Buying US-domiciled ETFs from Europe (Austria)
Buying US-domiciled ETFs from Europe (Austria)
There is an article suggesting that it's possible to open an account at Tastyworks from Europe and just buy regular US-domiciled ETFs: https://europoor.com/open-a-tastyworks- ... om-europe/
My question is: Is this is a good way to access US ETFs that are normally not allowed in Europe? And why would the EU go to such great lengths to hinder people from buying US funds, when they can just bypass that regulation through Tastyworks?
My question is: Is this is a good way to access US ETFs that are normally not allowed in Europe? And why would the EU go to such great lengths to hinder people from buying US funds, when they can just bypass that regulation through Tastyworks?
Re: Buying US-domiciled ETFs from Europe (Austria)
It could be a nice way to access them but beware of the US Estate Tax issue when buying anything that is US domiciled. Most people here recommend buying US securities through Irish domiciled funds to avoid that whole issue.
Re: Buying US-domiciled ETFs from Europe (Austria)
Thanks. Didn't know that. What exactly does that mean? Do I have to pay higher taxes when I sell the funds? How much?
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Re: Buying US-domiciled ETFs from Europe (Austria)
The US tax issues with US domiciled ETFs are laid out in this wiki page:
Nonresident alien taxation - Bogleheads
The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.
As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
Re: Buying US-domiciled ETFs from Europe (Austria)
Thank you for the explanation.TedSwippet wrote: ↑Mon Apr 05, 2021 9:54 am The US tax issues with US domiciled ETFs are laid out in this wiki page:
Nonresident alien taxation - Bogleheads
The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.
As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
I just want to have a backup plan in case the WisdomTree 3x ETPs close down in the future.
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Re: Buying US-domiciled ETFs from Europe (Austria)
Since when Europeans cannot buy US ETFs? They are not allowed to own them at all or they can keep what they bought before?
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Re: Buying US-domiciled ETFs from Europe (Austria)
Since 2018. It is new purchases that are problematic; holding and selling are okay.Tylenol Jones wrote: ↑Mon Apr 05, 2021 12:51 pm Since when Europeans cannot buy US ETFs? They are not allowed to own them at all or they can keep what they bought before?
EU investing - EU legislation : UCITS, MiFID II and PRIIPs
Re: Buying US-domiciled ETFs from Europe (Austria)
Is there any hope that US ETFs will produce such Key Information Documents in the future? How hard can it be for them to publish a PDF?TedSwippet wrote: ↑Mon Apr 05, 2021 1:08 pm Since 2018. It is new purchases that are problematic; holding and selling are okay.
EU investing - EU legislation : UCITS, MiFID II and PRIIPs
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Re: Buying US-domiciled ETFs from Europe (Austria)
It has been more than three years, and none has yet done so. That seems like a reasonably strong signal that they plan not to bother. Or at least, not worth waiting to see if they do. Given that a good range of UCITS equivalent ETFs exists, I imagine there is also not much motivation.tradri wrote: ↑Mon Apr 05, 2021 1:14 pmIs there any hope that US ETFs will produce such Key Information Documents in the future? How hard can it be for them to publish a PDF?TedSwippet wrote: ↑Mon Apr 05, 2021 1:08 pm Since 2018. It is new purchases that are problematic; holding and selling are okay.
EU investing - EU legislation : UCITS, MiFID II and PRIIPs
Re: Buying US-domiciled ETFs from Europe (Austria)
Yes, so far all of my investment needs are met by European funds, so I don't complain.TedSwippet wrote: ↑Mon Apr 05, 2021 1:35 pm It has been more than three years, and none has yet done so. That seems like a reasonably strong signal that they plan not to bother. Or at least, not worth waiting to see if they do. Given that a good range of UCITS equivalent ETFs exists, I imagine there is also not much motivation.
In case things change, it's good to know that there is a loophole available through Tastyworks.
Re: Buying US-domiciled ETFs from Europe (Austria)
Mifid regulates the broker - not the customer.TedSwippet wrote: ↑Mon Apr 05, 2021 1:08 pmSince 2018. It is new purchases that are problematic; holding and selling are okay.Tylenol Jones wrote: ↑Mon Apr 05, 2021 12:51 pm Since when Europeans cannot buy US ETFs? They are not allowed to own them at all or they can keep what they bought before?
EU investing - EU legislation : UCITS, MiFID II and PRIIPs
So any non EU regulated broker or bank which lets you open an account should be sufficient.
Being classified as professional client also removes the handicap.
