# Non-US resident: tax comparison for ETF domicle in US vs Ireland

I am a non-US resident. I am evaluating taxation on US-domiciled ETF vs Ireland-domiciled ETF.

### Assumptions

• The country of the investor's residence has tax treaty with the US (the withholding tax in the US is 15%).
• The local tax in the country of the investor's residence tax is 19%.
• The country of the investor's residence allows deduction of the withholding tax (i.e. the investor pays only the delta between the withheld tax and the local tax).

### 1. US-domiciled ETF distributing dividends.

• Tax rate on dividends paid from companies to the ETF is 0%.
• Withholding tax rate on dividends paid by ETF to the investor is 15%.
• Local tax rate on dividends received by the investor is 4%.

Total: 19%

### 2. IE-domiciled ETF distributing dividends.

• Withholding tax rate on dividends paid from companies to the ETF is 15%.
• Withholding tax rate on dividends paid by ETF to the investor is 0%.
• Local tax rate on dividends received by the investor is 19%.

Total: 31.15%

### 3. US-domiciled ETF accumulating dividends.

Not applicable: US-companies must pay dividends at least once a year to non-US residents.

### 4. IE-domiciled ETF accumulating dividends.

• Withholding tax rate on dividends paid from companies to the ETF is 15%.
• Withholding tax rate on dividends paid by ETF to the investor is 0% (no dividends).
• Immediate local tax rate on dividends received by the investor is 0% (no dividends).
• Local tax rate on realized gains after sale is 19% (no tax on unrealized gains).

Total: less or equal to 31.15% depending on the investment period

### Questions

1. Is there anything wrong in the above calculations?
2. How to compare Option 4 against Options 1 and 2, assuming 10 years as an exemplary investment period?
3. In what conditions, Option 4 becomes more optimal compared to Option 1?

Update: the country of the investor's residence doesn't have any Estate or Gift Treaty with the US, but let's ignore the Estate tax for simplicity.

• Are you implying that 19% local tax means 19% Dividend Tax and 19% Capital Gains Tax? Jan 22, 2022 at 12:03
• @base64, yes, the tax rate is the same. Jan 22, 2022 at 12:05
• @base64, added information to the question that there is no tax on unrealized gains. Jan 22, 2022 at 13:42
• Yes I assumed that. Jan 22, 2022 at 13:42

1. Nothing wrong if you only consider the total dividend tax while ignoring that 4% less immediate tax each year in Option 4 provides additional chance for compounding capital gains.

2. One suggest way is to draw up spreadsheet showing year-by-year effect such as below.

3. When the dividends from Option 4 are not subject to any local tax (except capital gains on the gains of reinvested dividend), or when you consider ... the up to 40% US Estate Tax (Note: There is 1.5% overall chance of death between Age 20 and 30). The forecasted dividend yield and capital gains do not affect the winner it seems.

Assumptions:

• \$100 Lump Sum investment for 10 years
• 2% Gross Dividend Yield each year
• 8% Capital Gains each year
• Reinvested Dividend (including manually)
• For Option 4, although dividend not distributed to the individual, the Net Asset Value / Price of ETF increased. Local capital gains tax of 19% applies as if the Dividends are aquired at \$0 cost basis.

Here you can see that Option 1 is 1.5% better than Option 4 over 10 years.