ETF Tax Calculator

General basis of preparation

• The information in the Exchange Traded Fund (ETF) Tax Calculator is prepared for general information purpose only with assumptions made.
• It is not intended to be relied upon as accounting, tax, investment or other professional advice of any kind.
• The information in the ETF Tax Calculator is prepared based on the prevailing tax regulations, interpretations and practices of the domicile of investors as at the time the information is being prepared and updated, which is also supplemented by the practical observations in key markets.
• All investors are unlisted institutional corporate investors and tax residents in their domicile location(s) and subject to standard corporate income tax rate. Under specific circumstance, the characteristic of the investors may have specific tax treatment/exemption on income from ETF distribution, which have not been considered in the ETF Tax Calculator.
• The ETF Tax Calculator does not include any transfer taxes such as stamp duty. It considers only dividend and interest income received by the ETFs, and excludes capital gains tax or tax on trading profits/ losses, if any. Also, distributions from the ETFs are considered to be normal dividend and/or distribution in the ETF Tax Calculator (practically subject to local variances).
• To the extent domestic relief and unilateral tax credit is available to the investors (and being considered in the ETF Tax Calculator), it is assumed that the necessary criteria are satisfied and the available tax credit would be within the prescribed limit under domestic tax regulations.
• ETF distribution (before tax) is the expected amount to be received by the investor assuming no applicable income tax or withholding tax at the ETF level and the investor level. The after-tax return has considered the applicable withholding tax on all levels, the portfolio level, ETF level and investor level.
• ETF’s principal class of shares (and any disproportionate class of shares) is regularly traded a stock exchange located in the jurisdiction in which ETF is a tax resident.
• Some jurisdictions may have regulatory restrictions on cross-border investments. Investors should seek separate legal and regulatory advice in this regard as the ETF Tax Calculator is focused solely on the potential tax implications of investing into different types of ETFs.

Application of reduced tax treaty rates / treaty benefits

• In practice, ETFs may seek reduced tax treaty rates / treaty benefits on distributions from underlying investments. However, there are certain practical challenges for ETFs to seek tax treaty benefits, which may vary from market to market.
• The ETF Tax Calculator covers single jurisdictional indices and multi-jurisdictional indices with underlying equity or fixed income investments. For single jurisdictional indices and multi-jurisdictional indices which invest 10% or more into a single jurisdiction, tax treaty rate is applied in respect of the investments in the relevant jurisdictions where applicable, subject to certain assumptions.
• We have assumed the following minimum conditions for tax treaty eligibility are met for the purpose of enjoying treaty benefits in the context of this ETF Tax Calculator*:

1. ETFs are assumed to be the tax residents in their domicile and are able to obtain certificates of residence from their local tax authorities.
2. ETFs are assumed to be regarded as beneficial owner of the income.
3. ETFs are assumed to hold less than 5% of the total share capital of a single investment.

• Ultimately, the ability to claim tax treaty benefits by ETFs and investors depends on each of their individual facts and circumstances in meeting the prescribed conditions under the relevant tax treaty provisions or domestic laws interpretation if any. This is also subject to the practices of ETF sponsors and withholding agents and the local tax authorities in each jurisdiction. We have assumed certain aspects or requirements are met in the ETF Tax Calculator. Each investor should consult its own tax advisor regarding the specific requirements to qualify for tax treaty benefits under the relevant tax treaties.

*Except for Brazil, Mainland China, France, Italy, Switzerland, Taiwan and Thailand, where we understand that there are practical challenges for foreign ETFs to claim tax treaty benefit, to which extent in the ETF Tax Calculator we have only assumed that domestic rates are typically applicable for these markets.  For certain markets, we understand there may have domestic challenges for allowing specific types of foreign ETFs to obtain tax treaty benefits.

Other jurisdiction-specific assumptions

Hong Kong

• Hong Kong ETF^# is a Hong Kong unit trust authorized under Section 104 of the Securities and Futures Ordinance (Cap. 571) of Hong Kong by the Securities and Futures Commission of Hong Kong.

Ireland

• Irish ETF^# is an Irish Collective Asset-management Vehicle (ICAV) authorized as an Undertaking for Collective Investment in Transferable Securities (UCITS).
• The Irish ETF principal class of shares is substantially and regularly traded on a recognized stock exchange.