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Re: Buying US-domiciled ETFs from Europe (Austria)
Ted, can you please clarify how he could come ahead with US-based ETFs?TedSwippet wrote: ↑Mon Apr 05, 2021 9:54 amThe US tax issues with US domiciled ETFs are laid out in this wiki page:
Nonresident alien taxation - Bogleheads
The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.
As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
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Re: Buying US-domiciled ETFs from Europe (Austria)
At least two potential ways.Tylenol Jones wrote: ↑Tue Apr 06, 2021 4:59 amTed, can you please clarify how he could come ahead with US-based ETFs?TedSwippet wrote: ↑Mon Apr 05, 2021 9:54 amThe US tax issues with US domiciled ETFs are laid out in this wiki page:
Nonresident alien taxation - Bogleheads
The US does not tax nonresident capital gains. Austria has a workable estate tax treaty with the US, so that in practice you shouldn't run into problems with that. And the US/Austria income tax treaty has a 15% flat US tax rate on dividends paid by US corporations and (by extension) US domiciled ETFs. If your local rate exceeds this 15% and if you can claim a full credit against it for the 15% paid to the US, then you'll come out even -- or perhaps slightly ahead, depending on what assets they hold -- with US domiciled ETFs.
As for Tastyworks bypassing PRIIPs ... this might work for now, but there's no guarantee that they won't block US domiciled ETFs for EU residents in future.
Suppose a 15% US treaty rate and a 20% local rate. For a US domiciled ETF, the investor receives 85% of the dividends, 15% broker withholding, but if they can gain a local tax credit for the 15% paid then they pay just 5% locally and their overall tax drag is 20%, so equivalent to the local marginal rate. For an Ireland domiciled ETF, the ETF pays 15% to the US internally (on US stocks held), then pays the remaining 85% to the investor. However, (and unlike the US), many countries do not let the investor take a credit for indirect tax paid by a fund or ETF. So here the investor pays 20% local tax on an effectively post-US tax 85% dividend, for an overall tax drag of 32.5%. Worse than the US domiciled ETF, then.
Secondly, and more simply, the TER on the US domiciled ETF is usually lower. So that if a full foreign tax credit is available (see above), then the investor benefits from this lower TER.
Note however that this is all highly dependent on US tax treaty rates, how a country taxes -- or does not tax -- foreign (to it) dividends, whether it allows foreign tax credits, local marginal tax rates, if the ETF is or is not held in a locally tax-advantaged or tax-deferred account, whether there is a usable US estate tax treaty, and any TER differences. And perhaps, special rules or not for accumulating rather than distributing ETFs.
Also, from the above you can see that the main tax benefit, if any, comes from ETFs that hold US stocks. For ETFs that hold non-US stocks or bonds, the tax position for US domiciled ETFs is at best only neutral relative to non-US domiciled ones.
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Re: Buying US-domiciled ETFs from Europe (Austria)
Thanks for the detailed explanation. I think I managed to find the US-Austria estate tax treaty (https://www.ris.bka.gv.at/Dokumente/Bgb ... _269_0.pdf; the English description starts on the second page), and it doesn't mention any upper amount limits. I guess this means that the US does not apply any estate or gift tax on Austrian residents, and it seems Austria doesn't have the estate tax, so it might be really worth the effort for Austrians to obtain US-based ETFs.TedSwippet wrote: ↑Tue Apr 06, 2021 5:33 am At least two potential ways.
Suppose a 15% US treaty rate and a 20% local rate. For a US domiciled ETF, the investor receives 85% of the dividends, 15% broker withholding, but if they can gain a local tax credit for the 15% paid then they pay just 5% locally and their overall tax drag is 20%, so equivalent to the local marginal rate. For an Ireland domiciled ETF, the ETF pays 15% to the US internally (on US stocks held), then pays the remaining 85% to the investor. However, (and unlike the US), many countries do not let the investor take a credit for indirect tax paid by a fund or ETF. So here the investor pays 20% local tax on an effectively post-US tax 85% dividend, for an overall tax drag of 32.5%. Worse than the US domiciled ETF, then.
Secondly, and more simply, the TER on the US domiciled ETF is usually lower. So that if a full foreign tax credit is available (see above), then the investor benefits from this lower TER.
Note however that this is all highly dependent on US tax treaty rates, how a country taxes -- or does not tax -- foreign (to it) dividends, whether it allows foreign tax credits, local marginal tax rates, if the ETF is or is not held in a locally tax-advantaged or tax-deferred account, whether there is a usable US estate tax treaty, and any TER differences. And perhaps, special rules or not for accumulating rather than distributing ETFs.
