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Learning, Sharing, and Teaching => Investor Alley => Topic started by: P0IS0N on October 25, 2015, 02:53:24 AM

Title: Advice for a non-us member looking to invest online
Post by: P0IS0N on October 25, 2015, 02:53:24 AM
Hello everyone.
New member here looking for some advice.

I'm a Romanian citizen living and working in Kuwait. This is a tax-free country and based on the double taxation avoidance agreement with Romania, I don't have to pay any tax to anyone.
I'm 30 years old and I want to start investing for the first time in my life, for a period of roughly 30 years.
The idea came as a retirement plan. I was courted by a couple of financial advisors that were pushing RL360 and Friends Provident products. I didn't really like those, especially after doing a bit of research, so I decided it was better to go for passive investing in index funds.
I got myself educated first. I read a few books like: "The Little Book of Common Sense Investing"; "The Four Pillars of Investing"; "Global Asset Allocation" or "The Global Expatriate's Guide to Investing: " and I have an idea about a portfolio I'd go for (80% stock - 20% bond, with 5% rebalancing).
The next step is the hardest. What platform to use?
Obviously, I'd love to go for Vanguard, Schwab, Betterment, Fidelity and the like, but they're not open for non-US citizens. As for E-Trade, Questrade, Scottrade, TD Ameritrade, while they do work for some non-US countries, they don't work for Kuwait.
I've also contacted some local brokerage firms and I'm not really keen on working with them. Most have no access to US stock market, and those who do charge quite a bit (minimum commission of 25$/transaction, 0,03$/share to give a couple of examples). Another issue is that if I decide to leave the country, once my civil ID expires, I have to close the account.
I'm not interested in leaving Kuwait anytime soon, but I doubt I'll still be here 30 years from now.
So, right now I'm inclined towards Interactive Brokers. I did check out this thread (http://forum.mrmoneymustache.com/investor-alley/interactive-brokers-anyone-have-any-experience-with-them) and after looking at their website and reading some reviews, they seem to be a good choice.

However, I don't know if there's a better option out there that I might have missed. I would kindly appreciate any advice from other fellow members regarding online platforms as well as investing plans in general.

Thanks.
Title: Re: Advice for a non-us member looking to invest online
Post by: mohawkbrah on October 25, 2015, 05:29:06 AM
my best guess is to get into US stocks and funds would be to join a the biggest and powerful bank in kuqait that also has branches internationally. do HSBC have banks there? then just open a stocks and share account with them. most will have a broad range of funds including some of vanguards funds. but make sure you do your own research before joining up with one of them (fee's etc etc)
Title: Re: Advice for a non-us member looking to invest online
Post by: P0IS0N on October 25, 2015, 05:52:33 AM
Thank you very much for the reply, Kalergie. It's really informative.

As I mentioned, I'm not interested in my funds being actively managed and pulled into an ILAS. Oddly enogh, the financial advisors I met were also inexperienced, but at least they were honest and once I told them about what I intend to do with the money and not go for the products they were selling, they wished me good luck and told me they don't provide the services I'm looking for.
Regarding Romania, I'm not yet "completely disconnected", as I have to reach 183 days before I submit my fiscal residency. That will happen in December, so I'd be able to dodge the 66RON/month healthcare tax that will come into play in 2016. Maybe I'll have to pay it for January, in case things move slow, but I can live with that.
I know about Saxo bank and Swissquote as well, but I am trying to reduce the fees as much as possible. It's good to know things are going well for you with Interactive Brokers. It sounds encouraging. Apart from the dividend tax, is there anything else that the U.S. might ask for? (I know about the Estate tax for the deceased).
Also, why wire cash, is there a problem with paying by card?
I have a portfolio in mind, the core being Vanguard Index Funds (U.S. Total Stock; International Total Stock; U.S. Total Bond;) and maybe a small part in REIT, or Energy. I'd like to have something in Brent Oil (http://www.nasdaq.com/symbol/bno), call it a "professional defect" maybe.
But now, you got me interested in the Irish domiciled funds, so I need to look more into that.
Also, thank you for the tip on the Bogleheads forum. I appreciate it.

Danke schön!
Title: Re: Advice for a non-us member looking to invest online
Post by: Kalergie on October 28, 2015, 05:39:26 PM
Bitteschön!

One thing that is important if you decide to buy US domiciled funds. You have to have a W8BEN form signed and usually on file with your broker. In fact, most brokers regardless of which markets you chose to invest in, will make you sign this form. However, last time I checked with Saxo bank (Middle East branch), they do not facilitate the form. Basically, they told me they won't get involved in tax matters at all. If that is the case, the IRS would not know how to treat you tax wise. God knows what could happen. I suggest to just make sure you chose a broker with the W8BEN form in place.

You rightly pointed out the estate tax. This applies to US domiciled funds (including cash btw). That could be a problem from 60K$ and up. Irish domiciled funds also would avoid this problem. (but you'd still have estate taxes on the cash assuming you have it on Interactive Brokers and if it is more than 60K$)
BTW: I still hold US domiciled ETF and have not switched to Irish funds. Irish domiciled funds are relatively new and I want to wait until they have at least a 5 year base line before I invest. But that's my personal opinion and based on my personal profile. 

