Offshore investing & dividends tax

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JayM

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I've opened up a brokerage account (Interactive Brokers) and converted a substantial amount of money into USD and GBP and I'm looking at various low-cost ETFs from iShares, Vanguard and the like.

If I buy an accumulating ETF (i.e. dividends are simply reinvested and never distributed), what is the tax situation? Do I still pay dividends tax on the dividends that were reinvested, or will only CGT apply upon selling? I've done substantial Googling and cannot find anything.

(Side note: After some research I've discovered Vanguard offers no accumulating ETFs at all, which kinda sucks.)
 
Don't think there is a official guidance for this. I'd imagine it would be as if it got paid out and reinvested.

Or put differently you earning the div (taxable) and the reinvesting is two separate tx.

So you'd need to do wht and 6quat of memory serves

Whole thing seems like a major pain
 
HavocXphere said:
Don't think there is a official guidance for this. I'd imagine it would be as if it got paid out and reinvested.

Or put differently you earning the div (taxable) and the reinvesting is two separate tx.

So you'd need to do wht and 6quat of memory serves

Whole thing seems like a major pain
Click to expand...

I agree on the two separate transactions part - if you receive dividends and either you or your broker then reinvests them, then that is definitely taxable.

However in this instance, the fund manager is reinvesting the dividends and the fund will simply hold more of the underlying securities, raising the overall value of the fund.

And yes it's a faff, but knowing the investments are out of reach of you-know-who will be worth it when the money grab happens.
 
Go read the tax act. Its the earlier of receiving or entitled to.

You're entitled to the dividend at dividend date. The end.

You can try and fly under the radar but my gut feeling tells me this is taxable income
 
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You will pay tax on the dividends and the foreign portion as you are resident in SA.

In my case, I pay dividend WHT on my SA divies but not my foreign divies as I am not a SA resident.
 
First time I hear it being called an Accumulating ETF. Here, in RSA at least, we call it a Total Return ETF if any payouts are automatically reinvested.

As far as my RSA ones go the tax is deducted and the reinvest trade shows up under my transactions, so I would assume the same will happen for foreign ETFs.

You're not gonna be able to use this to avoid tax unless it's in a TFSA or similar.
 
Well SA side it matters less since the divs are tax free anyway. If anything you'll score if you track it separately as your cgt will drop
 
HavocXphere said:
Well SA side it matters less since the divs are tax free anyway. If anything you'll score if you track it separately as your cgt will drop
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Assuming current status (SA resident, marginal rate of tax), they would amount to a very similar amount.

In future though, I may only be selling when not employed, so CGT will be much lower, and I may not be tax resident anyway.
 
JayM said:
I've opened up a brokerage account (Interactive Brokers) and converted a substantial amount of money into USD and GBP and I'm looking at various low-cost ETFs from iShares, Vanguard and the like.

If I buy an accumulating ETF (i.e. dividends are simply reinvested and never distributed), what is the tax situation? Do I still pay dividends tax on the dividends that were reinvested, or will only CGT apply upon selling? I've done substantial Googling and cannot find anything.

(Side note: After some research I've discovered Vanguard offers no accumulating ETFs at all, which kinda sucks.)
Click to expand...

Assuming you are an SA resident who submitted his W8-BEN:

15% DWT will be withheld by IB.
Foreign dividends received are classed as normal income in SA.
You file your tax return with SARS and deduct the 15% DWT as per the double taxation treaty.
SARS doesn't care whether you DRIP your dividends or have them paid out.
 
JayM said:
Assuming current status (SA resident, marginal rate of tax), they would amount to a very similar amount.

In future though, I may only be selling when not employed, so CGT will be much lower, and I may not be tax resident anyway.
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Pretty sure that constitues a disposal event...
 
FrankieK said:
Assuming you are an SA resident who submitted his W8-BEN:

15% DWT will be withheld by IB.
Foreign dividends received are classed as normal income in SA.
You file your tax return with SARS and deduct the 15% DWT as per the double taxation treaty.
SARS doesn't care whether you DRIP your dividends or have them paid out.
Click to expand...
Fk...still need to do this. And don't think I have a dta available. Hadn't thought of that...
 
Also, certain types of investments are exempt from DWT in the US. Certain ETNs from, for example, UBS ETRACS are an example of this. This does not however impact your reporting to SARS.
 
JayM said:
/snip

(Side note: After some research I've discovered Vanguard offers no accumulating ETFs at all, which kinda sucks.)
Click to expand...

