Trading ETFs on Foreign Exchanges

Withholding taxes, Transaction Fees and Stamp Duties – Do they play a Role if you want to trade ETFs on Foreign Stock Exchanges?

Dear All, 

most ETFs are domiciled in Ireland or Luxemburg, and traded on different European Stock exchanges as the London Stock Exchange, Xetra, Euronext  Amsterdam, SIX and Borsa Italiana which have all their own regulations, and I wanted to discuss if it matters at which exchange you buy the ETF.

Withholding taxes on the dividend payments should not apply to private Swiss investors who buy foreign domiciled ETFs on any of the above mentioned exchanges, whether they use a Swiss or a foreign broker, with few exceptions. I believe that you are only subjected to the country specific withholding taxes if you use a broker which is domiciled in the same country, or if you trade ETFs which have underlying assets of this country.

You buy ETFs on any exchange and the broker / bank is German: you probably need to pay the German withholding tax (Abgeltungssteuer, 26 %).

You buy ETFs which reflect the German stock market: you will also pay withholding tax on the dividend payments independent of the ETF or broker domicile.

For both scenarios, you probably want to avoid countries with more than 15 % withholding tax, as this is the most common amount which you can claim back fairly easily in your tax declaration.

2. Financial transaction fees apply in France (0.3 %), Italy (0.12 %?) and Belgium, and probably some other countries (Spain?). The French transaction fees only apply to investments into shares with a substantial market cap (e. g. 1 billion EUR), and probably to any ETFs (any exchange and any domicile) with the French share market index CAC 40 as underlying assets.

I am not aware that investors who live outside Belgium are subjected to financial transaction fees, and do not know the situation in any other country for certain.

3. Stamp duty are collected by Swiss brokers on Swiss exchanges for any ETF transaction. The London Stock Exchange is the only other European stock exchange I know of which also applies a stamp duty of 0.5 %, but I believe that this is only if you buy (UK?) shares.

ETFs with underlying assets other than the UK stock market should be completely exempted from this tax. Can anybody confirm?

In summary, and if not mistaken, the choice of exchange is of very minor importance for trading ETFs with respect to withholding taxes, transaction fees and stamp duties. (It is important with respect to spread and currency though). Would you agree?

Thank you

The choice of which exchange to trade on is actually quite relevant.

Stamp duties in Ireland (1% for Irish securities) and the UK (0.5% for UK and UK-registered securities) are exchange-based. In other words, you pay the stamp duty when you buy or sell securities on an exchange in Ireland or the UK respectively, no matter where you live or where your stock broker is located. So the only way to avoid paying these stamp duties is if you can trade the same security on a different stock exchange in a country without such a tax. Cyprus (0.15%) and Malta (2%) also have exchange-based stamp duties. So if you buy shares in an ETF listed in Ireland or the UK, you will pay the stamp duty.

Finland, France, and Italy have something called a financial transaction tax. This tax applies to specific kinds of trades base on certain criteria like the market capitalization of the stock you are buying, etc. This tax is exchange-based, so if an ETF is subject to the tax (I imagine most would not meet the criteria), then you will pay the tax no matter where you live, and where your stock broker is located.

The Swiss stamp duty (0.075% for Swiss securities and 0.15% for foreign securities), on the other hand, is broker-based. You pay the Swiss stamp duty if you use a Swiss broker to buy or sell a security, but not if you use a foreign broker to buy or sell the same security on the same exchange. This stamp duty applies no matter where you live. The only criteria is whether or not you use a Swiss broker. So if you buy shares in an ETF listed in Switzerland using a non-Swiss stock broker, you will not pay the Swiss stamp duty.

Belgium has a transfer tax (either 0.35% or 1.32%, depending on the kind of fund) which applies to residents of Belgium, regardless of where the broker or exchange is located. So if you as a non-resident buy shares on a Belgian stock exchange (with or without a Belgian stock broker), you should theoretically be exempt from the tax.

Luxembourg does not have any kind of stamp duty or other securities transaction taxes.

Withholding taxes are not an issue for ETFs domiciled in Ireland or Luxembourg. If dividends are important to you, avoid ETFs domiciled in France, as reclaiming the French withholding tax is notoriously difficult. For US ETFs, reclaiming 15% of the withholding tax is easy, but the other 15% is a pain / impossible to get back.

As I see it, if you were going for the absolute lowest-cost setup, in terms of minimizing losses from stamp duties and withholding tax, you would use a broker in a country that does no levy broker-based stamp duties, and you would invest in ETFs listed in a country which does not have exchange-based stamp duties / transaction taxes.

The country in which the ETF is domiciled should ideally have double-taxation agreements with the countries where the companies (stocks) it invests in are domiciled that let it reclaim all withholing taxes on dividends. It should also have a DTA with Switzerland that lets you reclaim any withholding tax taken by the country where the ETF is located.

With regards to transaction fees (assuming you mean brokerage fees, custody fees, etc.), it would be a matter of carefully comparing all possible fees and charges.

Many thanks for this most interesting discussion.

May I jump to an example for illustration? I am interested to invest in shares of a large "All World" type share ETF with a basket of about 60 % of US shares, physically replicating and distributing. Most (if not all) of these ETFs are domiciled either in Luxemburg, or Ireland for tax reasons. Ireland is perhaps the better choice in this case due to favourable tax agreements between Ireland and the US.

My intention is to use the US broker IBKR which is operating from the UK for their European customers to make the investment.

Very specifically, I wonder if there is a marked difference for me as a private investor if I trade shares of the ETF on any of the four more popular European exchanges like 1. Xetra, 2. the London Stock Exchange, 3. Euronext (Amsterdam) or the 4. Borsa Italiana.

Foreign currency or small difference in brokerage fees are of no concern to me, and I tend to believe that I should just look out for the number of trades at each exchange to keep the spread down.

Basically, I should not be confronted with stamp duties, withholding taxes on the dividend payments or financial transaction fees for this Irish domiciled ETF in any of the four exchanges. Would you agree? Anything other difference I did not think of? 

London Stock Exchange: It depends if the fund has a share register in the UK. If so, then you pay the stamp duty.
Borsa Italiana: It depends on if the fund and transaction qualifies for the transaction tax. In most cases it won't apply.

Holland doesn't have a stamp duty. AFAIK Germany does not have one either. So there should be no stamp tax when you buy an Irish ETF on Xetra or Euronext. If you use IBKR, then there will be no Swiss stamp duty either.