If you are in the Oil sector, I would suggest to refrain from investing in anything related to your industry. Chances are if poop hits the fan and you are out of a job because of industry related downturns, your oil based investment might tank when you most need it. My advise, KISS (keep it simple stupid).

I do wire. Actually, I use a currency house (Al Rostamani, you probably have similar ones in Kuwait). They give me a very good AED/USD conversion rate if I come with a large amount. I give them a check and within 3-4 business days, the money is in my IB account. IB has an intermediary bank though which charges 25$ per transaction. I am not aware that IB has card payment options and I highly doubt they will do that.

As for Bogleheads, check this threads and corresponding wikis some smart guys made: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=162636
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=163930

I'm sure there's much more but that's a good start.
Title: Re: Advice for a non-us member looking to invest online
Post by: P0IS0N on October 29, 2015, 01:52:57 AM
Thanks again for the advice.
I decided to go for Irish domiciled ETFs. Less taxes and less of a hassle. I'll most likely go for a simple 3 asset portfolio. Regarding the oil sector, I was just interested in Brent Oil Futures, and definitely not more than 5% of my portfolio. But for now, I'm just leaving it aside. I will have to see about IB payment options and find the most suitable.
I did check out those threads and more on the Bogleheads forum and indeed, most of my questions were answered.
Thanks again for pointing it out.
Title: Re: Advice for a non-us member looking to invest online
Post by: Kalergie on October 29, 2015, 08:42:55 AM
Cool. Feel free to update once you implemented your strategy.
Title: Re: Advice for a non-us member looking to invest online
Post by: P0IS0N on November 06, 2015, 11:39:19 PM
OK. I opened an account with Interactive Brokers. It is approved and awaiting funds. I made the transfer at the bank, but apparently, I can do it directly through my online banking account.
In the meantime, I'm still wondering if the Irish domiciled ETFs are the way to go.
Mainly, because of two reasons:

#1 Interactive Brokers comissions:
For U.S. domiciled stocks: USD 0.005 per share, minimum 1$.
For LSE International Order Book and USD-denominated stocks: USD 0.05% of trade value, minimum 5$

#2 Dividend taxation.
As mentioned earlier, U.S. dividend tax for non-U.S. citizens is 30%, while the Irish one is 15%. However, as a Romanian, I am a citizen of a tax treaty country (and this is also mentioned in my W-8 form), and this is what is stated in the double taxation treaty from 1974 (https://www.irs.gov/pub/irs-trty/romania.pdf):
Quote
Romania imposes withholding taxes on dividends, interest, royalties, rentals and technical service fees. The Convention establishes the present Romanian tax rate of 10 percent on dividends as an upper limit to the tax so that in combination with any likely corporate tax (now 30 percent) the total of Romanian taxes on corporate profits would be fully creditable against the United States corporate tax.
and
Quote
ARTICLE 10
Dividends
 (1) Dividends paid by a corporation of one of the Contracting States to a resident of the other Contracting State may be taxed by both Contracting States.
 (2) The rate of tax imposed by the first-mentioned Contracting State on such dividends shall not exceed 10 percent of the gross amount of the dividend.
 (3) Paragraph (2) shall not apply if the recipient of the dividends, being a resident of one of the Contracting States, has a permanent establishment in the other Contracting State and the shares with respect to which the dividends are paid are effectively connected with such permanent establishment. In such a case, paragraph (6) of Article 7 (Business Profits) shall apply.
Also, I should mention that the current dividend tax in Romania is 16%, but is due to be reduced to 5% starting next year.
Additionally, at the time of my W-8 form submission (effective 3 years), my fiscal residency is still Romania, but will change to Kuwait by the start of next year. I don't know if that makes any difference, however, Kuwait has no treaty with the U.S. on double taxation.

So, at this point, I am a little confused.
I am looking for a very simple 3-asset portfolio, somewhere along the lines of 75% Total Stock; 20% Total Bond; 5% REITs.
I'm not exactly sure how much of the yearly return would be comprised of dividends, and I'm not exactly sure how the dividend taxation works (Is it made automatically? Do I have to submit any form aside from the W-8 already submitted by Interactive Brokers? In case the double taxation treaty is applied, am I charged 10% automatically, or 30% and I have to submit some papers to get the other 20% back?).
Either way, I'm interested in 3 transactions per month, so a minimum of 10$ for U.S. domiciled funds (should be $3, but IB requires a minimum of $10, or the difference is applied as a monthly fee) or 15$ for Irish domiciled funds.
Another thing to take into account is the fees on each specific fund. If you compare U.S. Domiciled Vanguard to Irish domiciled iShares for instance, you would find a big difference in TER.(0.17% (https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT) vs 0.50% (https://www.ishares.com/uk/individual/en/products/251881/ishares-msci-world-ucits-etf-inc-fund)).

So, right now I'm still undecided.
Any kind of input is deeply appreciated.