Luxembourg

• Luxembourg ETF^# is a Société d’Investissement à Capital Variable (SICAV) / Société d’Investissement à Capital Fixe (SICAF) constituted in accordance with the amended law of 17 December 2010 concerning undertakings for collective investment or the amended law of 17 February 2007 on specialized investment funds. Luxembourg ETF assumed to be a “capital company” or “société de capitaux” (i.e. S.à r.l., S.A. or S.C.A) under Luxembourg law.
• SICAV/SICAF incorporated under a capital company will not be tax transparent but effectively tax-free, except annual subscription tax of 0.05% of its NAV that can be reduced to 0.01% of NAV for money market funds, cash funds or share-classes of UCIs reserved to one or more institutional investors. Depending on the portion of net assets invested in sustainable economic activities as defined in article 3 of Regulation (EU) 2020/852 the subscription tax rate may vary between 0.04% and 0.01%.
• Undertakings for collective investments, Reserved alternative investment funds and Specialized investment funds (as well as individual compartments thereof) that are authorized as European Long-Term Investment Fund (ELTIF) or pan-European Personal Pension Product (PEPP) are exempt from subscription tax.

US

• With respect to US ETFs^#, the ETF Tax Calculator assumes the US ETF:

1. Is a publicly-traded corporation organized under the laws of the US or any US state and is regulated under the US Investment Company Act of 1940;
2. Has properly and timely elected to be treated as a Regulated Investment Company (RIC) for US federal income tax (US Tax) purposes pursuant to US Internal Revenue Code (IRC) section 851(b)(1) and is considered a RIC in each tax year;
3. Only recognizes gross income from investment-related sources described in IRC section 851(b)(2);
4. Distributes 100% of its income (other than qualified undistributed capital gains described in IRC section 852(b)(3)(D)) to its investors each tax year;
5. Is not eligible to make an IRC section 853 election and will elect to deduct all foreign taxes for US Tax purposes; and
6. Will not have net investment company taxable income subject to US Tax in any tax year.

• With respect to the US ETF’s foreign investors, the ETF Tax Calculator assumes:

1. Each of the foreign investors is treated as a corporation for US Tax purposes;
2. For US ETFs that track equity indices, all of the US ETF’s distributions to its foreign investors will be considered US-source ordinary dividends for US Tax purposes, as described in IRC sections 881(a)(1) and 1442(a); and
3. For US ETFs that track fixed income indices, all of the US ETF’s distributions to its foreign investors will be considered interest-related dividends for US Tax purposes.
4. Each of the US ETF’s foreign investors, which is a tax resident in a jurisdiction that has an effective income tax treaty with the US, will qualify for treaty benefits and reduced US withholding tax rates pursuant to that applicable US income tax treaty.

• With respect to Foreign ETFs, the ETF tax Calculator assumes:

1. All US-source dividends the Foreign ETF receives will be considered ordinary dividends for US Tax purposes;
2. The Foreign ETF will not own 10% or more of the total value or voting power of any US investment;
3. The Foreign ETF will not own any US real property interest, as defined in IRC section 897(c);
4. All US-source government and corporate interest the Foreign ETF receives will qualify for the portfolio debt exemption under IRC section 881(c);
5. Foreign ETF is a tax resident in the jurisdiction in which it was organized; and
6. Foreign ETF’s principal class of shares (and any disproportionate class of shares) is regularly traded a stock exchange located in the jurisdiction in which Foreign ETF is a tax resident.

Australia

• Australian ETF^# is an Australian unit trust and a managed investment scheme in accordance with the Corporations Act 2001.
• All investors have been made presently entitled and/or are attributed the taxable income of the Australian ETF.
• Australian ETF would satisfy the requirements to flow out franking credits.
• The foreign income tax offset is eligible to be distributed from the Australian ETF to the Australian investors in relation to the withholding tax paid on the foreign dividend and foreign interest income and the amount is within the foreign income tax offset limit.
• The cash dividends from Australian equities are fully franked at standard corporate tax rate.
• The Australian corporate bonds satisfy the interest withholding tax exemption requirements pursuant to Section 128F of the Income Tax Assessment Act 1936.
• The Australian corporate investors are subject to standard corporate tax rate.
• The Iceland / Australia treaty entered into force on November 8, 2023. The treaty is effective from January 1, 2024 and provides for reduced treaty rates. The change has been reflected in this update.