AFAIK dividend reinvestment is a broker function, not an issuer function.
 
FrankieK said:
AFAIK dividend reinvestment is a broker function, not an issuer function.
Click to expand...

It can be either. For example, "iShares MSCI Europe UCITS ETF EUR (Acc)" means that the issuer is doing the reinvesting.
 
JayM said:
If I buy an accumulating ETF (i.e. dividends are simply reinvested and never distributed), what is the tax situation? Do I still pay dividends tax on the dividends that were reinvested, or will only CGT apply upon selling? I've done substantial Googling and cannot find anything.
Click to expand...
Hi also battling to find anything concrete on google for this. Did you ever manage to determine how the tax works?

I was thinking about purchasing either:
- SWDA:LN (iShares Core MSCI World UCITS ETF)
- VWRA: LN (Accumulating Vanguard FTSE All-World UCITS ETF)
- VWRD: LN (Distributing Vanguard FTSE All-World UCITS ETF)

I am not concerned on if it is accumulating or distributing just want the one which is most tax efficient/lowest fees and simplest.
If you go the distributing route are you able to claim the tax credits? I read somewhere can't find it now that on the VWRD they did not have a line on their statement from IB for for the dividend paid as it was done internally in the found and battled to claim the credits from SARs..
 
UYScuti said:
Hi also battling to find anything concrete on google for this. Did you ever manage to determine how the tax works?

I was thinking about purchasing either:
- SWDA:LN (iShares Core MSCI World UCITS ETF)
- VWRA: LN (Accumulating Vanguard FTSE All-World UCITS ETF)
- VWRD: LN (Distributing Vanguard FTSE All-World UCITS ETF)

I am not concerned on if it is accumulating or distributing just want the one which is most tax efficient/lowest fees and simplest.
If you go the distributing route are you able to claim the tax credits? I read somewhere can't find it now that on the VWRD they did not have a line on their statement from IB for for the dividend paid as it was done internally in the found and battled to claim the credits from SARs..
Click to expand...

I have approached a few accountants/tax specialists and still don't have a consistent answer from anyone. I don't even think SARS knows the difference.

As to which is more tax efficient - difficult to answer, as it depends on your marginal tax rate, when/if you're going to cash out and emigrate.

Disclaimer: I am not a tax adviser, but:

I'm buying only VWRA (i.e. no VWRL/VWRD etc), and treating reinvested dividends as growth, and will time my exit from SA so that I have 0 earnings in the tax year to minimise tax liability. I hold quite a few US stocks/ETFs which pay dividends, and IB automatically withholds 15% tax (fill out those W8 forms or you're on the hook for 30%), and I pay the other 5% to SARS - haven't had any issues yet and the IB activity reports have been sufficient proof to them that I'm making use of a tax treaty and only owe 5%.
 
UYScuti said:
Hi also battling to find anything concrete on google for this. Did you ever manage to determine how the tax works?

I was thinking about purchasing either:
- SWDA:LN (iShares Core MSCI World UCITS ETF)
- VWRA: LN (Accumulating Vanguard FTSE All-World UCITS ETF)
- VWRD: LN (Distributing Vanguard FTSE All-World UCITS ETF)

I am not concerned on if it is accumulating or distributing just want the one which is most tax efficient/lowest fees and simplest.
If you go the distributing route are you able to claim the tax credits? I read somewhere can't find it now that on the VWRD they did not have a line on their statement from IB for for the dividend paid as it was done internally in the found and battled to claim the credits from SARs..
Click to expand...
You cannot claim the credit inside the ETF. Patrick from Investorchallenge i believe tried doing it a few years ago and SARS denied it.
 
JayM said:
I have approached a few accountants/tax specialists and still don't have a consistent answer from anyone. I don't even think SARS knows the difference.

As to which is more tax efficient - difficult to answer, as it depends on your marginal tax rate, when/if you're going to cash out and emigrate.

Disclaimer: I am not a tax adviser, but:

I'm buying only VWRA (i.e. no VWRL/VWRD etc), and treating reinvested dividends as growth, and will time my exit from SA so that I have 0 earnings in the tax year to minimise tax liability. I hold quite a few US stocks/ETFs which pay dividends, and IB automatically withholds 15% tax (fill out those W8 forms or you're on the hook for 30%), and I pay the other 5% to SARS - haven't had any issues yet and the IB activity reports have been sufficient proof to them that I'm making use of a tax treaty and only owe 5%.
Click to expand...
I assume you refer to the 25/45 rule to get to the 5%?
 
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