Also, from the above you can see that the main tax benefit, if any, comes from ETFs that hold US stocks. For ETFs that hold non-US stocks or bonds, the tax position for US domiciled ETFs is at best only neutral relative to non-US domiciled ones.
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Re: Buying US-domiciled ETFs from Europe (Austria)
Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
1% better every day. Any day. For the rest of my life.
Re: Buying US-domiciled ETFs from Europe (Austria)
+1casually average wrote: ↑Sat Apr 10, 2021 1:24 am Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). |
Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Re: Buying US-domiciled ETFs from Europe (Austria)
This is good news. I am glad they aren't eliminating every possibility to buy US ETFs.
Re: Buying US-domiciled ETFs from Europe (Austria)
Yes, but this same problem exists when you go with other popular brokers such as Trade Republic. Maybe the extra effort in generating your tax returns is worth it, if you can't execute the investment strategy with an Austrian broker. (plus you may pay lower transaction costs & fees)casually average wrote: ↑Sat Apr 10, 2021 1:24 am Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
I am looking to follow a UPRO/TMF strategy, and while there is a 3x S&P 500 from WisdomTree, there is only a 3x 10 Year US Treasury, and no 20+ Year US Treasury, so I am forced to use a US broker like Tastyworks.
Re: Buying US-domiciled ETFs from Europe (Austria)
Isn't there a problem that US ETFs aren't tax-reporting funds in Austria? (Meldefonds)TedSwippet wrote: ↑Tue Apr 06, 2021 5:33 am At least two potential ways.
Suppose a 15% US treaty rate and a 20% local rate. For a US domiciled ETF, the investor receives 85% of the dividends, 15% broker withholding, but if they can gain a local tax credit for the 15% paid then they pay just 5% locally and their overall tax drag is 20%, so equivalent to the local marginal rate. For an Ireland domiciled ETF, the ETF pays 15% to the US internally (on US stocks held), then pays the remaining 85% to the investor. However, (and unlike the US), many countries do not let the investor take a credit for indirect tax paid by a fund or ETF. So here the investor pays 20% local tax on an effectively post-US tax 85% dividend, for an overall tax drag of 32.5%. Worse than the US domiciled ETF, then.
Secondly, and more simply, the TER on the US domiciled ETF is usually lower. So that if a full foreign tax credit is available (see above), then the investor benefits from this lower TER.
Note however that this is all highly dependent on US tax treaty rates, how a country taxes -- or does not tax -- foreign (to it) dividends, whether it allows foreign tax credits, local marginal tax rates, if the ETF is or is not held in a locally tax-advantaged or tax-deferred account, whether there is a usable US estate tax treaty, and any TER differences. And perhaps, special rules or not for accumulating rather than distributing ETFs.
Also, from the above you can see that the main tax benefit, if any, comes from ETFs that hold US stocks. For ETFs that hold non-US stocks or bonds, the tax position for US domiciled ETFs is at best only neutral relative to non-US domiciled ones.
From what I can tell, these non-tax-reporting funds are taxed at either 90% of the capital gains from the beginning of the year to the end of the year, or at 10% of the last asset value of the fund, whichever is higher. https://www.konsument.at/geld-recht/inv ... s-und-kest
Doesn't this extreme taxation for these funds make them completely useless?
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Re: Buying US-domiciled ETFs from Europe (Austria)
It seems you're right. This looks very bad. No clue why they would do that but it seems they did. I guess only UCITS are OK.tradri wrote: ↑Sat Apr 10, 2021 5:55 am
Isn't there a problem that US ETFs aren't tax-reporting funds in Austria? (Meldefonds)
From what I can tell, these non-tax-reporting funds are taxed at either 90% of the capital gains from the beginning of the year to the end of the year, or at 10% of the last asset value of the fund, whichever is higher. https://www.konsument.at/geld-recht/inv ... s-und-kest
Doesn't this extreme taxation for these funds make them completely useless?
Re: Buying US-domiciled ETFs from Europe (Austria)
Yes, it is very strange indeed. Doesn't seem to be a problem in other European countries.Tylenol Jones wrote: ↑Mon Apr 12, 2021 4:22 am
It seems you're right. This looks very bad. No clue why they would do that but it seems they did. I guess only UCITS are OK.
Whatever, guess I'll have to stick to the WisdomTree ETPs. These are treated as ETCs, so I think they are only taxed when I sell them.
