ETFs taxation in ireland

Cobh16

The high rate of tax (41%) , deemed disposal after 8 years, hinders the Irish investors ability to tap into the world of ETF investments. 

I came across a report on revenue regarding the taxation of EU and Irish domiciled ETFs. 

It also states that ETFs domiciled else were are not taxed the same, instead are treated as stock, in terms of taxation. See link below.

My question is, how to find these ETFs ? Or can they even be purchases from Ireland? 

https://taxinstitute.ie/wp-content/uploads/2022/01/Revenue-Paper-on-Exchange-Traded-Funds-TDM-27-01a-03_.pdf 

cnocbui

If you can find a platform that allows you to buy Australian shares, I'd imagine they would let you buy the many ETFs in that market.

dumb_parade

Firstrade is one platform I’m aware of that allowed you to trade us etfs with normal ctg rules applying

techman1

An article in the independent yesterday said that minister mcgrath is doing a review of the whole exit tax deemed disposal regime in relation to etfs. Maybe they are going to simplify it so that etfs are taxed the same as shares

thedarksh1te

https://www.boards.ie/discussion/comment/120160959#Comment_120160959

Commsec and IG trading are the best apps

Saudades

https://www.boards.ie/discussion/comment/120161043#Comment_120161043

US ETF's are now also taxed at 41% since 01.01.23.

techman1

https://www.boards.ie/discussion/comment/120235851#Comment_120235851

There is no concrete rule regarding them, revenue just removed their previous clarification that they were taxed under CGT, so they just threw the whole thing into doubt again

It looks like the minister mcgrath wants the whole thing simplified as it is resulting in too much money sitting on deposit as People are petrified of getting caught with wrong taxation bracket for simple investments. No other European country has this complicated taxation regime for simple etf investments

https://www.boards.ie/discussion/comment/120234817#Comment_120234817

Keep us updated on any further info here! I’ve been looking to invest in ETFs for the last few years but the tax is so complicated I didn’t know where to start!

dxhound2005

I doubt if that is a very big consideration for the Minister. Taxation on EFT's would not be what has led to €150 billion being in bank deposits, along with vast amounts more in the Credit Unions and State Savings.

Those funds will move whenever it suits the people holding them to do so. Probably never in many cases judging by how many accounts go dormant. But if there was a significant surge into EFT products, would this be a good thing?

cnocbui

https://www.boards.ie/discussion/comment/120243929#Comment_120243929

When you ask about whether it would be a good thing, are you suggesting government's make that determination for investors and act accordingly?

dxhound2005

The only thing which might make a big volume of money move is if the banks removed their guarantee (it is not a government guarantee). They have already tried to stop the inflow by making interest rates zero. The government giving more favourable tax treatment to EFT's is not going to make much difference.

On these forums some people are very critical of those who leave large amounts languishing in deposit accounts. But what would happen if €100 billion arrived into the stock markets in the next year? Would that help the economy?

techman1

https://www.boards.ie/discussion/comment/120243929#Comment_120243929

Well then why are they doing a review of this taxation at the behest of the minister so soon after the last revenue review? Obviously because many people are not happy with it and it explicitly mentioned in the article that large sums of money are remaining uninvested because of this.

Low interest rates on savings accounts is a completely separate issue .I don't understand why you are posting on this page anyway about etfs when your gripe is really about low interest rates on savings accounts

Viscount Aggro

I read somewhere, they will not change the 41% exit tax, as it's too costly to do, and it exists to protect the life / pensions industry in Ireland.

Unit funds sold through IBA brokers all deduct 41% at source. A lot of unit funds also have an ETF version traded on exchanges. If ETFs were taxed differently, there would be a huge outflow of money to passive funds.

They also don't want people investing on their own, want to keep it all in pensions and unit funds.

Shedite27

https://www.boards.ie/discussion/comment/120244496#Comment_120244496

Life/Pensions industry are on the same side as ETF investors here, they're lobbying to bring exit tax rate down to 33% too, they don't like that DIRT on savings and CGT on shares are lower than 41% on their policyholders. It should be streamlined that the same rate applies to gains on...

