Brazil has created a 2% investment tax on purchase of stocks by foreigners. Brazil makes up about 15% to 20% of Emerging Market funds. Today Vanguard has increased the cost to buy EM funds to offset this new tax. Even if your EM fund does not directly increase the cost, the tax is still there of about 0.5% of your EM fund. Considering expense ratios in funds, 0.5% is a huge increase over the lifetime of an investment.
I would like the free market to tell Brazil to go F* Off and start offering some EM ex Brazil funds. Lets remove Brazil from BRIC and just have RIC instead. If we don't this then other countries may start imposing a tax on "rich foreigners" like us. Instead lets immediately remove all our investment dollars and watch their country's economy crumble without our money.
tripleB said: Brazil has created a 2% investment tax on purchase of stocks by foreigners. Brazil makes up about 15% to 20% of Emerging Market funds. Today Vanguard has increased the cost to buy EM funds to offset this new tax. Even if your EM fund does not directly increase the cost, the tax is still there of about 0.5% of your EM fund. Considering expense ratios in funds, 0.5% is a huge increase over the lifetime of an investment.
I would like the free market to tell Brazil to go F* Off and start offering some EM ex Brazil funds. Lets remove Brazil from BRIC and just have RIC instead. If we don't this then other countries may start imposing a tax on "rich foreigners" like us. Instead lets immediately remove all our investment dollars and watch their country's economy crumble without our money.Where did you get .5%? Per my reading of the discussion at boggleheads, the purchase fee has increased to .5% from .25%. That is a .25% increase.
Note: This may be a good reason to buy the ETF share classes of emerging markets funds. Assuming that the Brazil tax will be reflected as a premium in the ETF over NAV, at least one should be able to recoup most of the cost when the shares as sold to the next investor at a premium.
If Brazil makes up 20% of the fund and costs 2% tax and the other 80% has a 0%, then you are paying a 0.5% weighted tax on the entire amount of your fund.
It's true the purchase fee has only gone up 0.25%, however the remaining tax will be paid from inside the fund as a hidden expense.
Technically Brazil makes up just over 15% of the VG fund, but it made up 16% last year and I imagine some other EM funds may have up to 20% which is where that number came from.
tripleB said: theman2 said: Where did you get .5%?
If Brazil makes up 20% of the fund and costs 2% tax and the other 80% has a 0%, then you are paying a 0.5% weighted tax on the entire amount of your fund.
It's true the purchase fee has only gone up 0.25%, however the remaining tax will be paid from inside the fund as a hidden expense.
Technically Brazil makes up just over 15% of the VG fund, but it made up 16% last year and I imagine some other EM funds may have up to 20% which is where that number came from.Remember that mutual funds are net buyers or sellers on any given day based upon cash inflows and outflows. My understanding is that the tax is levied on new Brazil share purchases by foreigners so the fund is only going to be paying the tax when they have more money coming in than going out and they are required to buy new shares.
Example: Today, I buy 3 shares of some BRIC mutual fund and you redeem 2 shares. The fund will have to purchase enough Brazil stock to make up 1 additional share and will add the stock from your 2 shares to make up my 3. The fund will only be paying the purchase tax on the stock purchased on 1 share.
theman2 said: Remember that mutual funds are net buyers or sellers on any given day based upon cash inflows and outflows. My understanding is that the tax is levied on new Brazil share purchases by foreigners so the fund is only going to be paying the tax when they have more money coming in than going out and they are required to buy new shares.
This may be true but due to volatility in cash flows, eventually the tax is going to be monumental. If there is just a 1% net increase in cash flow in a given day, the fund is going to have to pay several hundred million dollars in taxes to Brazil. It may be a small amount of the entire fund holdings, but by principle, I don't wish to support the Brazillian government's tax grab.
If we don't take a stand now, whats to stop China or other countries from imposing taxes on foreign purchases? Unless we show with our wallets that we are willing to withhold investments, then the taxes will continue.
tripleB said: If Brazil makes up 20% of the fund and costs 2% tax and the other 80% has a 0%, then you are paying a 0.5% weighted tax on the entire amount of your fund. Math fail! I put in $100 in the fund; 20% or $20 is made of Brazil investment; 2% of $20 = $0.40 is paid as investment tax. No tax on the other $80 invested. Total tax is $0.40 for $100 invested or 0.4%
SamuearlJackson
Thrifty Member
posted: Oct. 30, 2009 @ 1:11p
Now I think I know who you are on the bogleheads site tripleB
Is there a refund when there are losses? Just another govt looking to tax outside citizens who are willing to prop up thier ventures. A stupid idea but since a lot op people slate Brasil for growth the govt wants to get thiers.
DamnoIT said: Is there a refund when there are losses? Just another govt looking to tax outside citizens who are willing to prop up thier ventures. A stupid idea but since a lot op people slate Brasil for growth the govt wants to get thiers.
The govt already will be getting theirs in the form of increased corporate tax, personal income tax, and revenue from traveling businessmen into the region stimulating the economy.
This is a way of the government trying to get theirs NOW instead of gradually through an increased economy. The likely effect will be a decrease by more than 2% in long term taxes as investors decide that the 2% spread of buying in Brazil just isn't worth it.
Whoa! I can almost hear da Silva shaking in his sombrero...
iamameatpopsicle
Member
posted: Oct. 30, 2009 @ 8:05p
TripleB, relax and keep using the Vanguard Emerging Market Fund. The reason why Brazil has levied the 2% fee is becoz there is too much "hot money" coming in their country. Their stock market is clearly in a bubble having gained 70% YTD and their currency has gained 25% YTD. By levying the 2% fee, they want the markets to be stable. I think all of the BRIC countries should follow Brazil's step and decrease the amount of "hot money" in favor for long term, sustainable growth.
Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.
Members of our community may attach files to a post in accordance with the User Agreement. FatWallet is not responsible for the content, accuracy, completeness or validity of any information contained in any attached file. Files have *not* been scanned for viruses. Be especially wary of Excel files which may contain malicious content.
