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US vs. HK for tax on capital gains

  1. #21

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    Wow!! Speaking of tuition, someone is in really good teaching mood today, this is the longest and patient (as in teaching-primary-kid-patient) post i have ever seen..


  2. #22

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    Quote Originally Posted by nivantj
    Wow!! Speaking of tuition, someone is in really good teaching mood today, this is the longest and patient (as in teaching-primary-kid-patient) post i have ever seen..
    Yes, but he did walk away from this thread.

  3. #23

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    Apr 2019
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    Quote Originally Posted by shri
    Some terms you might want to research. Just because your post bugged the fuck out of me and I had to walk away yesterday when I read it.

    Conceptually what is an ETF? It is in a very simple explanation a fund that is put together by a manager and traded on an exchange.

    Usually most ETFs if not all, will follow a publically available index and will attempt to match its performance.

    Historically, ETFs have followed major market indexes like the S&P 500, Hang Seng Index, FTSE 100 etc. Recently some ETFs follow newly made up indexes, mostly to satisfy some consumers who are looking for something new - think Robotics, AI, Water, "Green companies".

    ETFs which follow indexes are passively managed. I.e. They buy and sell shares, but are driven by the weightings of the individual holdings in the Index, but they do not have the flexibility to go "hey, I think Amazon will announce free delivery for everyone, which will tank their stock so lets sell everything before the announcement".

    An S&P 500 ETF holds all the constituents in the S&P 500 index.

    Now, an ETF's "manager", in the example you mentioned it is iShares / Blackrock, can charge a certain "expense" to the fund. So say if you have given the fund $100, iShares says it costs them $5 to maintain your $100 in the 500 shares which are a part of the S&P 500 index. This leads to them saying the "expense ratio of this fund is 5%".

    Going with the example of the S&P 500 index, many managers create their own ETF and charge a different amount - it all depends on who their investors are and how its marketed down the channel. Just like say a generic medication - the prescription is the same, but the cost varies depending on the manufacturers. All things kept the same, you naturally want the cheapest.

    But sometimes, the cheapest generic, made in a corner of a third world country might not be something you want to bank your life on. You should have a selection process and figure out the cheaper, most available, reliable ratios that will allow you to sleep well at night.

    Now, again, being very simplistic, for some reason, the cheapest medication may not be the most easily available one. The pharmacist (or the market where you buy from) may not have a lot of this medication available. When there isnt a lot of it available and you desperately want it, they (the market) can charge you a premium for it.

    If the drug does not sell a lot, the agent or the manufacturer (the "manager") may say its not worth getting all the approvals for that medication, maintaining warehouses / staff etc and might pull the drug off the market.

    This is where liquidity comes in.

    Using your example - " iShares Core S&P 500 ETF from MSCI".

    IShares is the fund manager. They have a low cost ETF that they recommend to everyone to form their "core investment". MSCI does not have anything to do with it. This particular fund follows the "Standard and Poors 500" index. Look it up.

    Not sure how to parse the rest of your statement.

    Now, many fund managers have S&P 500 ETFs. For sake of argument Vanguard and iShares are the most prominent.

    S&P tracker ETFs from both Vanguard and iShares are some of the most highly traded ETFs in the US markets they operate in, along with (just to confuse you...) S&P which has "spiders" or SPY.

    However, for whatever reason to keep this simple, these managers figure that people in HK want to get in on the S&P action - so they start a ETF in HK which follows the underlying index.

    Now lets consider which common markets you may want to trade on. For sake of sanity you don't want to trade S&P 500 ETFs on the Zimbabwean exchange, so lets restrict ourselves to HK, US, UK, Singapore.

    In HK you have the option of 3140, in the US you have hundreds of options as you do in the UK (fewer options than in the US, say dozens). Singapore has 1 or 2. And by the way, by UK I mean Irish ETFs, just confuse you further.

    Going back to an older post - why does it matter where you trade the fund.

    HK - 30% witholding tax, and it is one of those pharmacy issues. Few people want it or trade in it. Those who do, are small investors. I traded it for a while because for whatever reason in one of my accounts I could not access the US markets.

    US - 30% WHT, but shit tons of liquidity and hundreds of generics of the same quality at varying costs.

    UK - 15% WHT, lots of generics, but most of them barely trade.

    SG - No clue, research it.

    As a rule of thumb, if you are the type whose life depends on a generic, buy the one that is least available for sale, or would you buy one that is available in plentiful and at prices which are even across all pharmacies?

    Ok - tired now and running out of analogies and steam.

    Like jrkob said, do some research before you put money into the markets. Most people spend more time researching their mobile phone network provider than stocks.

    Walking away from this thread now...
    Love the openhearted response

    Having a master's degree in Finance, I believe that I have a sense of how liquidity for ETF works but your entire response was based on the assumption that if I used a HK broker I could not invest in ETFs that are traded on US exchanges (such as the S&P500 Vanguard ETF example you are referring to which trades on the NYSE Arca...).

    To put things into context, I am just hoping to understand if I should use Interactive Brokers (or another online platform) through their US or HK website. Your post goes to length on different scenarios of liquidity of buying/selling ETFs on different marketplaces but it is irrelevant in this case as per your exemple, I could invest in either US- or HK-traded ETFs independently of me using the US or HK version of the Interactive Brokers platform (which would be respectively fueled by a US bank account or HK bank account).

    US: No capital gain tax for non resident but there are dividend taxes
    HK: No capital gain tax and no dividend tax

    Hence the only factor of comparison now would be to compare US dividend taxes vs. potential higher trading costs from online brokers in HK but like you said my time would be better spent on actually researching my investment vehicles

  4. #24

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    deleted

    Last edited by latex; 12-06-2019 at 10:22 AM.

  5. #25

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    I don't think you can even open an account at IB HK without being a HK resident, and probably the same thing applies in the US.


  6. #26

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    Quote Originally Posted by monomono
    I don't think you can even open an account at IB HK without being a HK resident, and probably the same thing applies in the US.
    Interesting how Interactive Brokers can give you access to international markets. I guess after opening a IB HK account, you can then apply to open IB US account. How that is treated tax wise I'm not sure. To me the IB US account is still treated as well an US account, and you would need to pay taxes there in the US. Non Resident Foreign Nationals still need to pay US tax on US Income, which US stocks would be. How can you hold US stocks in a HK stock account? You can't unless HK has like the ADRs in the states. Thus IB is mostly likely just opening an account for you in each country. I could be wrong don't know but I'm interested.

  7. #27

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    Apr 2019
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    I am very interested as well. Why can't you hold US stocks with a IB HK account? I mean how did people do back then when they were investing in foreign stock markets through phone local brokers? ...

    I found this for capital gains in the US. The dividend ta of 30% still applies though and I think it is withweld automatically by the broker in the stock price itself.

    (NRA = non US citizen and non resident)

    Dividends and capital gains from trading

    A NRA may invest in US stocks. If a US company pays you a dividend, you have to pay 30% tax on the dividend amount. This rate may be lower if a tax treaty is in place between the US and the NRA’s country.
    Dividends received from foreign companies are not taxable in the US.
    Capital gains from the sale of stocks and short-term capital gain distributions will not trigger any US tax liability. However, you will likely have to declare this income and pay tax in your home country.

  8. #28

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    May 2015
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    Quote Originally Posted by TheRoadAhead
    Why can't you hold US stocks with a IB HK account?
    You can. Look, save yourself the trouble and give me your money, I'll take care of everything.

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