US ETFs no longer purchasable in Europe

iknorr · 02-09-2018 1:35pm

Shai wrote: »

Did you get that to work?

The Eur to USD conversion yes. but i did not send it to Firstrade with Transferwise.

iknorr · 02-09-2018 1:46pm

Dardania wrote: »

iknorr asked a question from me via PM regarding my spreadsheet and why there is a tax calculation every year on the dividends from the US funds, and why there are no dividends shown for the UCITS case.
I tried answering via PM, but it keeps giving an error message - I am living outside Ireland at the moment and think boards have PM blocked outside Ireland...so I'll answer here:

In the UCITS case, I am assuming that people are investing in Accumulating (also known as Capitalising) ETFs. This is where the dividneds received from the constituent stock is reinvested to the fund, optimising the compound interest effect. Some good reading is here: https://forum.mrmoneymustache.com/investor-alley/accumulating-vs-distributing-advantages-and-disadvantages/ & https://www.justetf.com/uk/news/etf/avoiding-etf-performance-pitfalls.html

With the US scenario, I have shown dividends being paid, and accordingly, income tax due on them. I understand from reading around in the past that US ETFs are obliged by law to pay out all dividends to the investor. This is the equivalent in the UCITS world of a Distributing or Income share class ETF. That means that the investor is obliged to complete the form 11 from ROS every year.
I have furthermore shown that the investor in US funds re-invest manually any dividends. In practice, that can be hassle but is doable (there might be transaction fees, and also trying to match ETF unit cost to the dividends you have, however with a larger portfolio that grief is lessened)

Does this make sense? Your summarisation is spot on:
Is it a case that the Irish domiciled case, you only pay tax when you cash out and at every 8 years (and no dividends are taxed?) . Versus the US where you must pay yearly tax on any dividends received by the ETF?

From doing this exercise, I really feel that the factors at play in choosing the UCITS or US path are: the TER of the fund (US are slightly lower than UCITS), whether likely dividend income will exceed say 2%, and the investors honesty in declaring dividend income.

Thanks for the info.

So for example, where would an ETF like VOO fit in with regard % Growth & % Dividend yield?

blorg · 02-09-2018 2:13pm

iknorr wrote: »

Thanks for the info.
So for example, where would an ETF like VOO fit in with regard % Growth & % Dividend yield?

At the moment, it is quite low- 1.73%. Historically it has been a lot higher, as high as 5% in the 1980s, but it has been "low" in historical terms since the late 1990s, for 20 years now. Tech companies that tend to pay no dividends have come to make up a large portion of the S&P500 and this has dragged the dividend yield down. The last ten full years, 2008-2017, it averaged 2.13%. The last 20 years, most of the gain in the S&P500 has come from capital growth.

In a bull market, like we have had the last decade the stock price increases will tend to outstrip the dividend. In a bear market the dividend yield you would expect to go up substantially. Dividend yield is a function of the share price so if your share values all drop by half, and the dividend stays the same, your dividend yield will double. You'll still lose a load of money, but the portion that comes from dividends will increase. In practice, of course in a bear market companies will go bust and dividends will be cut but they usually are not cut enough to compensate for the dive in stock prices. So you will see a bump, and you can see that in the 2008 crash, the dividend yield of the S&P500 does bump up there- but not by a phenomenal amount, it got to 3.23%. Of course your capital appreciation will be negative in this scenario so all of your gains would be coming from the dividend then.

If you are looking for historical data on this, it may be easier to look for the S&P500 dividend, this will be essentially identical to VOO as it is the index tracked.

http://etfdb.com/etf/VOO/#dividend
http://www.multpl.com/s-p-500-dividend-yield/

Dardania · 03-09-2018 8:12am

blorg wrote: »

iknorr wrote: »

Thanks for the info.
So for example, where would an ETF like VOO fit in with regard % Growth & % Dividend yield?

At the moment, it is quite low- 1.73%. Historically it has been a lot higher, as high as 5% in the 1980s, but it has been "low" in historical terms since the late 1990s, for 20 years now. Tech companies that tend to pay no dividends have come to make up a large portion of the S&P500 and this has dragged the dividend yield down. The last ten full years, 2008-2017, it averaged 2.13%. The last 20 years, most of the gain in the S&P500 has come from capital growth.

