Tax on Exchange Traded Funds in Ireland
Taxation of Irish and EU domiciled ETFs
Revenue guidance released in April 2015 stated that ETFs domiciled in Ireland & EU would follow the treatment set out in Chapter 1A of Part 27 TCA 1997 for investments in Irish ETFs. This means that Irish and EU domiciled ETFs are generally treated by Revenue as “investment undertakings”. Dividends and gains are taxed at 41%. Every 8 years, there is a deemed disposal. Read more about this below:-
- You are supposed to declare the purchase of an ETF on your self assessment tax return to Revenue.
- Any dividends you receive from an ETF are subject to 41% tax. However, many ETFs accumulate dividends instead of paying them. Therefore, buying “Accumulating” ETFs rather than “Distributing” ones will simplify your tax returns and increase your overall return slightly.
- When/If you sell an ETF you will be liable for 41% income tax on any gains made. It doesn’t matter if you keep the money with your brokerage, you still need to pay the tax on the gains.
- If you don’t sell your ETF – then every 8 years you will be “deemed” to have sold it and will be liable for tax at 41% on any gains in the preceding 8 years. This means you will have to find the funds to pay the tax even if you haven’t sold them. This will put a lot of people of ETFs.
- Whenever an actual disposal of an ETF subsequently occurs, a tax credit is given for the tax paid on the deemed disposal.
If the ETF subsequently falls in value and you cash it in , you can submit a claim to the Revenue for overpaid tax due to deemed disposal.
- All gains from ETFs (actual or deemed) including dividends, should be declared on your self-assessment tax returns each year. Some people are put off by this extra record keeping required for ETFs.
- Any losses on other ETFs are not available for offset. So if you make a loss of €5000 on one ETF over 8 years – but make a gain of €10,000 on another over the same period – you will be liable for 41% tax on €10,000. You cannot deduct the €5000 loss.
- PRSI or universal social charge (USC) are not due on ETF gains.
Taxation of US, EEA and other OECD domiciled ETFs
ETFs domiciled outside the EU have been treated like individual shares for taxation purposes in Ireland.
Prior to Jan 2022, ETFs domiciled in the US, EEA and other OECD countries were not treated as legally equivalent to Irish funds. Income, typically in the form of dividends, would be subject to income tax, and gains would be subject to capital gains tax.
However – in September 2021 – the Revenue Commissioners published updated guidance to advise that taxpayers who invest in ETFs domiciled in EEA or OECD member states with whom Ireland has a Double Tax Agreement (DTA), must carry out an analysis in order to determine the appropriate Irish tax treatment.
Revenue has confirmed that if EEA/OECD ETFs are deemed equivalent to Irish ETFs, then the eight-year deemed disposal rule is also applicable. (Effective From Jan 2022)
If an EEA or OECD ETF is NOT equivalent to Irish ETFs – then the following tax treatment will apply:-
a) Dividends are declared to Revenue as income and you pay your margin rate of tax on that income.
b) When you sell the ETF you will be liable for Capital Gains Tax of 33% on any profit above €1,270 per annum.
The onus it seems is on the investor to assess whether an investment in the ETF is a “material interest in an offshore fund” . More here
More here on CGT on Shares
Note : Irish investors have been restricted from purchasing US-domiciled ETFs since January 3rd 2019. But you can use CFD’s on Etoro (without leverage) to invest in USA ETFs without actually owning them.
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