Austria

• Effective January 1, 2024, dividend income paid to corporate entities is subject to a final withholding tax of 23% if the withholding agent knows the corporate status of the payee.  In practice, nonresident portfolio investors are generally subject to a 27.5% withholding tax rate. For prudence, we used 27.5%.

India

• Indian Finance Act, 2020 abolished dividend distribution tax and replaced it with a new regime where dividend is taxed in the hands of the recipients from 1 April 2020 by way of withholding. In consideration of treaty benefits, it is assumed that foreign ETFs investing into India are not a fiscally transparent entity, Indian general anti-avoidance rule is not triggered and other treaty conditions are met. In practice, Luxembourg ETFs may have difficulty to enjoy the treaty benefits and thus no treaty benefits are considered for them.
• The reduced rates on rupee denominated bonds will expire on July 1, 2023 and will be taxable at the rates of 30% (nonresident non-corporate entities) or 40% (nonresident companies) (plus applicable surcharge and cess) unless nonresident foreign company/non-corporate is registered as an FPI and the interest will taxable at 20% rate (plus applicable surcharge and cess).
• Effective July 1, 2023, a 9% withholding tax rate applies to interest paid by an Indian company to nonresidents in respect of approved borrowings by way of long-term bonds or rupee-denominated bonds listed on a recognized stock exchange, which are located in an International Financial Service Center. The bonds issued prior to July 1, 2023 will continue to be taxed at the 4% rate. The change has been reflected in this update.

Iceland

• The Iceland / Australia treaty entered into force on November 8, 2023. The treaty is effective from January 1, 2024 and provides for reduced treaty rates. The change has been reflected in this update.

Japan

• Japan ETF^# is a securities investment trust, which is defined under Income Tax Law (Article 2, Paragraph1, Item 13) and Corporate Tax Law (Article 2, Item 27), both of which refer to the definition stipulated in Article 2, Paragraph 4 of Act on Investment Trusts and Investment Corporations in Japan.
• The securities investment trust is not treated as a taxable body under Japanese tax rules.

Kazakhstan

• Effective January 1, 2024, nonresidents will be subject to tax on interest paid on securities listed on stock exchanges in Kazakhstan, unless the securities are actively traded on the stock exchange as defined by criteria published by the government (this exemption also applies to blacklisted countries). Stock exchanges in Kazakhstan affected by this change include the Astana International Exchange (AIX) and the Kazakhstan Stock Exchange (KASE). This is a similar provision that currently exists for the exemption on dividends on shares listed and actively traded on the official list of stock exchanges.

Kingdom of Saudi Arabia

• Saudi Arabia has dual taxing regime. Zakat applies to shares/units held by nationals of Gulf Cooperation Council (“GCC”) and/or those publicly listed shares on Saudi Arabian stock market. Zakat is 2.5% on the Zakat base, which is higher of either adjusted profit or net wealth. Shares held by non-nationals (other than publicly held shares) are subject to 20% CIT.

Mainland China

• Non-resident institutional investors are temporarily exempt from WHT with respect to interest income derived from Mainland China corporate bonds (from 7 November 2018 to 31 December 2025).

Morocco

• Effective January 1, 2024, the withholding tax rate applied to dividend income paid to a nonresident will be reduced from 13.75% to 12.5%, pursuant to the 2023 Finance Law. The change has been reflected in this update.

New Zealand

• New Zealand ETF^# is a unit trust registered as a Listed Portfolio Investment Entity with the New Zealand Inland Revenue Department.
• New Zealand ETF is included in the resident withholding tax exemption register.
• The cash dividends from New Zealand equities and distributions made by New Zealand ETF are fully imputed.
• New Zealand companies will distribute supplementary dividends to foreign ETFs.
• The dividends from foreign investments to New Zealand ETF and distributions made by foreign ETFs to New Zealand corporate investors have been assumed to be equal to the deemed income under the Foreign Investment Fund regime in New Zealand (the Australian listed share exemption does not apply).
• Approved Issuer Levy applies to government bond interest and corporate bond interest.

Singapore

• Singapore ETF^# is a unit trust authorized under Section 286 of the Securities and Futures Act 2001 of Singapore.
• The Singapore government bond and Singapore corporate bonds are Qualifying Debt Securities.
• The underlying investments exclude stocks and shares of / foreign corporate bonds issued by an unlisted company that is in the business of trading or holding of Singapore immovable properties (other than one that is in the business of property development)
• Foreign ETF distributions will be remitted or deemed remitted to Singapore.
• Singapore ETF is granted the Enhanced-Tier fund tax exemption scheme and is not subject to corporate income tax in Singapore.