• ETF's
• Shares
• Bank Deposits
• Investment Accounts

Don't forget Life companies are levied 1% on all premiums too. Sort out the deemed disposal issue and we're all on the level playing field.

Viscount Aggro

Life companies are NOT on the same playing field... thats my point.

Viscount Aggro

Besides, it's not a big area for Irish private investors because of the tax treatment. People are pushed into investment trusts, which are limited.

I am invested in ETFs, in a big way.

Supercell

https://www.boards.ie/discussion/comment/120280538#Comment_120280538

I've an AVC so ETF's are treated just like shares in that. Surprised to see how few ETF's there are compared to IT's (which is a fraction of what I can get on Degiro and many seem to be arbitarily unbuyable, for example I can buy SMT but not HGT (its "restricted") for reasons only clear to Davy . Might be Davy having a crap selection though. Can only buy UK and Ireland shares/ETF's/IT's with huge transaction fees in it. Ireland the land where property is the only thing anyone thinks of investing in...

Viscount Aggro

SMT.

I warned a friend about buying this.

It's volatile, holds unquoted, illiquid securities.

Yellow_Fern

I can buy US domiciled ETFS on Tastyworks. It works fine. The wire fees are not so bad. Not sure about the tax though. It is a mine field but if anyone wants to go down this road, PM me and I can give you a referral code for a bonus.

kennedmc

I find this confusing as hell I'm looking to put some money into US ETFs.

If I understand correctly:

I use my Degiro account to buy VUAA ticker Accumulating (Similar to Vanguard S&P - VOO) that is domiciled in EU I would pay 41% tax on gains. After 8 years I would pay tax on gain even if I hadn't sold?!

Seems very harsh!

techman1

Yes it's crazy, in other words you can't invest in ETFS in Ireland essentially. The crazy thing is that many of these ETFS domicile in Ireland for the tax advantages. So the government gives the investment funds big tax breaks but crucifies irish investors that want to invest in these funds

kennedmc

https://www.boards.ie/discussion/comment/121054958#Comment_121054958

Thanks yes that seems about right supporting the big guys!

• If you don’t sell your ETF – then every 8 years you will be “deemed” to have sold it and will be liable for tax at 41% on any gains in the preceding 8 years. This means you will have to find the funds to pay the tax even if you haven’t sold them. This will put a lot of people of ETFs.

Reading up abit more on this -lifted above from Money Guide Ireland. If I invest €100K and after 8 years I have made a gain of €100K I will have to stump up a 41K tax bill?!!!

If I paid the 41K tax and then 6 months later the value of the ETF fund dropped by 50% (and thus my unrealised gain) do revenue give me a refund.

How is approach of "deemed to have sold something" even legal? I wonder has it ever been legally challenged as it seems like some made up nonsense!

Shedite27

Yeah deemed disposal was invented in the recession times when Ireland was skint as a way of getting some tax revenue now rather than wait till the person actually sold it. Totally legal. If you feel strongly against it they're doing a consultation on it currently and you should make a submission.

https://consult.finance.gov.ie/en/consultation/funds-sector-2030-framework-open-resilient-developing-markets

One way around it is to buy an investment trust that mirrors the ETF, for example S&P500 is available as the JP Morgan American Trust (available on Degiro etc). That's classes as a share so no deemed disposal (and only 33% CGT).

kennedmc

https://www.boards.ie/discussion/comment/121055540#Comment_121055540

Thanks will check it out on DeGiro.

Interesting re the framework although not sure if I have the expertise to make a submission here :D

Yellow_Fern

What I do is use a self directed PRSA pension to get invest in Vanguard Global Stock Index Fund (IE00B03HCZ61).

kennedmc

https://www.boards.ie/discussion/comment/121074310#Comment_121074310

Thanks Yellow_Fern. I need to do some research here! Can you DM what platform / business supports this in Ireland?

