European Mustachians . Tax in dividend funds

[Fiador]

Dear Mustachians,

How do you invest in european funds? How do you deal with the taxes?
In Spain, dividend gains are taxed at 21% and fees for fund managements are close to 1%

i think we are in abig disadvantage with our Mustachian americans as we do not have access to Vanguard and to Non Tax accounts.

What am I doing wrong?
As I am currently living abroad I have an offshore account with no taxes but it will not last forever as I will move from here once i get FI. ( 5 years from now ;)  if i keep current investments

Please share your thoughts

[viverl]

I have actually no clue at all how to invest and second this!

[Christof]

You can many funds for less than 1% management fee. For instance iSHares (http://es.ishares.com/es/rc/productos/resumen). They have lots of index funds in the 0.3-0.7% range.

[Freeyourchains2]

What about your foreign dividend treaties?

Here in American, you can buy shares of BP (Britain) get taxed a treaty foreign tax of 15%, but then at the end of the year, it's a dollar to dollar tax credit write off up to $3,000 for foreign taxes. Aka No taxes on this foreign dividend.

But sorry if i just put salt in your wound. Just wondering if you have foreign tax credit write offs that you may have missed.

[Fiador]

Thanks buddies,

No taxcredits except the first 1500 bucks, rest goes to 21%

[Christof]

You worry too much about taxes, stop that!

For most part taxes should be considered when you have to choose between two similar investments. In this case it makes sense to choose the more tax optimized one. If you focus on taxes first, you are bound to make bad investment decisions.

Keep in mind that we are talking here about an investment time range of half a century. The government will change more than a dozen times, most tax rules will change, new taxes will be created. Nobody knows what will happen within the next 50 years that you want to live off your investments.

Maybe it helps if you change your perspective: Capital gains are taxed at 21-27%. Income is taxed at 24-52%. Capital gains tax is saving you between 3 and 25% in Spain.

[Fiador]

You are right Christof,
I forgot about times of capital gains taxes...since I am curently living in Dubai tax free so I would like to benefit from it
But since i am new I would like to know if I am going to make a huge mistake.
I have checked Ishares, it is a great page. Can you buy directly from their webpage? 

May I ask you what is your investment strategy?

Regards

[daverobev]

Europe is not a country! Dividends are handled differently in each country, and there are different shelters available too!

In the UK there is an ISA that allows you to save up to about £10k a year tax sheltered (£10k-ish total, of which up to half can be in a cash-only/savings account type thing).

[seattlecyclone]

What about your foreign dividend treaties?

Here in American, you can buy shares of BP (Britain) get taxed a treaty foreign tax of 15%, but then at the end of the year, it's a dollar to dollar tax credit write off up to $3,000 for foreign taxes. Aka No taxes on this foreign dividend.

But sorry if i just put salt in your wound. Just wondering if you have foreign tax credit write offs that you may have missed.

There are some nuances to this. Some countries will actually withhold taxes on dividends that are higher than the treaties require. For example, Spain withholds 21% of dividend income from shares of Spanish companies (maybe the Spanish domestic dividend tax rate is 21%?), but the treaties only require foreign taxpayers to pay 15%. The US tax credit allows you to claim the 15% that the treaty says you technically owe, nothing more. If you want to get that extra 6% back, you have to file a form with the tax authorities in Spain...not really worth the effort unless your investments in Spanish companies are quite large.

Also, this foreign tax credit only applies to shares held in taxable accounts. If you have foreign shares in an IRA and the dividends have tax withheld, you might be able to get the excess tax (over the treaty amount) refunded by filing the necessary paperwork with the foreign tax authorities, but the 15% treaty amount is not refundable.

[Christof]

I forgot about times of capital gains taxes...since I am curently living in Dubai tax free so I would like to benefit from it

In my replies I assumed you are from Spain, but I realize that might be an unfounded assumption. Taxes are generally paid to three countries when you buy shares: The country where the company realized gains in, the country in which you currently live and the country of your nationality.

Most countries have tax treaties that deal with double taxation. To evaluate tax impact you really have to look at every pair of the three countries and determine the procedures to claim money back or provide papers to pay less. Here we can only give general information. If you need specific information for your particular situation you need to contact a tax consultant.

But since i am new I would like to know if I am going to make a huge mistake.

Before you worry about taxes and making mistakes there, start learning about investing. Open an account in the country you currently live in or the country of your nationality and start investing. Most banks provide the tax paper work for their own country. So, if you open an account in Spain you should receive all information to file taxes in Spain. If you are living in a different country than your nationality, you need to contact a tax consultant. If you are an ex-pat for a corporation they usually have a department for this.

I have checked Ishares, it is a great page. Can you buy directly from their webpage? 

No, you need to open a brokerage account with a bank or a broker.

[daverobev]

In my replies I assumed you are from Spain, but I realize that might be an unfounded assumption. Taxes are generally paid to three countries when you buy shares: The country where the company realized gains in, the country in which you currently live and the country of your nationality.

No. Only the US claims worldwide income for nationals. So *generally* two countries; the country of your residency and the country where the stock or ETF is listed.

[Christof]

It's not that easy... If one person lives in Dubai, but spouse and kids in Spain, you still have to pay taxes in Spain. Same if you are in the country for more than 183 days, which might or might not be an issue the year one is leaving and the year one returns. It's true, though, that the US requires tax payments for the privilege of having the nationality, whereas other countries at least require some active connections to the country.