South Korea

• South Korea ETF^# is a unit trust, which is a trust type of collective investment vehicle which meets the requirements under Article 234 of the Financial Investment Service and Capital Market Act of South Korea.
• The distribution from the underlying investment to the South Korea ETF is distributed to the South Korea ETF in the name of the South Korea ETF itself
• In 2021, there was an amendment regarding the Overseas Investment Vehicle (OIV) regime in Korea. A Lux SICAV maybe regarded as the beneficial owner of Korea-source income.  However, there is still uncertainty around the actual treatment, and no official guidelines have been published yet. In practice, standard rates are still applicable since it is uncommon for a Lux SICAV applying the beneficial rates.   In view of this, the standard corporate income tax rate is adapted in the ETF Tax Calculator.  Under specific circumstance, relevant OIV may have specific tax treatment/exemption on income from ETF distribution, which have not been considered in the ETF Tax Calculator.
• With effect from January 1, 2023, tax on interest and capital gains derived from transactions related to Korean government bonds and monetary stabilization bonds can be exempt, if applied by foreign investors. The applicable rate to the Government Bonds is updated to 0%.
• The 2023 Tax Reform introduced a one percentage point cut in each of the four CIT brackets as below. As a result, the corporate rates are reduced from 10%, 20%, 22%, and 25%, to 9%, 19%, 21%, and 24% depending on the taxable income range, effective for fiscal/tax years beginning on or after 1 January 2023. For South Korean investors, we assume the investors’ taxable income will be ranged between KRW20b to KRW300b, the relevant corporate income tax rate will be 23.1%, consisting of CIT rate of 21% and 10% local CIT imposed on CIT payable.

Taiwan

• Taiwan ETF^# is a Taiwan unit trust which meets the definition of Article 37 of Regulations Governing Securities Investment Trust Fund (i.e. "Exchange-traded fund (ETF)" refers to a fund which tracks, simulates, or replicates the performance of an index and is traded on a securities exchange market, with subscription and redemption of ETF units carried out through physical delivery or by the method prescribed in the trust agreement. The component securities of the subject index include stocks, bonds, and other securities approved by the Financial Supervisory Commission (FSC) of Taiwan), and being traded on Taiwan Stock Exchange.
• For Taiwan investors, we assume the investors' regular corporate income tax equals or exceeds the alternative minimum tax.
• The Report does not consider the foreign tax credit from Taiwan investor's perspective.

Thailand

• Thailand ETF^# is a mutual fund established as a juristic person under Thailand law which is classified as a company or juristic partnership subject to Thailand corporate income tax.

Turkey

• On December 27, 2023, Presidential Decree No. 8002 (Decree) was published in the Turkish Official Gazette. The Decree further extends the period for reduced withholding tax rates on the income and gains derived from various sources in Provisional Articles 2, 3, 4 and 5 of Decree No 2006/10731 from December 31, 2023 to April 30, 2024.

Malaysia

• It is assumed that bond issuer in Malaysia would meet the conditions for withholding tax exemption in practice.

Finland

• Pursuant to domestic law, a 0% withholding tax rate may apply to qualifying non-resident corporations upon establishing comparability to a Finnish tax-exempt mutual fund if certain criteria is met. For prudence, we use 20% for dividend and do not consider nominee-registered shares in this Report.

United Arab Emirates

• No WHT should be applicable upon distributions / payments from the UAE at this moment (the UAE Corporate Tax (CT) Law announced that the introduction of WHT on specific UAE sourced income realized by non-UAE resident persons, at 0% or different rate, as should be illustrated in a Cabinet / Ministerial Decision not yet issued).
• Income received by UAE investor (juridical person) in connection with holding interest in a foreign ETF should be taxed at a standard 9% rate, unless such investor (is exempt form UAE CT or benefits form special tax incentives (such as may be relevant if the investor is Qualifying Free Zone Person).
• We prepared this Report based on the assumption that the UAE investor will be Taxable Person subject to general tax regime, i.e. not Exempt Person and not Qualifying Free Zone Person; and assuming the investment in ETF would not qualify for Participation Exemption under UAE CT Law.