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Re: Buying US-domiciled ETFs from Europe (Austria)
If so, then "potential" but seemingly not "real". How annoying. :-(tradri wrote: ↑Sat Apr 10, 2021 5:55 amIsn't there a problem that US ETFs aren't tax-reporting funds in Austria? (Meldefonds)
From what I can tell, these non-tax-reporting funds are taxed at either 90% of the capital gains from the beginning of the year to the end of the year, or at 10% of the last asset value of the fund, whichever is higher. https://www.konsument.at/geld-recht/inv ... s-und-kest
The UK punitively taxes offshore (to it) funds held by UK residents -- capital gains taxed at income tax rates. The treatment is nowhere near as nasty as the US PFIC tax, and might perhaps be a bit less nasty than what Austria apparently does.
Re: Buying US-domiciled ETFs from Europe (Austria)
Oh ok, didn't know that. Seems like every government wants to control its citizen's money very tightly.TedSwippet wrote: ↑Mon Apr 12, 2021 4:52 am The UK punitively taxes offshore (to it) funds held by UK residents -- capital gains taxed at income tax rates. The treatment is nowhere near as nasty as the US PFIC tax, and might perhaps be a bit less nasty than what Austria apparently does.
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Re: Buying US-domiciled ETFs from Europe (Austria)
What are these WisdomTree ETPs? How come they are taxed only when you sell? What about the dividends?tradri wrote: ↑Mon Apr 12, 2021 4:24 amYes, it is very strange indeed. Doesn't seem to be a problem in other European countries.Tylenol Jones wrote: ↑Mon Apr 12, 2021 4:22 am
It seems you're right. This looks very bad. No clue why they would do that but it seems they did. I guess only UCITS are OK.
Whatever, guess I'll have to stick to the WisdomTree ETPs. These are treated as ETCs, so I think they are only taxed when I sell them.
Re: Buying US-domiciled ETFs from Europe (Austria)
They are leveraged ETPs, so they deliver the 2x or 3x daily performance through swaps.Tylenol Jones wrote: ↑Mon Apr 12, 2021 8:50 am
What are these WisdomTree ETPs? How come they are taxed only when you sell? What about the dividends?
Because a "fund" is only allowed to be 2x leveraged under UCITS regulations, they are set up as fully collateralized ETN/ETCs, to overcome that restriction. These ETNs and ETCs are only taxed when you sell them, since they aren't normal funds that pay dividends.
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Re: Buying US-domiciled ETFs from Europe (Austria)
I would suggest that you don't copy American investment strategies with American products if you are Austrian tax resident. Many neo brokers aren't Austrian brokers and therefore a wicked choice for Austrian tax residents. Please make sure that you buy "Meldefonds" (registered with the OeKB) and use an Austrian broker unless you want to spend money, time and energy on tax issues.tradri wrote: ↑Sat Apr 10, 2021 3:54 amYes, but this same problem exists when you go with other popular brokers such as Trade Republic. Maybe the extra effort in generating your tax returns is worth it, if you can't execute the investment strategy with an Austrian broker. (plus you may pay lower transaction costs & fees)casually average wrote: ↑Sat Apr 10, 2021 1:24 am Please note that if you hold securities with a non-Austrian bank/deposit account there is no automatic capital income tax deduction ("KESt"). This means that you generally have to include and calculate not only your realised capital gains but also distributions and deemed distributed income in your tax return, if you are subject to unlimited tax liability in Austria. This could make things really complicated (even if you pay a certified tax advisor)and I personally advise against it for 99% of cases. However, I belive that you can implement ANY investment strategy with ireland/luxembourg domiciled funds with an Austrian bank/deposit account. Best,
I am looking to follow a UPRO/TMF strategy, and while there is a 3x S&P 500 from WisdomTree, there is only a 3x 10 Year US Treasury, and no 20+ Year US Treasury, so I am forced to use a US broker like Tastyworks.
1% better every day. Any day. For the rest of my life.
Re: Buying US-domiciled ETFs from Europe (Austria)
I agree, it's better to use the European alternatives with Austrian brokers for these strategies. (like WisdomTree and DADAT)casually average wrote: ↑Wed Apr 14, 2021 6:19 am
I would suggest that you don't copy American investment strategies with American products if you are Austrian tax resident. Many neo brokers aren't Austrian brokers and therefore a wicked choice for Austrian tax residents. Please make sure that you buy "Meldefonds" (registered with the OeKB) and use an Austrian broker unless you want to spend money, time and energy on tax issues.