Understanding taxation for various investing scenarios

p to the e

Hi all. As the title suggests I'm getting to grips with the various taxation processes that come with buying shares from different markets/countries. I like to understand my options so sorry if some of these assumptions seem pedantic. I'm going to go through some scenarios over the next few days/weeks and hopefully can be corrected along the way if I'm incorrect.

As Degiro seems to be popular, and as I have an account with them, I'll reference any purchases with regard to them.

I'll keep mention of any shares to ones which I don't own.

Scenario: Purchasing shares from a company floated in America

Let's say I purchase shares of Coca Cola (€1,000 worth) which is floated on the New York Stock Exchange (NYSE). Let's say that gives me 25 shares. A dividend is paid quarterly of $0.35 cents (approximate current rate) which means that the annual dividend is $1.40. This will give me an annual dividend of 25 shares x $1.40 = $35

On this dividend I am firstly taxed a dividend withholding tax (DWT) on this within the US. The amount depends on whether you have filled out the W-8BEN form or not. On Degiro you can fill this form out online. It is currently 15% with the form filled out and 30% not filled out.

So 15% = $5.25 is taken off by the US authorities and $29.75 is paid into my account if I have the form filled in. Once this is done I am obliged to declare the original dividend ($35) to the revenue. This means that I declare the original dividend of $35 to the revenue on Form 12 (See revenue.ie for Form 12) and they will charge me based on my PAYE level and personal circumstances which, let's say, will be 40%. I'm now entitled to a tax credit of $5.25 which is the Dividend Witholding Tax. This Tax Credit will be taken into account on the Form 12 when you declare what Foreign Tax was deducted underneath what Gross Dividends you earned in the US.

So the Revenue will charge me $35 x 40% = $14 minus the tax credit $5.25 = $8.75 owed to revenue.

This filling out of Form 12 is an annual job and is filled in for the year ended 31 December and to be completed before October of the following year i.e. Form 12 for 2015 must be completed before October 2016.

When I eventually sell these shares any gains over the exemption level of €1,270 I've made is subject to Capital Gains Tax (CGT) currently standing at 33%. So if I sell all 25 of my shares and get a price of $3,000 I must pay 33% on $2,000 (selling price minus original price) - €1,270. Note that the $2,000 must be converted to euros.

If you sell your shares for a lower price than what you bought them for it is possible to offset this loss against what you pay CGT on.

Some questions for this scenario:
Once the Form 12 is filled out is it just a case of waiting to hear back from the Revenue to see how much I owe?
When filling out the form everything must be declared in euros. Is it just as simple taking the conversion rate on Google?

Thanks for any help. I'll update as I go along.

RobertKK

You have that all wrong, if you bought €1000 worth of shares, you would have lets say 25 shares.
The dividend of the KO shares is 0.35USD cents per quarter or currently $1.40 a year.
So 25 x $1.40 = $35 dollars in dividends.
If yo have the W-Ben form signed up you pay $5.25 tax and have $29.75 left.
If not you pay $10.50 tax and only get $24.50.

CIARAN_BOYLE

p to the e wrote: »

Some questions for this scenario:
Where is the €150 tax credit taken into account?
How soon after the dividend has been paid do I declare it with the form 12? Is this a once a year job?
Is the amount of tax paid on the original dividend based on my PAYE tax level?

Thanks for any help. I'll update as I go along.

1 Look at panel 28 on page 8 of the form 12 below (the eform is easier but this is what I can link to). You fill in the foreign tax paid and depending on the dta between Ireland and America you either get it as a tax credit or you get it as an expense against your income.
www.revenue.ie/en/tax/it/forms/form12.pdf

2 Form 12 is annual. You fill it in for the year ended 31 December before October of the following year.

3 Yes its based on your level of income and personal circumstances.

The J Stands for Jay

RobertKK wrote: »

You have that all wrong, if you bought €1000 worth of shares, you would have lets say 25 shares.
The dividend of the KO shares is 0.35USD cents per quarter or currently $1.40 a year.
So 25 x $1.40 = $35 dollars in dividends.
If yo have the W-Ben form signed up you pay $5.25 tax and have $29.75 left.
If not you pay $10.50 tax and only get $24.50.

Revenue will want 40% of the $35 = $14. At that point they will give you a credit for the us tax paid, so they'll ask you for $14 - $5.25 = $8.75.

