The big reason being that VWRLs are domiciled in Ireland, and I live in Germany. As a non-Irish resident, it would cost me too much on taxes compared to other funds domiciled in Germany.
In case you live in Germany and are thinking of buying European Vanguard products (domiciled in Ireland), consider these points first.
Capital gains taxes in Germany and Ireland:
- In Germany, you can earn up to €801 (or €1602 for a married couple) a year in capital gains tax-free. After that your gains will be taxed at 25%+ .
- In Ireland, there is a 10% withholding tax for non-Irish residents from first EUR.
Compare different capital gains scenarios in Germany (DE) and Ireland (IE):
If you earn €1000
DE: No tax
If you earn €1602
DE: No tax
If you earn €2000
DE: ~ €100 (i.e 25% of €398 (amount above €1602)
IE : €200
If you earn €2500
DE: ~ €230 (i.e 25% of ~€900)
IE : €250
If you earned €2650
DE : ~€262
Credit: Richard @ Banks Germany. 🙂
Earning more than €2650 as capital gains from VWRLs is when taxes paid to Germany will be higher than taxes paid to Ireland. In all other cases, you actually pay higher taxes in Ireland as withholding taxes – plus you’re not using your free-tax room of €1602 per married couple.
If you and your fund do not share the same domicile, there will be tax issues! Learn what they are beforehand so you can make tax efficient decisions. I was rushing to buy VWRLs because I’ve been putting off investing for several years. Turns out, Irish VWRLs are not the best choice for German residents like me. While my intent is not to search for ‘the best fund’ (index trackers are very similar to each other), I don’t want our taxes to be so complicated either. Especially when there’s plenty of good options in Germany, the richest country in the EU.
Thanks again to Richard for saving us so much time, money, and frustration!