Exempt Persons

• Certain investors may be exempt from UAE CT due to their status in the UAE (e.g., entities fully owned and controlled by the government, entities engaged in certain types of businesses etc.). The exemptions envisaged under CT Law are not automatic (i.e., are subject to conditions and may require specific approvals). Each investor shall assess their position from UAE CT perspective independently.

General considerations relevant to investment in foreign ETF

• Where ETF is established as a tax transparent partnership, the UAE CT treatment of such foreign vehicle (tax transparent vs opaque) may be uncertain (particularly where one or more of the investors are Exempt Persons under UAE CT Law). In the absence of detailed assessment of a specific investment / ETF, it may be prudent to assume foreign ETFs as opaque entities (i.e., a default position, although upon meeting certain conditions the investment should be seen as tax transparent).
• The main issue at hand pertains to testing whether income accrued at the level of the ETF (structured as a foreign partnership) is taxed at the level of each investor as and when accrued at the level of the ETF (which may be difficult to confirm in practice, in case of a high volume of investors). More recent guidance has confirmed that where one of the partners in a foreign partnership is based in a jurisdiction that does not levy income tax, the status of such investor should not per se jeopardize the qualification of the partnership as transparent. However similar clarifications have not been released with respect to UAE based investors that may not effectively be taxed due to specific exemptions – or situations where other subject based exemption may impact the tax treatment of one of the partners (i.e., in such instances, the qualification of the ETF as tax transparent may be challenged, based on a technical reading of the law).
• Where foreign ETF is regarded as opaque, distributions should be subject to 9% CT rate, unless PartEx applies. As such (and similarly to investment in tax transparent ETF), given the nature of the ETF it may be prudent to assume PartEx may not apply and relevant income associated with ownership of foreign ETF units could be subject to 9%CT (unless the investor is able to demonstrate that the underlying investments held through the ETF meet all the PartEx conditions).
• Where foreign ETF is instead regarded as tax transparent, a UAE investor (other than Exempt Person) should consider:
  • Dividends received by ETF from UAE resident portfolio companies should be exempt from UAE CT.
  • Dividends and capital gains associated with foreign investments as well as capital gains on UAE investments could be exempt from UAE CT if the investor (indirectly through the ETF) holds equity interest (participation) that meets certain conditions, including:
    • Participation represents 5% or greater ownership interest (or has an acquisition value of at least AED 4m);
    • Participation entitles UAE investor (indirectly through ETF) to have 5% or more of voting rights and not less than 5% of liquidation proceeds (or, similarly, the acquisition cost of the participation’s acquisition cost for ETF units paid by the UAE investors allocable indirectly to the Participation concerned exceeds AED 4m);
    • Participation is subject to tax at not less than 9%;
    • Participation is held (or intended to be held) for a minimal period of 12 months;
    • Participation does not derive its value predominantly (50% or more) from the value of assets (participations) that do not meet the aforementioned conditions. Given the nature of the ETF (including that investors are unlikely to hold participation interest exceeding 5%), it should be prudent to assume PartEx may not apply and relevant income associated with indirect ownership of foreign (non-UAE) investments could be subject to 9% CT.

^#We understand the ETF in practice would be able to obtain a certificate of residence from their local tax authorities, except Japan ETF, Singapore ETF, Taiwan ETF and Thailand ETF may have practical challenges in obtaining a certificate of residence from their local tax authorities.

With effect from 20 August 2019, a Thailand ETF is considered as a taxable person and hence, may be eligible to avail beneficial tax treatment under tax treaties entered by Thailand and the jurisdictions of source investments, but there is no clear guideline on whether a Thailand ETF which does not generate taxable income (i.e. interest income) will be qualified to obtain the certificate of residence.

The eligibility of tax treaty benefits for ETF would also be affected by its legal form and the view from local tax authorities of ETF/source investment jurisdictions. For example, the eligibility of Luxembourg ETF to obtain a certificate of residence that could be used to avail applicable tax treaties would be subject to the relevant tax treaty provisions, as also summarized in Circular L.G. A.n °61 of 8 December 2017.  In this regard, we understand, Irish ETF, Luxembourg ETF and US ETF (one or some of them) may have practical challenges in availing tax treaty benefits from investment in the Canada, India, Japan, Russia and the UK.