ETF Domicile and Withholding Tax

Have a specific question I haven’t been able to find the answer to.
Essentially - If i’m in the UK and have an Ireland domiciled ETF (such as VUSA), do I have to pay withholding tax on the dividends? would it being in an ISA except this?

As a separate question i see some ETFs are ‘non-reporting’ but are ’ distributing’. Would this affect tax if a UK investor is doing it via an ISA?


There are no taxes in an ISA

Haha simple as that then! Thank you

All dividends from ETFs will have withholding tax taken before the distribution, ISA wrapper or not. That’s one disadvantage of ETF.

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Here is my theory.

VUSA is distributing ETF. This means it pays dividends to the investor.

First, US corporation pay dividends to Ireland domiciled fund (ETF). The tax is 15% (according to double taxation treaty between US and Ireland).

Secondly, the fund pays dividend to the investor. The dividend is not taxed in Ireland, but is taxed by the country where the investor is tax resident (where he lives).

This is resulting in double taxation.

AFAIK for small dividends there is no dividend tax in UK. But in other countries there is no threshold, even small dividends are taxed. In Bulgaria there is 5% tax on dividends if they are not alreday taxed at the source or there is no double taxation treaty.

The accumulating ETF based in Ireland would be taxed with 15% dividend withholding tax in USA. And the profit is received by the investor by selling shares of the ETF. This means that the investor in accumulating ETF (like CSSPX) is paying only capital gain taxes.

In some countries will be more beneficial to the investor to invest in accumulating ETF, because there is no capital gains tax (in Bulgaria there is no capital gains tax when investing in stocks and ETFs traded on EU stock exchanges).

In other countries will be more beneficial to the investor to invest in distributing ETFs, because there is no tax on dividends or the tax on dividends is lower than capital gains tax.

For Bulgarian investors it’s more tax beneficial to invest in US dividend stocks directly, if there is no commissions for buying them and the holding period is infinite or very big (and the profits are mostly from dividends, not from capital gains). Because according to the double taxation treaty between US and Bulgaria the withholding tax on dividends is only 10% (15% in treaty between US and Ireland). However, there is capital gains tax when the investor sells the stock (10%), because the stock is traded outside EU stock exchanges.

Am I understanding it correctly?

You say many things in this post. Some correct, some not. I do not know Bulgarian tax rules. So far as UK goes, a person owes tax on dividends if total dividend income exceeds £2000 and at a rate depending on total income. Tax is owed on both distributed income and that income which is retained in the ETF (called excess reportable income), so there is no great difference between dividend tax owed between holding a distributing and accumulating ETF. Double taxation does occur in both VUSA and CSPX because no tax credit can be taken for the 15% tax already withheld. If you own US stocks directly then the 15% US withholding tax is deductible from UK tax.

But this is for UK. This has been discussed a lot in previous posts. Eg

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