Dave876

Say out of the 25 shares used above as an example you are entitled to $35 dividends or if you have the option to reinvest you receive 1 extra share,

Say you choose to reinvest, can you then sell say 1 share and avail of the €1,270 exemption from revenue on disposal of shares?

valoren

RobertKK wrote: »

You have that all wrong, if you bought €1000 worth of shares, you would have lets say 25 shares.
The dividend of the KO shares is 0.35USD cents per quarter or currently $1.40 a year.
So 25 x $1.40 = $35 dollars in dividends.
If yo have the W-Ben form signed up you pay $5.25 tax and have $29.75 left.
If not you pay $10.50 tax and only get $24.50.

Thanks for that. Clears up some questions I had in my own mind.

CIARAN_BOYLE

Dave876 wrote: »

Say out of the 25 shares used above as an example you are entitled to $35 dividends or if you have the option to reinvest you receive 1 extra share,

Say you choose to reinvest, can you then sell say 1 share and avail of the €1,270 exemption from revenue on disposal of shares?

Shares are deemed to be disposed on a FIFO basis for CGT purposes.

So lets say you have 25 shares which cost you $200 each. You then get a scrip dividend ie a free share which you sell for $250. Gain of $50 ie exempt as less than €1,270.

No matter what you meant to happen you now have 24 shares which cost $200 each. IE you are whittling away your base cost.

p to the e

RobertKK wrote: »

You have that all wrong, if you bought €1000 worth of shares, you would have lets say 25 shares.
The dividend of the KO shares is 0.35USD cents per quarter or currently $1.40 a year.
So 25 x $1.40 = $35 dollars in dividends.
If yo have the W-Ben form signed up you pay $5.25 tax and have $29.75 left.
If not you pay $10.50 tax and only get $24.50.

Sorry that was a bit of a brain fart. I should probably have said I get a dividend of €1000. Edited accordingly.

Dave876

CIARAN_BOYLE wrote: »

Shares are deemed to be disposed on a FIFO basis for CGT purposes.

So lets say you have 25 shares which cost you $200 each. You then get a scrip dividend ie a free share which you sell for $250. Gain of $50 ie exempt as less than €1,270.

No matter what you meant to happen you now have 24 shares which cost $200 each. IE you are whittling away your base cost.

Hi Ciaran,

If the FIFO method is used, you buy 25 shares @ $200, total cost $5,000

Scrip dividend issue and you gain 1 extra share, 26 Shares you now possess cost still $5,000

You sell one share (Shares trading at $250 now), 25 Shares + 1 scrip dividend Share - Share your selling leaves you with 25 shares, cost now $4,800, with the $50 exempt under the €1,270 threshold,

Basically the question is are you better reinvesting dividends and disposing of shares to utilize the €1,270 or is what i'm saying complete nonsense?

Francie Barrett

That is one of the reasons why I would try to avoid dividend paying stocks.

1. 15% US withholding tax.
2. Irish income tax at the marginal rate.
3. You're probably going to loose another 1-2% on the net amount converting to Euro.
4. The hassle of maintaining records to collect your pittance.

The government really need to copy the British system that exists for small investors. In the UK, they have something called an ISA that allows an individual to save £15k a year in a tax sheltered account (no tax on dividends, no CGT on appreciation). That way, you'd get a proper culture of share owning and investing in this country.

p to the e

Some follow up questions for this scenario:
Once the Form 12 is filled out is it just a case of waiting to hear back from the Revenue to see how much I owe?
When filling out the form everything must be declared in euros. Is it just as simple taking the conversion rate on Google?

valoren

To give a recent example.

I have 49 shares in JNJ with a dividend of 75c US.

The payment made was for €22.31 yesterday.

I filled out the W8-Ben form, Davy confirmed that it's been applied to my account, and would have expected the payment to be gross $36.75.

$36.75 less the 15% witholding tax would give $31.2375 net payment ( or €28.34).

Exchange rate was 0.9072957493 to the dollar on 9/3/16

Have I been taxed at 30%?
Do I need to declare the gross of €28.34 in order to reclaim the shortfall?

It's all so incredibly confusing to me.

valoren

valoren wrote: »

To give a recent example.

I have 49 shares in JNJ with a dividend of 75c US.

The payment made was for €22.31 yesterday.

I filled out the W8-Ben form, Davy confirmed that it's been applied to my account, and would have expected the payment to be gross $36.75.

$36.75 less the 15% witholding tax would give $31.2375 net payment ( or €28.34).

Exchange rate was 0.9072957493 to the dollar on 9/3/16

Have I been taxed at 30%?
Do I need to declare the gross of €28.34 in order to reclaim the shortfall?

It's all so incredibly confusing to me.

Update:

There is a 20% Foreign Encashment Tax.

Can this be reclaimed for a tax return?