How to open an account for the domestic investor with foreign broker, I partially told in this article, and also in earlier articles partially addressed the issue of taxation.
Briefly remind you that in work with foreign brokers there is the tax offsetting, and American brokers themselves take on taxation issues. With Russian brokers it is more complicated: here the taxation of investment works on the principle of “not caught — not a thief.” That is in violation of the law is missing in small amounts. I will stop once again on this issue.
Taxation of investments when working with a broker
Work with foreign brokers opens a lot of prospects to the domestic investor is:
- warranty and legal protection of investments (alas, in the post-basically the aim is honest obtaining capital from the client, not mediation);
- a larger set of tools, that is not available on the MICEX;
- foreign market operates on the economic rules, in the presence of a large amount of statistical data, the domestic market is a chaos.
However, the work in foreign markets is associated with the need of being aware of changes in tax rules. In Russia it’s simple: buying, for example, units of a collective investment fund or making a profit on the stock trading, at closing you are required to pay 13%. A withholding agent is provided to the broker, however, the declaration must be submitted in good faith, by you, as a trader. The situation changes if you acquire an asset using foreign brokers or through intermediaries — sub-brokers.
1. The sub-brokers
When buying US ETFs (funds allowing to participate in trading in the stock market) through the sub-broker who has direct access to the stock market of the United States, dividends received on his account. Sub-broker accounts are opened with a broker that has access directly to the exchange (on tiered broker system of the USA I partially told here). And then the recipient of dividends will not be you (though you are the ultimate consignee), but the broker. And tax on dividends are 15%. Besides working through the sub-broker is associated with risk — less the chain of entry to stock exchange, the less likely that someone will be the “weak link”.
In the case of bankruptcy of the broker compensation will not come to you, but to the sub-broker, which is also a high risk. Alternatively the trader may use a foreign subsidiary of a domestic broker that will simplify the chain. In Russia there are about 6 such companies.
2. Direct foreign brokers
Taxation of investment here is somewhat simpler, but to enter the US market is difficult for Russians brokers simply ceased to open accounts for Russian clients. The table below shows American brokers and their conditions of work with Russian clients.
I recommend two of the largest brokers through which you can trade:
- Interactive Brokers. Broker founded in 1977, the market capitalization of $ 5 billion credit rating S&P — “BBB+”. The only broker with Russian interface of the site. Offers access to 24 exchanges in the world;
- SaxoBank. Not less than a reliable broker that charges such a large commission. But for individuals residing in the EU Danish VAT will be applicable to the transactions, for people outside the EU VAT is not applicable.
Now about taxation. Taxation of investments in the amount of 10% is paid only if double taxation agreement is signed (with the US there is such an agreement). If there is no agreement, then the total tax may be 30%. If the year value of the portfolio increased, the increase in tax does not apply until you decide to sell the asset. Tax — 13%.
It is not possible to avoid paying tax when working with foreign investors. Foreign brokers themselves will take their 10% of income, and the remaining 3% will have to pay in Russia. In some cases the broker may not charge tax, then 13% is payable in Russia.
As practice shows, a lot of existing assets, assets with the possible payment of dividends, the specifics of taxation of investment of different countries in the chain “trader-UK-broker-assets” confuse the trader. And then to correctly determine the tax base you either have to ask questions to the broker, or to enlist the help of tax agents.