Author Topic: Some ETF questions (Germany)  (Read 5438 times)

schoenbauer

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Some ETF questions (Germany)
« on: October 04, 2013, 08:03:19 AM »
Dear Forum,

can anybody explain to me, how ETFs - domiciled outside Germany and with reinvested profits - are being taxed in Germany? I noticed there is a difference to ETFs domiciled within Germany with cashing-out of profits. And just to be sure: the reinvested profits rise my number of shares of each ETF, right?

I started out with ETFs just some month ago when I discovered MMM. Thusfar my structure looks like this:
  • 40% DJ Stoxx 600 -> 31% are UK :(
  • 40% S&P 500
  • 15% DAX
  • 5% corporate bonds

Any comments?

EDIT: and more important: how should I declare them (the reinvested profits) in my tax declaration?
« Last Edit: October 04, 2013, 08:07:21 AM by schoenbauer »

Half-Borg

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Re: Some ETF questions (Germany)
« Reply #1 on: October 04, 2013, 10:42:30 AM »
As far as I understand ETFs that reinvest their dividends right away do not need to be taxed, neither in nor outsie germany. If you sell an ETF or receive dividend (going to your account in cash) you either pay Abgeltungssteuer (for german accounts) or you have to declare it as Capital Gains in your tax declaration. You can cut a profit by delaying your tax declaration for a couple of years and receive interest on your unpaid taxes.
When you declare capital gains you always pay your personal tax bracket, but no more than Kapitalerstragssteuer would be.

dmn

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Re: Some ETF questions (Germany)
« Reply #2 on: October 05, 2013, 04:25:34 AM »
Unfortunately, this is more complicated. For German investors, the dividends which an ETF reinvests must be immediately taxed as capital gains. For ETFs which are domiciled in Germany, *I think* this is done automatically. However, if an ETF is domiciled e.g. in Ireland, you must declare the reinvested dividends in your tax declaration, because the bank does not automatically deduct the capital gains tax. You can find the required information in the Bundesanzeiger, though I do not know where exactly the relevant numbers are stated.

Note that some synthetic ETFs can "swap away" the taxable gains, so taxation depends on the method of replication. You will find out in the Bundesanzeiger whether or not your ETF has generated taxable gains in any given year.

Another thing: The reinvested dividends do not increase your number of shares of each ETF, but they increase the value of each ETF share. As a consequence, when you sell your ETFs, your bank will deduct capital gains on the reinvested dividends *again*, as the bank only sees that the ETFs value has gone up since you bought it and interprets this as a capital gain, even if the increase in value was from reinvested dividends. You can get this money back if you prove that you already paid the taxes on the reinvested dividends; for this purpose, you need to keep all your tax declarations (or the Steuerbescheide?) until you eventually sell the ETF.

I think the whole procedure is quite messy, and I hope that it will eventually be simplified.
« Last Edit: October 05, 2013, 04:30:00 AM by dmn »

schoenbauer

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Re: Some ETF questions (Germany)
« Reply #3 on: October 05, 2013, 09:26:15 AM »
Thank you both for your reply.

I heard of something that dmn wrote before...everything else would have been too convinient.

But one question remains: my S&P500 ETF tracks the S&P500...that is of course an index which does not reinvest. My ETF reinvests though. So how can my ETF track the S&P500 while reinvesting without issuing more shares/rising the price? I thought the price of each share depends solemnly on where the S&P500 stands...(if u compare the performance of the ETF to the index they match quite well...so the ETF's price does not seem to be influenced by the dividends etc.

Thatīs why I guessed I would received some free ETF-shares over time to make up for all the profits. So dmn, r u sure about it?

Christof

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Re: Some ETF questions (Germany)
« Reply #4 on: October 05, 2013, 03:41:00 PM »
First of all, what dmn said is correct. In Germany dividend payments are considered to be taxable gains. It does not matter whether you reinvest them or the fund does.

To answer the second question: You own a certain number of shares of the ETF, for instance one of one million. The fund bought shares that make up the S&P 500 for a total value of, for example, 20 millions. Now when 1 million in dividends is distributed, the fund could either distribute them, which would pay you one whatever, or the fund can buy more shares. I n this case thh fund would now be worth 21 million. The share price would increase from 20 to 21 without that the S&P 500 price changed at all.

schoenbauer

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Re: Some ETF questions (Germany)
« Reply #5 on: October 06, 2013, 04:28:47 AM »
dear christof...I own parts of this ETF: http://www.etf.db.com/DEU/DEU/ETF/LU0490618542/DBX0F2/S-P-500-UCITS-ETF. According to the performance chart the ETF always tracked the index level of the S&P500...i would have expected, that the ETF rises faster though. Do u understand what i mean?

Christof

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Re: Some ETF questions (Germany)
« Reply #6 on: October 06, 2013, 11:39:55 AM »
It might become more obvious if you compare the same product, one that distributes dividends and one that reinvests:

distributing: http://de.ishares.com/de/rc/produkte/IUSA
reinvesting: http://de.ishares.com/de/rc/produkte/SACC

If you look at the first one, there are two numbers. NAV (the value of the fund) is roughly $16.72, NAV including distributions (fourth line) is $19.61. For the second fund those numbers are identical: $42.33.

The current stock price is roughly the first value. $16.78 for the distributing version, $42.59 for the reinvesting one. Same company, same index, yet two different prices. That doesn't mean though that the second one is better. If you look at the graphs or historical benchmarks, both funds grow at the same rate. BUT: Any of the charts is using a percentage instead of fixed values. That's why they appear to look identical. What is different, though, is that the actual price increases faster for the accumulating one. You can see this if you look at the historical NAV value:

Oct 06, 2013: $16.72 (Inc), $42.33 (Acc)
Oct 06, 2010: $11.57 (Inc), $28.02 (Acc)

So, the distributing one gained 44% in value in these three years, the accumulating one gained  51%. The difference is what has been distributed.

schoenbauer

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Re: Some ETF questions (Germany)
« Reply #7 on: October 06, 2013, 11:43:17 AM »
oh very nice christof! now i got it...i never payed much attention to the fact, that the growth charts are displayed in terms of proportions (percentage) and not absolute values. thx!

Christof

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Re: Some ETF questions (Germany)
« Reply #8 on: October 06, 2013, 11:56:48 AM »
One addition, if you want to see how the index grew in the past, you can download historical values:

http://us.spindices.com/documents/additional-material/sp-500-eps-est.xlsx?force_download=true

Starting at cell L87 are the distributions. If you add the current index value (B87) and all distributions since the inception of the fund, you get the NAV value that your fund company is using. In your case that is March 2010. DB reports an index value of 2628 for end of June. The S&P 500 value is 1606.28. Distributions since March 2010 are 1144.47.  Combined they are roughly the same value. The don't match exactly, because the spreadsheet only has quarterly values.