Supercell

double post, please delete

Supercell

Its available on my Davy PRSA AVC account :

Geuze

I am curious, do DeGiro report holdings of ETFs to the Irish Revenue?

willycat

https://www.boards.ie/discussion/comment/121262338#Comment_121262338

Curious as to think to "forget" reporting ETFs and avoid paying the tax? Just remember that all brokers ask for your tax residency and, for Ireland, your PPS number when registering. DeGiro has your PPS number, so does any other broker you deal with.

adriant900

How are ETFs taxed within a company? Exit tax or CGT or corporation tax?

cnocbui

https://www.boards.ie/discussion/comment/121293815#Comment_121293815

Do you mean does Revenue have the balls to try and shag an investment company the way it does individual investors? My bet is that they don't, and that a company can invest in and own ETF's no differently than individual shares and would pay normal CGT on disposal and normal company tax rates on dividend income from them, less costs.

I have come to the conclusion that Revenue have a policy of preventing individuals from benefiting from investment. They want you to spend all that you earn. They rendered interest from savings irrelevant with DIRT and persisted with this inexplicable tax even when bank accounts essentially stopped paying any interest.

This attitude to ETF taxation is yet another incredibly heavy handed way of preventing Irish individual investors from doing things which are perfectly normal throughout the OECD.

Take Australia as an example. Any interest you earn on a bank account is treated as income and you just pay tax on it at your marginal rate. ETF's are treated the same as shares. You pay CGT on disposal and any dividend income is taxed at your marginal rate.

For shares and ETF's there is even a significant fair-mindedness sweetener of franking. Australia does not consider double taxation to be fair, so if a company pays tax on it's profit and then distributes some of that profit to shareholders as a dividend, those shareholders do not then have to pay tax on those dividends. This is a mechanism that is a great incentive for investment in the share market.

Revenue don't want individuals profiting by investment and have come up with a range of taxation measures unique to Ireland to ensure they can't.

PietroM

Hi guys, I have more questions on ETF investing in Ireland and taxation if you don't mind.

As an example, Imagine an investment of 100K on an ETF:

1. At year 8 I register a gain of 10K, I pay 4.1K tax on unrealized gain.
   1. At year 9 the ETF falls at 90K and I am forced to sell. Can I ask the reimbursement of the 4.1K paid?
   2. Would anyone know how much I need to sell if I decide to pay the 4.1K taking money directly from the ETF? Do I pay taxes on the money I am taking to pay taxes? How would that work?
2. At year 8 I register a loss of 50K, I pay no taxes on the unrealized gain.
   1. At year 9 ETF raises again at 100K and I am forced to sell. Will Revenue consider this as a gain of 50K since year 8 or no gain considering the original investment?
3. Did anyone make simulations of the real impact of deemed disposal rule on ETF investing? I suspect the ETF must generate very high yield (i.e. very high risk) to provide reasonable returns (considering hyperinflation)
4. I understand losses on one ETF cannot be used to offsets gains in stocks, but what about other ETF?
5. At year 6 I decide to leave Ireland permanently for another European country. Do I need to pay any tax in Ireland before leaving? Am I forced to sell my positions? If this happens at year 10, the other European country will ask me Capital gain on the total gain, will I be able to deduct the taxes I already paid in Ireland at year 8 (assuming double taxation agreement) or ask Revenue for reimbursement?

Frankly it is inconceivable that citizens are forced to either buy an overvalued house or invest all in ridiculous actively managed pension funds.

