Reinvesting funds and taxes in Europe

[jarkster]

Hi there,

I'm starting to build a PP from scratch and after reading the book, have a question regarding funds that reinvest the interests and dividends.

I'm based in Finland and here the taxation goes so that if the fund reinvests the gains, they are not immediately taxed (only when you sell). However, if they are payed back to the investor, the fund company deducts (and pays the government) the 30% capital gains tax from the gains. This means that there is a huge tax benefit for passive investors to use the reinvesting funds, since (given that I'm probably going to hold most of the funds for a very long time) they are only taxed once, after a long time (of inflation and reinvested interests).

So I was wondering if any of the EU peeps here have similar taxation and whether you think it trumps the general PP rule of not using reinvesting funds?

Cheers,
//jarkko

[hoost]

I'm not in Europe, but for me in that scenario I would definitely reinvest and rebalance when necessary by selling assets.

[KevinW]

I'm not in Europe, but for me in that scenario I would definitely reinvest and rebalance when necessary by selling assets.

+1

[Thomas Hoog]

In the netherlands (also europa) there are no taxes on dividend or interest only on capital
In your case I would take reinvesting funds

[k9]

France here. You are strongly encouraged to use ETFs that reinvest dividends here as any income (whether dividend or capital gain) is taxed at 45% ! For LT bonds, zeros are of course more than advised as you get the bonus of added volatility and no tax on coupons.

For my VP I use a special, tax-friendly account that can only hold cash and european stocks and cannot be withdrawn from without closing it. Taxes are only of 15% of the difference between what you invested and what you get back once you close the account, so dividends are the same as capital gains. Interesting, of course, but cannot be used for the PP as you cannot rebalance from it.

[Arturo]

Hi there,

I'm starting to build a PP from scratch and after reading the book, have a question regarding funds that reinvest the interests and dividends.

I'm based in Finland and here the taxation goes so that if the fund reinvests the gains, they are not immediately taxed (only when you sell). However, if they are payed back to the investor, the fund company deducts (and pays the government) the 30% capital gains tax from the gains. This means that there is a huge tax benefit for passive investors to use the reinvesting funds, since (given that I'm probably going to hold most of the funds for a very long time) they are only taxed once, after a long time (of inflation and reinvested interests).

So I was wondering if any of the EU peeps here have similar taxation and whether you think it trumps the general PP rule of not using reinvesting funds?

Cheers,
//jarkko

Hi jarkko,

the only ETF funds that reinvest dividends in Europe, as far as i know, are two related to Stocks (EuroStoxx Europe EMU):

+ Pictet-Euroland Index-R EUR
+ AMUNDI FUNDS INDEX EQUITY EURO

regards

[jarkster]

Thanks, Arturo,

Seligson here in Finland has several mutual funds that I think fit the bill in a European PP, mainly the Europe Index Fund and Euro Bond Fund (with some caveats). All their funds have both reinvesting and non-reinvesting shares. Most Finnish funds provide both shares, but are a tad more expensive than the larger international funds and ETFs.

[Arturo]

i founded two new ones:

1. iCommerzbank BOXX € Sovereigns Germany Capped 10+ TR

2. Commerzbank EONIA Index TR

the only issues:

are very iliquidity and are swaps methodology.