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Posted by lcazarre on January 29, 2007, 2:30 am
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I am a non-resident alien and the only solution for me to
access Vanguard products is to purchase funds from Vanguard
International Ireland.
The downside is that the range of available funds is limited
(21 only) and that there is an investment minimum of $100k
per fund.
I am only able to invest in one fund and I am thinking of
purchasing the World fund.
What worries me is the tax implication of investing in this
fund.
Taxation of the fund shareholders:
According to the Irish tax code, neither dividends nor
capital gains received from an Irish UCITS (such as Vanguard
International) are taxed by Ireland for non-Irish residents.
Therefore, I will only be taxed on capital gains and on the
dividends received from Vanguard by my country of residence.
So far, so good.
Taxation of the fund:
What I do not understand though, is how Vanguard
International Ireland itself is taxed when it receives
dividends from a US company or realizes capital gains. Will
Vanguard be taxed as a non-resident alien (withholding tax
of 30%) or benefit from the tax treaty between Ireland and
the US (withholding tax of 15%)?
What I am trying to understand is the overall tax rate I
will have to pay on dividends received from US companies. My
understanding is that the fund will have to pay a
withholding tax of 15% on US dividends. On top of this I
will be taxed by my country of residence on the dividends
received from Vanguard.
Am I correct?
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Posted by Shyster1040 on January 30, 2007, 12:09 pm
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According to some info I found online, an Irish UCITS is
treated as a taxable entity and thus, assuming that the fund
is resident in Ireland for purposes of the US/IRL income tax
treaty (which most such funds usually are, but you should
verify this fact), the Fund would be entitled to benefits
under the US/IRL tax treaty.
As a result, it is most likely the case that dividends
received by the Vanguard Fund will be subject to a 15%
withholding tax, or the lower 5% withholding tax if the Fund
has a "direct investment" in the dividend-payor (usu., this
requires that the Fund own more than 10% of the equity of
the dividend-payor).
For purposes of the US/IRL treaty and US income tax
principles, the Fund is not transparent, and therefore you
are not eligible to claim benefits under the US/IRL income
tax treaty. Your tax treatment will, instead, depend on the
treatment of the Fund under the income tax treaty between
Ireland and your country of residence.
It is more likely that the Fund will also be treated as
non-transparent under that treaty and, as a result, you will
be treated as receiving dividends from the Fund as and when
the Fund makes distibutions to you under the terms of your
investment in the Fund. As a result, you would probably not
be entitled to claim a credit for any US taxes paid by the
Fund (the same way that you would, in general, not be
entitled to claim a foreign tax credit for any US taxes paid
by any other Irish company you invested in).
If the Fund is regarded as transparent (i.e., a
pass-through) under the treaty between your country and
Ireland, then you would be treated as recognizing the Fund's
items of income and expense, and, as a general matter, would
probably be allowed to claim either a credit or a deduction
for any US taxes paid by the Fund.
At bottom, since the Fund is likely to be regarded as the
beneficial Irish owner of any US-source dividend income
received by the Fund, the issue regarding how you're taxed
will depend on how the Fund is treated in tax matters
between Ireland and your home country rather than between
Ireland and the US.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by DF2 on January 30, 2007, 12:09 pm
Please log in for more thread options lcazarre@gmail.com wrote:
> I am a non-resident alien and the only solution for me to
> access Vanguard products is to purchase funds from Vanguard
> International Ireland.
>
> The downside is that the range of available funds is limited
> (21 only) and that there is an investment minimum of $100k
> per fund.
>
> I am only able to invest in one fund and I am thinking of
> purchasing the World fund.
Vanguard exchange-traded funds (VIPERS) might be an
alternative that I would guess you could purchase via a
broker. The list at
https://flagship.vanguard.com/VGApp/hnw/FundsVIPERByName
does not include the "World fund". I don't know why you
would be "only able to invest in one fund". Commissions can
be low, but they are not the zero you can get from a regular
fund. The annual expenses can be less, so you still might
come out ahead of a regular fund.
This is a related search:
http://www.google.com/search?hl=en&q=VIPERS+Vanguard&btnG=Search
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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