No other country I lived in has this insane punishing blinded taxation regime :(

Shedite27

https://www.boards.ie/discussion/comment/121310737#Comment_121310737

Wouldn't "bank interest taxed at marginal rate" (40%) be worse than Irish DIRT (33%)?

cnocbui

https://www.boards.ie/discussion/comment/121318577#Comment_121318577

They have reduced it since interest rates went to 0%. Back when bank accounts actually paid interest, it was more like 41%. I recall paying DIRT that was at 41%, which was higher than my marginal rate at the time. Since in my case the source of the interest was foreign, the lovely little gnomes then went and lumped that interest in with taxable income and so then charged PRSI and USC on top, despite the rationale of the Irish DIRT being so high because it essentially incorporated those. Double taxation, FTW.

cnocbui

https://www.boards.ie/discussion/comment/121315953#Comment_121315953

Complicated, isn't it? Suffice it to assume it's not worth investing in ETFs if you are tax resident in this country. You would be far better off to mirror an ETF and buy the individual shares it comprises in the same ratio, and regularly check back with the ETF provider to re-check the holdings so as to then mirror any changes to the holdings with appropriate buys or disposals.

You will love this: If you acquire assets while in Ireland and then leave the country and then sell those assets within 3 years of departure, you are 'supposed' to then pay CGT on any gain to Revenue.

Of course this is unenforceable unless you return to Ireland and you are not subject to Irish law once you are in and subject to another legal jurisdiction.

KingPanko

https://www.boards.ie/discussion/comment/121320469#Comment_121320469

On picking stocks to mirror ETF rather than the actual ETF, that is an option and that is what the tax rules drives you towards. But you need to factor in the extra transaction costs, the hassle, the fact that will have to do some stock picking which most people are shite at (as many ETFs contain 1000s of stocks while to keep transaction costs down you will probably buy 20-25 stocks at most)

KingPanko

https://www.boards.ie/discussion/comment/121315953#Comment_121315953

1.a. No

1.b. You would have to sell €4.1k worth of the investment to pay the tax, tax is the same if you dispose of it or it is a deemed disposal so no issue there.

2.a. No tax due. However if you sold year 9 for 110k there would be 41% of the 10k profit in tax. Deemed disposal is bringing forward the tax on capital gains rather than resetting the clock. Main disadvantage is is that it screws with long term compounding.

3 . People have, one is an Irish financial youtuber you could look up called Malone Financial. He didn't do a great job with it as he assumes the tax is paid from your bank account rather from selling some of your investment. Still worth watching.

Not sure what your point is with hyperinflation, we have had high inflation the last couple of years but this is not hyperinflation or anything close to it, read up on Zimbabwe inflation in early 2000s or Germany 1920s. Diversified stock market investment is the easiest and best passive long term protection against inflation, it wont beat inflation every year but it has over the long term for those that held their nerve through the ups and downs. High tax and deemed disposal does not change this but it does make it harder.

4 . No offsetting.

5 . I don't know

tesla_newbie

I own two reasonably well diversified investment trusts ( JP Morgan American investment Trust and Allianz Technology Fund ) , they may not perfectly match market gains but the avoidance of draconian tax treatment makes them the clear winner over ETF,s

cnocbui

https://www.boards.ie/discussion/comment/121322994#Comment_121322994

You are not doing any stock picking, the manager of the ETF is doing that, you are just copying their decisions.

ETFs are not free, you pay a small % as a management fee to the ETF provider. Not paying this fee would offset your transaction costs to some extent.

Oh yes, it would be a hassle, but the deemed disposal highway robbery might be a significant enough incentive for some.

KingPanko

https://www.boards.ie/discussion/comment/121327915#Comment_121327915

Which ETFs do you copy? How many stocks do you think one needs to own to have a globally diversified portfolio?

In my opinion the annual management cost of owning an ETF is not an issue, an ETF that owns 1000s of global stocks can cost less than 0.1% p.a. Totally agree that 41% of deemed disposal is huge.

Brian CivilEng

https://www.boards.ie/discussion/comment/121323051#Comment_121323051

Can you possibly clarify a couple of things? I see them repeated a lot, and I'm not sure I fully understand.

Are you forced to sell a portion of your ETF to pay the deemed disposal tax? On here and Reddit people keep correcting those who don't take this into account. Can you not cover the tax bill from other sources? I'm still in the early stages of investing, but my process is that I invest a certain amount per month, as tax bills arise I intend to pay out of the funds I would otherwise be using to invest.

