Last year a company called Greencoat Renewables* listed on the JSE. It was all about renewable energy, mostly wind in Europe. Further, it paid a great dividend. At the time of writing, that yield was around 9% in euros.
But that is where I should have read the small print. The Irish tax authorities (official name: Irish Revenue Commissioners) are taking a 25% dividend withholding tax (DWT). Then the South African Revenue Service (Sars) wants its own 20% DWT. So, suddenly a JSE-listed stock pays away almost half of its dividend. That juicy yield is nowhere near what I am actually getting.
We have a dual tax agreement with Ireland (where Greencoat is domiciled), so I am able to lodge a claim with the Irish tax people asking for my money back. So far this has been more of a mission than I could have imagined.
We have the same issue with US-listed stocks. They have a 30% DWT, but we can claim back half of that, paying only an effective 15%. The forms are also easier; I have simply lodged the W-8BEN form with my broker, and that covers it all.
Swiss tax law sees DWT of 35%, but we can claim back 20%, leaving only 15% of DWT. The claim process has always been easy in my experience.
But with the Irish, it seems my broker must lodge the form — and that’s where it gets messy and complicated.
The point is that South African investors are potentially leaving billions on the table if they’re not processing the forms to claim back the double dividend tax they are paying.
This is not great if you’re wanting the dividend income for spending, but it is great for those liking high yields
What’s important is not where the stock is trading. It is where it is domiciled that will determine the tax treatment on dividends. This extends not only to individual shares but also to ETFs.
Ironically, the easiest solution for offshore ETF investors is to buy Irish ETFs. That’s because most fall under the EU undertakings for collective investment in transferable securities (UCITS) regulations.
In effect, buying an Irish-listed ETF that is under UCITS means all dividends are simply reinvested into the fund. So, no payout — but no tax payable either. Then when you sell, assuming you held it for capital gain, your only tax payable is to Sars as capital gains tax. Of course, this is not great if you’re wanting the dividend income for spending, but it is great for those liking high yields.
For investors wanting to hold the likes of Greencoat or any of the many listed stocks domiciled in countries that treat us poorly, there are service providers who will do the work for you. There is, of course, a fee, and it’s often aimed at high-net-worth individuals. So, the solution may just be to avoid the DWT rip-offs and find high-yielding euro investments elsewhere.
*The writer holds shares in Greencoat Renewables
