Taxation of ETF Dividends

ETF (Exchange Traded Fund) is a fund listed and traded on the stock exchange. It can track various indexes, commodities, bonds and other subjects, providing investors with diversified choices. Many investors like to invest in ETFs because they have the advantages of low cost, high liquidity, and high transparency. In addition, some ETFs also pay dividends regularly, attracting many dividend investors who pursue stable income.

But are there taxes on dividends from investing in ETFs? Are there different tax regulations for different types of ETF dividends? How can investors plan their taxes reasonably and reduce their tax burden? This article will introduce you to the basic knowledge of ETF dividend taxation and hope it will be helpful to you.

Tax Classification of ETF Dividends

According to Taiwan’s income tax law, ETF dividends can be divided into three categories: dividend income, property transaction income and overseas income. Different types of ETF dividends have different tax rates and reporting methods, and investors must clearly distinguish between them.

Dividend income

Dividend income refers to cash or stock dividends from listed companies or publicly issued companies in Taiwan. Such ETF dividends are part of personal comprehensive income tax, and you can choose to have consolidated taxation or separate taxation.

Consolidated tax calculation means that dividend income and other types of income (such as salary, interest, bonuses, etc.) are combined into the total income for the whole year, and then tax is paid according to the income bracket. The combined tax calculation can enjoy 8.5% tax deduction, with an upper limit of 80,000 yuan per reporting household. Combined tax calculation is suitable for investors with lower income brackets or other deductions.

Separate taxation means that dividend income is calculated separately at a fixed tax rate of 28% and is not combined with other income. Separate tax calculation is suitable for investors with higher income brackets or no other deductions.

Proceeds from property transactions

Asset trading income refers to the price difference or capital reserve generated from the purchase and sale of ETF constituent stocks. Such ETF dividends are exempt from personal income tax, but are subject to a one-thousandth securities transaction tax (unless the government grants tax exemptions). Income from property transactions does not need to be declared and will be distributed directly by the issuing institution after deducting securities transaction tax.

Overseas income

Overseas income refers to cash or stock dividends from listed companies or publicly issued companies outside Taiwan. This type of ETF dividend belongs to overseas income. If the total amount of each reporting household does not reach 1 million yuan in the current year, it will be exempted from taxation in the minimum tax system; after the total amount reaches 1 million yuan, it will need to be included in the minimum tax system and combined with the comprehensive The total net income has a shared deduction limit of 6.7 million yuan, and a 20% tax rate will apply to any amount exceeding it.

Withholding and refund of ETF dividends

When investing in ETFs of listed companies or publicly issued companies in Taiwan, a 21% withholding tax (including 10% withholding income tax and 11% second-generation health insurance supplementary premium) is usually withheld when cash or stock dividends are distributed. If the investor chooses separate tax calculation, there is no need to declare and make back payments; if the investor chooses combined tax calculation, the withholding tax can be included in the tax paid the following year for deduction or refund.

When investing in ETFs of Taiwanese overseas listed companies or publicly issued companies, a 30% withholding tax is usually withheld when distributing cash or stock dividends (including the 30% withholding income tax levied by the U.S. government and the 0.1% securities transaction levied by the Taiwanese government Tax). If the investor meets the taxation standards of the minimum tax burden system, the withholding 30% can be included in the paid overseas income tax as a deduction or refund when filing the tax return the following year; if the investor does not meet the taxation standards of the minimum tax burden system, it cannot be deducted or refunded.

ETF Dividend Tax Saving Tips

In addition to choosing a taxation method that suits them, investors can also use the following tips to save taxes on ETF dividends:

Avoid a single transaction exceeding 20,000 yuan: If a single dividend distribution exceeds 20,000 yuan (inclusive), 2.11% of the supplementary premium of the second-generation health insurance will be deducted. Therefore, you can diversify your investment in ETFs that distribute dividends at different companies or at different times to reduce the cost of each transaction. The amount of interest distribution.

Avoid exceeding 1 million yuan at a time: If a single dividend distribution exceeds 1 million yuan (inclusive), it will be included in the minimum tax burden system and taxed. Therefore, you can diversify your investment in overseas ETFs that distribute dividends in different regions or at different times to reduce The amount of a single interest payment.

Avoid securities tax: If the government provides certain bond ETFs with exemption from securities taxes, you can consider investing in these bond ETFs to save securities taxes.

Avoid remittance fees: If the custodian bank and the delivery bank are the same, remittance fees are waived. Therefore, you can apply to the issuing institution to change the income distribution account, so that the remittance can go directly to the account in the same bank under your name.

Avoid U.S. withholding tax: If you hold ETFs of listed companies or publicly issued companies outside the United States (such as Irish ETFs or emerging market ETFs), you can avoid the 30% withholding income tax levied by the U.S. government. Therefore, you can choose to invest in these ETFs to save taxes.

ETF Dividend Tax Considerations

Finally, investors should also pay attention to the following matters when investing in ETF dividends:

The tax classification and proportion of ETF dividends will change with the issuing institution and the time of dividend distribution. Therefore, investors should always pay attention to the issuing institution's announcements and income distribution notices to confirm the source and amount of their own dividend distribution.

The tax regulations and preferential policies for ETF dividends will be adjusted as the government and laws change. Therefore, investors should update their tax knowledge at any time and comply with the latest tax laws.

The reporting methods and deadlines for ETF dividends vary according to different types of income. Therefore, investors must declare their income accurately and on time to avoid underreporting or misreporting, which may result in fines or additional taxes.

Conclusion

ETF dividends are a popular source of income for many investors, but they are also taxable income. When investing in ETF dividends, investors must clearly understand that different types of ETF dividends have different tax regulations and reporting methods, and adopt reasonable tax planning and tax-saving techniques to reduce tax burdens and increase actual returns. This article introduces you to the basic knowledge of ETF dividend taxation and hopes to be helpful to you.