Also, if I am paying taxes on deemed disposal in 2023, is it only on shares purchased in 2015 (and/or 2007 if any)? As I understand it, it's not on my total investment rolled up. So if I have 100 shares in an ETF, 10 of which I purchased in 2015, I look at the cost I paid for those 10 and compare it to the price today when calculating deemed disposal. The other 90 don't come into the calculation for 2023. In 2024 I look at shares bought in 2016, in 2025 those bought in 2017 etc. If this is not correct, and the bill owed in 2023 is for everything purchased 2015 to 2023 then I need to rethink my strategy.

I'd appreciate corrections if I have misunderstood.

KingPanko

https://www.boards.ie/discussion/comment/121328255#Comment_121328255

Your understanding is correct. You are not forced to sell for the deemed disposal, you can pay the tax from whatever source e.g. from your bank account. It is self declared so you work out what you owe and pay it however you wish. In the long term it is the same result on your net worth, the money you take from your cash to pay the tax instead of investing has an opportunity cost of what it would have earned in investment returns.

Your understanding is also correct with how the timing works, in 2023 deemed disposal is looking at investments bought in 2015 (and / or 2007) compared to their value in 2023 and in 2024 it is looking at investments bought in 2016 etc

Brian CivilEng

Very much appreciated. As someone who works in a discipline that requires a detailed understanding of mathematics, I have gotten myself into trouble in the past by assuming that I can understand a completely separate discipline also related to mathematics.

cnocbui

Name the western democracy where this headline is least likely to have come from:

Gen X overtake Millennials as the biggest buyers of ETFs

gendrol75

I invest in ETFs (US, Irish and otherwise) via my pension, and would not consider investing outside of said pension due to the expense and complication. If you do have a pension available with a provider that lets you buy stocks and ETFs, and not just actively managed funds, I'd go this route. Tax-free contributions and tax-free growth, and no admin to worry about until retirement.

kennedmc

https://www.boards.ie/discussion/comment/121511262#Comment_121511262

Thanks - interesting. My Irish pension provider does not let me do this. Who do you use?

Supercell

I do this also through a Davy PRSA account. EQQQ and VUSA and done, it's so unfair on retail investors here that we are effectively punished for investing the safest way possible via ETF's (outside of a PRSA account).

ingeneer

The department of finance released a progress update on the review of the funds sector (including ETF taxation etc.) Link below and some quotes. Sounds like they know the issues with the current system - hopefully they can action some changes quickly :)

https://www.gov.ie/en/publication/22430-funds-sector-2030-a-framework-for-open-resilient-developing-markets-progress-update-responses-to-the-public-consultation/

"Many respondents also highlighted concerns that investment decisions by Irish investors are largely driven by tax considerationsrather than the individual needs of the investor. Others offered the view that the complexity of the taxation of investment income and gains in Ireland is likely to make compliance a significant challenge for retail investors"

"The submissions convey a general perception that the taxation of investment products, and of ETFs in particular, is a major barrier to increasing retail investor participation in Ireland. These views were also reflected in the submissions received from industry participants and the Central Bank which highlighted the apparent disconnect between Ireland’s role as a global hub for the funds industry and the low levels of domestic household investment into investment funds. In this context, many respondents noted that the Funds Review is taking place against the backdrop of the European Commission’s ‘Capital Markets Union’ (CMU) initiative and the ‘Retail Investment Strategy’. The Review Team is cognisant of the need to align domestic policy to support EU initiatives such as CMU and the RIS."

techman1

Interesting that the central bank itself would draw attention to the disconnect between ireland has a home for all these ETFs and then the taxation policy that discourages its own citizens from investing in those very ETFs. Are they really worried that this disconnect draws more attention to the narrative that Ireland is a tax haven but only if you are a huge fund or MNC but not if you are a little guy investor

antimatterx

Good to see this. I thought we would see more change during Paschal tenure as finance minister, but nothing changed. If McGrath sorts out the taxation on investments here, FF have my vote.