In a bull market, like we have had the last decade the stock price increases will tend to outstrip the dividend. In a bear market the dividend yield you would expect to go up substantially. Dividend yield is a function of the share price so if your share values all drop by half, and the dividend stays the same, your dividend yield will double. You'll still lose a load of money, but the portion that comes from dividends will increase. In practice, of course in a bear market companies will go bust and dividends will be cut but they usually are not cut enough to compensate for the dive in stock prices. So you will see a bump, and you can see that in the 2008 crash, the dividend yield of the S&P500 does bump up there- but not by a phenomenal amount, it got to 3.23%. Of course your capital appreciation will be negative in this scenario so all of your gains would be coming from the dividend then.

If you are looking for historical data on this, it may be easier to look for the S&P500 dividend, this will be essentially identical to VOO as it is the index tracked.

http://etfdb.com/etf/VOO/#dividend
http://www.multpl.com/s-p-500-dividend-yield/

Very interesting stuff. It sets up for a bit of a philosophical debate - should we invest in equities which have aggressive capital growth (the higher they fly, the further they fall) or who have good dividend growth? On the one hand, capital growth is good, and they either invest their spare cash in R&D, or else they do share buybacks. Or maybe they have losses such that they don't pay dividends.
On the other hand, dividend growth is good and conservative, but doesn't necessarily show future promise of spending on R&D.
There's talk that the US will not have such good decades of growth compared to lately - the question is will the rest of the world result in taking on any engine of growth (and will that mean dividends or capital growth)...

Edit: Quite coincidentally, this was linked to from a feed I follow today: http://www.dividend.com/dividend-education/how-to-spot-a-dividend-value-trap/

Diarmuid · 05-09-2018 8:04pm

Diarmuid wrote: »

A quick FYI, I was able to purchase VT (Vanguard ETF) on Keytrade today, despite not having a KID. You have to do a little questionaire and acknowledge that you understand that the KPI is not available but it worked. I'll be moving money out of DeGiro. The big downside is Belgiums crazy "speculation tax" but for a buy and hold situation it's ot an issue

Here's the exact wording:
The Key Information Document is currently not available. We do take all necessary measures to get this document from the manufacturer of this instrument. If you would like to place your order without this document, please click here

Update on this. I tried to buy more more of the same ETF as I did earlier in the year. This time no joy. I wasn't able to execute the order due to the lack of a KID. So it looks like Keytrade have tightened up on this.

https://www.keytradebank.be/en/support/articles/713-important-news-about-trackers-which-are-listed-on-a-us-or-canadian-stock-exchange/

Pussyhands · 09-09-2018 11:53am

Without having to go through all the thread, how can I get a tracker that tracks the S&P 500?

dickface · 09-09-2018 12:22pm

Pussyhands wrote: »

Without having to go through all the thread, how can I get a tracker that tracks the S&P 500?

There is no problem doing that...ETF's that track US indices are not the problem. VUSA is one that comes to mind

Pussyhands · 09-09-2018 12:36pm

dickface wrote: »

There is no problem doing that...ETF's that track US indices are not the problem. VUSA is one that comes to mind

What is the problem then? Sorry I thought trackers which tracked companies on the US stock market were not allowed here

Dardania · 09-09-2018 1:10pm

Pussyhands wrote: »

Without having to go through all the thread, how can I get a tracker that tracks the S&P 500?

https://www.justetf.com/uk/find-etf.html?assetClass=class-equity&groupField=none&sortField=ter&index=S%2526P%2B500%25C2%25AE&sortOrder=asc&distributionPolicy=distributionPolicy-accumulating

dickface · 09-09-2018 4:14pm

Pussyhands wrote: »

What is the problem then? Sorry I thought trackers which tracked companies on the US stock market were not allowed here

ETF's which do not provide a KID are not allowed to be purchased.So pretty much most US domiciled ETF's(many of the the biggest ETF's). So this does not affect ETF's which provide a KID and track US indices.
https://www.justetf.com/uk/news/etf/us-domiciled-etfs.html

The Notorious B.I.G. · 09-09-2018 5:22pm

blorg wrote: »

Almost all US brokers will reject transfers from TransferWise as third party, the problem is they don't come from your account but from TW's account, and brokers usually require any incoming transfers to come from a bank account in YOUR name. Transfers with TW in the US, even if you have their Borderless account, do not appear to come from your account but from TW. I believe in Europe they may work, as first party with your name on it, but they don't in the US.

