provider is willing to claim it back. UK retail investors are not allowed to hold US based ETFs unless they issue a KIID, however, which none of them do. Holding an Ireland or Luxembourg based ETF in a pension does not avoid withholding tax.

Are you saying that a Luxembourg or Ireland domiciled swap-based ETF that holds no US shares wouldn't match the return of the total return index without WHT? Because I don't see anything else that doesn't agree with what I posted.

You posted:
"Holding in a pension, or opting for a synthetic ETF can get around WHT."

That is a little vague. Someone might interpret it as saying that holding any ETF in a pension will get round WHT, which would not be accurate.

"Are you saying that a Luxembourg or Ireland domiciled swap-based ETF that holds no US shares wouldn't match the return of the total return index without WHT?"

I have not posted about that. Other countries levy WHT. Swaps avoid WHT only for the US. There are tax treaties with countries other than the US. I have not checked to see whether they differ for Ireland and Luxembourg. Some indexes deduct WHT. Others do not.

Yes, it was a little vague. And I had overlooked the fact we were discussing a non-US-domiciled collective investment rather than direct US investments when mentioning the pension option. My question wasn't about ETFs covering other geographies. Just emphasising there would be no underlying US shares held within the synthetic US ETF.

george4064

I might have got the wrong end of the stick here, but isn’t US withholding tax applicable on dividends received from US companies including indirectly (eg a S&P 500 ETF) so any synthetic S&P 500 ETF does not pay the tax because it isn’t entitled to any of the dividends.

Therefore you don’t benefit from avoiding US withholding tax by investing synthetically, just that you forgo the benefit of after tax dividends (whether they’re automatically reinvested or distributed).

GeoffTF

george4064 said:

I might have got the wrong end of the stick here, but isn’t US withholding tax applicable on dividends received from US companies including indirectly (eg a S&P 500 ETF) so any synthetic S&P 500 ETF does not pay the tax because it isn’t entitled to any of the dividends.

Therefore you don’t benefit from avoiding US withholding tax by investing synthetically, just that you forgo the benefit of after tax dividends (whether they’re automatically reinvested or distributed).

Synthetic ETFs avoid WHT because they hold swaps rather than the underlying shares. Swaps are exempt from WHT in the US, so get the dividends (which are priced in the swaps) without paying WHT.