international investing tax considerations

[umeca74]

(beginner's question really)
In another discussion I learnt about the minefield of withholding dividend tax.

clearly there's no point finding the killer instrument only to pass the gains to the taxman. So tax is integral to choosing the right investment. Given that the same ETF may trade in a number of exchanges and currencies, the question is also, which exchange do I buy it from?. UK? Switzerland? USA? Self-service trading through saxobank and the like gives you too many possibilities

In particular, if I buy from an exchange in a country other than my residence/domicile, do I have to do a tax return in the country where the exchange is situated? And then claim it back from my normal tax under double taxation avoidance treaties? Or do I declare my worldwide income to my country only? Obviously I would prefer the latter.

[Alaric]

Or do I declare my worldwide income to my country only? Obviously I would prefer the latter.

The answer surely is that it depends, being a function of your Nationality, residence for tax purposes and the laws of the countries in which you invest or hold assets. Holding property is likely to come under a different tax regime from holding shares, or funds consisting of shares.

[umeca74]

let me put it differently then, if a UK resident buys )then sells) stuff at NYSE and some more stuff in Switzerland, does he get taxed in 3 countries? I am in Cyprus but I suppose the regulations derive from the country where the exchange is situated

[Alaric]

let me put it differently then, if a UK resident buys )then sells) stuff at NYSE and some more stuff in Switzerland, does he get taxed in 3 countries?

For a UK Resident tax on gains would only apply under UK rules, but don't take my word on that. Tax on distributed income would be subject to the rules of the USA and Switzerland respectively with whatever was left potentially subject to additional UK tax as well.

Trying to avoid such complications is a reason why some funds base themselves "offshore", Bermuda, Cayman Islands, Channel Islands etc.

[helfordpirate]

The "exchange" where you buy/sell an ETF (you specifically mentioned this structure) is not relevant. An ETF is a fund that is "domiciled" in a specific country (in Europe this usually Ireland or Luxembourg) - this is where the management (ignoring any "delegation") of the fund takes place and where the title to the assets is held. This is what is relevant to tax (at least UK tax). The exchange is just a platform where an instrument can be traded.

For example, iShares Core S&P500 UCITS ETF (CSPX) is domiciled in Ireland but it is traded on regulated exchanges Euronext Amsterdam,Bolsa Mexicana De Valores,Borsa Italiana,SIX Swiss Exchange,Deutsche Boerse Xetra and of course LSE. The assets are of course US companies and fund is denominated in USD.

If you are resident and domiciled in the UK, you pay tax on all foreign income and gains on an arising basis. So any dividend from the ETF (though CSPX is actually accumulating) is charged to income tax and declared on the Foreign pages of the tax return (with a de minimis) and any gains are charged to CGT. There is no withholding tax on ETF income between Ireland and the UK.

As a broad generalisation tax authorities are more considered with the individuals residence ("where they live") and domicile ("where they come from") than where the assets are actually held. So a UK citizen with a US brokerage account does not have to fill in a US tax return and pay any taxes on shares bought and held in the US (provided their broker gets them to fill in the right forms). There is only a witholding tax on dividends which may be reduced if there is a Double Tax Treaty between the US and the investor's residence. eg the UK. The UK tax authorities also provide additional reliefs against any tax that may have to be paid abroad.

It sounds like you might be resident in Cyprus and domiciled in the UK? I believe UK- domiciled Cyprus-residents do not pay tax on dividends or capital gains tax on their worldwide income and gains. That's one of the reasons to go there.... I guess.If you remain UK domiciled you will have to pay IHT wherever you live.

[umeca74]

actually I'm Greek living in Cyprus after having spent half my life in the UK
so the summary from what you say is trade wherever you like without fear of multiple taxation (dividend tax excluded)

[JonE]

actually I'm Greek living in Cyprus after having spent half my life in the UK

I think I may hear the sound of a worm-can being opened. Check out 'deemed domicile' as far as HMRC is concerned with regard to your specific circumstances. Much may depend on just how many years are involved in "half my life".

I am out of my depth here and there have also been recent changes which I haven't tracked. I have the notion that one can inherit, say, a Greek domicile of origin but spend enough UK tax years in the UK (with years as a minor being included in the count) that HMRC could deem you to be UK-domiciled until you have spent a sufficient number of UK tax years tax-resident in Cyprus (or elsewhere) to escape this 'deeming' provision. The Cyprus tax year ends on 31st December so doesn't match the UK tax year and one needs to watch out for how one interprets the term "year" in various circumstances and, possibly, be aware of the UK's potentially tricky 'split year' provisions for the changed legislation.

There was talk about recent changes applying to IHT as well as IT and CGT (though I didn't attempt to track the changes) and, of course, there is also the special case of NRCGT on gains arising on disposal of a UK property. Multiple taxation should be taken care of by the DTA and so on but there could be other issues which arise from 'deemed domicile'.

Cheers!

[umeca74]

wouldn't that be against the brexit spirit?
anyway in the last 10 years I've been away, HMRC didn't seem to miss me that much

[helfordpirate]

actually I'm Greek living in Cyprus after having spent half my life in the UK
so the summary from what you say is trade wherever you like without fear of multiple taxation (dividend tax excluded)

No I am not saying you can trade with no fear of double taxation. I am saying what exchange you use has no relevance; where the assets resides and generate income does.

In general, the country you reside in will tax you on your woldwide income and gains. The country where the income is generated also is likely to consider you fair game - however, in general (!), for investment income, there are exemptions or reliefs that mean you will not likely pay tax in the country where the shares/fund/etf are held. This is true for the US provided you fill in a form and the UK where there is the concept of "disgregarded" income for dividends which will usually mean no tax is due. (If however, the asset is residential property or the income is from employment then that's different!)

So if you buy standard funds and shares on a regulated exchange where the fund is domiciled in the US or a EU country you are probably not going to have to pay tax in those countries. There may be a witholding tax and that will depend on any double tax treaty - generally tax havens like Cyprus tend not to have good DTT with countries like the UK or US, so there may be minimal relief, but I dont know..

The issue of domicile mainly only effects IHT - though in the UK it also effects how foreign income is treated as arising/remittance - but what happens in Cyprus I dont know. Your domicile of origin is usually the domicile of your father; you can adopt another domicile by cutting ties with your original domicile and setting up permanent home elsewhere - as mentioned above in the UK if you have been recently resident in the UK or have been resident for a long period in the last 20 years you can be "deemed UK domicile" (even if legally you are not) and included in UK IHT.

[umeca74]

taxing systems were designed for yesteryear when both people and investments were stuck in one place. I have changed 4 countries in my life so imagine if they all wanted to tax me! And what about these "world" ETF investments, where individual shares are spread all over the place?

for small fry, I don't think it's even worth the hassle for each government to pursue the matter, to earn 500 in tax due