FirstTrade like most brokers will reject attempted third party transfers, they say this on their site.

It's nothing to do with TW being illegal, it's just the technical way that their system is implemented, a broker does not see the transfer as coming from your account and the default position is to reject any third party transfers over money laundering concerns. If TW ever manage to fix this so transfers appear to come from an account in YOUR name, they should potentially work with any broker. But that's not how it is right now unfortunately.

One broker I know DOES take transfers via TW is DriveWealth. They are a relatively small broker but specifically target international investors and have a tech platform that they sell to third parties, they power for example Stake in Australia and Freetrade in the UK. They very specifically target international investors, and make an explicit point that they take TransferWise for Europeans.

You are going to lose a lot going the conversion with AIB, on larger amounts it's not the €20, it's the percentage they chop on the bad forex rate. Even TW is not fantastic for very large amounts for investing but it's better than AIB.

Interactive Brokers would have been ideal for this- they have fantastic forex and take SEPA transfers in EUR but I believe they stopped US ETFs to EU residents recently as well.

Hi Blorg,

Would you or anyone else who uses Drivewealth mind sharing more information about your experience of them? Was it difficult to set up an account? Have you seen any unexpected charges? Are their monthly fees for inactivity?

If they accept payments from Transferwise it would seem they are by far the most cost effecient option for investors wishing to get their money into a US brokerage account?

Pussyhands · 09-09-2018 8:47pm

dickface wrote: »

ETF's which do not provide a KID are not allowed to be purchased.So pretty much most US domiciled ETF's(many of the the biggest ETF's). So this does not affect ETF's which provide a KID and track US indices.
https://www.justetf.com/uk/news/etf/us-domiciled-etfs.html

So the problem everyone has is the 8 year deemed disposal is it?

Diarmuid · 10-09-2018 6:48am

Pussyhands wrote: »

So the problem everyone has is the 8 year deemed disposal is it?

That and the different tax regime for EU domiciled ETFs

blorg · 10-09-2018 7:40am

Hi Blorg,

Would you or anyone else who uses Drivewealth mind sharing more information about your experience of them? Was it difficult to set up an account? Have you seen any unexpected charges? Are their monthly fees for inactivity?

If they accept payments from Transferwise it would seem they are by far the most cost effecient option for investors wishing to get their money into a US brokerage account?

I have had no issues. $2.99 trade commission and then the only fee is a $5 opening fee to process your W8-BEN. No monthly minimums or inactivity fees, they are oriented towards smaller international investors.

Note- I am not resident in the EU. So you might want to double check with them that you CAN still buy US ETFs, if you are resident in the EU, if that is what you want to do.

As to "most cost efficient", it depends how much you have and what you want to do. If you don't need to invest in US ETFs specifically, but rather just US stocks in general, and you have over $100,000 to put in, Interactive Brokers would probably be better. They take SEPA transfers (free) and their forex is excellent, much better than TransferWise. But they don't do US ETFs for EU residents any more and they have a monthly minimum commission of $10- if your account is under $100,000.

You should also consider just buying an EU-domiciled UCITS ETF. It does depend on your specific situation but I am not sure that these really are that much worse for most people. It's a trade off between paying full income tax and PRSI and USC on dividends + capital gains at the end on sale vs no tax at all on dividends + the 41% exit tax after 8 years/when you sell. It's not clear that the former is necessarily worse, having zero tax on dividends like you do with an accumulating UCITS ETF is a big benefit.

Pussyhands · 10-09-2018 8:59am

Diarmuid wrote: »

That and the different tax regime for EU domiciled ETFs

Have you got a link where it explains it?

I thought it was just normal tax rules for EU ones + deemed disposal

Skelet0n · 10-09-2018 9:45am

Pussyhands wrote: »

Have you got a link where it explains it?

I thought it was just normal tax rules for EU ones + deemed disposal

https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

Pussyhands · 10-09-2018 1:11pm

Skelet0n wrote: »

https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

And how does signing up with firsttrade etc. mean you pay less tax?

Skelet0n · 10-09-2018 1:31pm

Pussyhands wrote: »

And how does signing up with firsttrade etc. mean you pay less tax?

Did you read it?

"While the Revenue says it can only give “general guidance” on US domiciled ETFs, it does accept that such ETFs are outside the normal regime of investment funds, and are thus subject to capital gains tax at 33 per cent on gains. Any income is taxed under income tax at your marginal rate.
Remember, income tax also means PRSI and USC, which could mean a deduction of as much as 55 per cent on any dividends you benefit from. This is also the case for ETFs domiciled in other European Economic Area (outside the EU) and OECD countries.
On the plus side, there is a tax-free allowance of €1,270 a year on gains subject to CGT, while, if you have losses, these can be used to offset taxes on other gains.
Irish investors have, however, been restricted from purchasing US domiciled ETFs since the introduction of the new PRIIPs regime on January 3rd of this year.
Both Blackrock and Vanguard, for example, say they won’t be able to provide the documentation required under PRIIPs, ie KIDs [Key Informaiton Documents] – for US domiciled funds as they don’t actively market these to retail investors in Europe.
Tax on gains: Capital gains tax at 33 per cent
Tax on income: Income tax + PRSI + USC"

blorg · 10-09-2018 1:50pm

Pussyhands wrote: »

Skelet0n wrote: »

https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

And how does signing up with firsttrade etc. mean you pay less tax?

It's a different tax treatment. You pay more tax (a lot more- as much as 50% or more vs zero) on dividends, but less tax on capital gains (33% vs 41% exit tax).

It may work out as more, or it may work out as less, it depends on your exact personal situation and also what you are investing in. In general:

- lower dividend yield will favour the US option, higher dividend yield the UCITS option
- your personal marginal income tax rate- if low, the US option, if higher rate, the UCITS option
- another quirk is that if you have capital losses you can offset them with the US option but not the UCITS
- capital gains are forced to be realized and taxed with the UCITS option after eight years while with the US ETF option you are not taxed until you sell, even decades later- so if you want to hold forever, then the US option may be preferable (but if you want to hold that long, a tax sheltered retirement account might make more sense anyway)

It's not just a simple, one or the other is more or less tax, it's highly dependent on the specifics of your personal income tax situation and also what exactly you are investing in. It's remarkably complicated, why I have no idea.

Pussyhands · 10-09-2018 2:26pm

blorg wrote: »

It's a different tax treatment. You pay more tax (a lot more- as much as 50% or more vs zero) on dividends, but less tax on capital gains (33% vs 41% exit tax).

It may work out as more, or it may work out as less, it depends on your exact personal situation and also what you are investing in. In general:

- lower dividend yield will favour the US option, higher dividend yield the UCITS option
- your personal marginal income tax rate- if low, the US option, if higher rate, the UCITS option
- another quirk is that if you have capital losses you can offset them with the US option but not the UCITS
- capital gains are forced to be realized and taxed with the UCITS option after eight years while with the US ETF option you are not taxed until you sell, even decades later- so if you want to hold forever, then the US option may be preferable (but if you want to hold that long, a tax sheltered retirement account might make more sense anyway)

It's not just a simple, one or the other is more or less tax, it's highly dependent on the specifics of your personal income tax situation and also what exactly you are investing in. It's remarkably complicated, why I have no idea.

US option would be like SPY while UCITS would be VUSA am I right?

blorg · 10-09-2018 3:00pm

Pussyhands wrote: »

US option would be like SPY while UCITS would be VUSA am I right?

VUSA is a S&P500 tracker like SPY, but if going UCITS you would probably be better off with something like CSPX from iShares. Both VUSA and CSPX track the S&P500 but VUSA is a distributing fund (it pays out dividends) while CSPX is accumulating (it accumulates dividends in the fund). One of the key advantages of a UCITS fund is that if you go for accumulating, you do not have to pay taxes on reinvested dividends for eight years. You do eventually, but the whole point of this benefit is that if income is reinvested before tax, it will grow more than if you pay tax along the way.

I THINK with a distributing one, you have to pay the tax as you get the dividend. So going with a distributing UCITS ETF you would be throwing away the one big tax advantage of a UCITS ETF in the first place, while still subjecting yourself to the larger capital gains rate. Worst of both worlds.

Distributing ETFs can make sense for certain people in certain countries- I believe in the UK for example they historically had quite a generous tax-free allowance on dividend payments, so that it could make sense if you were UK resident to pick something that paid out dividends. It is really dependent on your exact situation.

CSPX is the largest ETF in Europe.

Pussyhands · 10-09-2018 4:39pm

Thanks for the info.

Irish government don't want us to make money

Dardania · 10-09-2018 5:32pm

Pussyhands wrote: »

Thanks for the info.

Irish government don't want us to make money

They certainly don’t. Or at lest they want to discourage it. Unless it’s via property.

Taylor365 · 10-09-2018 6:51pm

Dardania wrote: »

They certainly don’t. Or at lest they want to discourage it. Unless it’s via property.

And even at that, it's only viable through buy and hold!

:pac::pac::pac: what a shower!

The Notorious B.I.G. · 10-09-2018 8:30pm

blorg wrote: »

I have had no issues. $2.99 trade commission and then the only fee is a $5 opening fee to process your W8-BEN. No monthly minimums or inactivity fees, they are oriented towards smaller international investors.

Note- I am not resident in the EU. So you might want to double check with them that you CAN still buy US ETFs, if you are resident in the EU, if that is what you want to do.

As to "most cost efficient", it depends how much you have and what you want to do. If you don't need to invest in US ETFs specifically, but rather just US stocks in general, and you have over $100,000 to put in, Interactive Brokers would probably be better. They take SEPA transfers (free) and their forex is excellent, much better than TransferWise. But they don't do US ETFs for EU residents any more and they have a monthly minimum commission of $10- if your account is under $100,000.

You should also consider just buying an EU-domiciled UCITS ETF. It does depend on your specific situation but I am not sure that these really are that much worse for most people. It's a trade off between paying full income tax and PRSI and USC on dividends + capital gains at the end on sale vs no tax at all on dividends + the 41% exit tax after 8 years/when you sell. It's not clear that the former is necessarily worse, having zero tax on dividends like you do with an accumulating UCITS ETF is a big benefit.

Thank you for the detailed response. I will confirm with Drivewealth if they still offer the non UCITs ETF to EU citizens and go from there.

Cute Hoor · 12-10-2018 8:52am

Not sure what's the story with other brokers but with Firstrade there appears to be no settlement delay (T+2, T+3, etc) any longer, so as soon as a sell order is executed the funds are in your account and available to trade. Having your funds available to trade immediately along with 0% fees makes it a very attractive proposition. Very useful in the bloodbath that has been this week.

Eman_321 · 12-10-2018 9:12am

Is there any news on this? Are US ETFs still puchasable? Otherwise what alternative EU ETFs exist?

Momento Mori · 18-10-2018 6:48am

This is taking far too long and I'm starting to doubt US ETF's will become an attractive investment option again.

Also, why must this country make it so hard for people who want to invest in the best performing asset class in history? I don't want to buy property.

Skelet0n · 18-10-2018 8:26am

Momento Mori wrote: »

This is taking far too long and I'm starting to doubt US ETF's will become an attractive investment option again.

Also, why must this country make it so hard for people who want to invest in the best performing asset class in history? I don't want to buy property.

US ETFs aren’t an asset class.

Taylor365 · 18-10-2018 7:25pm

Momento Mori wrote: »

This is taking far too long and I'm starting to doubt US ETF's will become an attractive investment option again.

Also, why must this country make it so hard for people who want to invest in the best performing asset class in history? I don't want to buy property.

And its EU wide, not just Ireland.

US ETFs no longer purchasable in Europe

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