ETFs (Exchanged Traded Funds or quoted funds) are one of the assets in which to invest our savings to obtain a return. BME, the operator of the Spanish stock market, points out that “they are powerful investment instruments that combine the advantages of diversifying funds with the flexibility of trading shares.” “an alternative to having to analyze and select individual stocks”.
Specifically, it is a collective investment instrument -like investment funds-, but that is traded and settled exactly the same as shares on the stock market. This is its main difference with respect to traditional funds, its shares can be bought and sold in a secondary market.
As with stocks, investors will earn a return from the increase in the price of the ETF. The capital gains will be effective when the purchase is made, until then they will be latent. But, in addition, the participants of an ETF have the possibility of receiving dividends -practically non-existent in traditional funds-. “On a regular basis, the ETF may remunerate investors with the dividends distributed by the companies that make up the reference index. Above all, this is common in the case of ETFs that follow equity indices”, explains the CNMV.
Subject to income tax
Depending on the origin of the profits obtained by the investor, the tax treatment will be different. However, as with other financial products, the benefits must be taxed by Personal Income Tax (IRPF). This tax is levied on the income obtained during the year for which it is taxed, so in the case of the benefits obtained, they will be taxed in the year in which they are effective, not latent.
The difference is in the box in which each type of benefit and the possible withholdings that are applied must be included. Despite being a collective investment product, its tax regime is that of shares: capital gains are considered capital gains and dividends are included as income from movable capital.
The CNMV highlights that “capital gain occurs if the import of the sale is higher than the purchase and there is a loss if the import of the sale is less than the purchase”. Therefore, it is important to take into account the acquisition value and the transfer value. The first represents the value of the sale, deducting the expenses of that operation. While the second term is calculated with the purchase price plus the expenses of the operation.
The difference between the two is included in the tax base of savings for the fiscal year in which the sale took place. In this sense, it must be taken into account as a difference with respect to traditional investment funds, that the capital gains generated by the investment in ETFs are not subject to withholding.
On the other hand, shares in listed funds in Spain cannot be transferred, so it is not possible to benefit from the regime that allows participants in traditional funds to redeem in one fund and subscribe in another with deferral of taxation for the capital gains. In other words, every time shares of an ETF are transferred, the investor must pay taxes on the capital gain or loss, even if the amount of the transfer is reinvested in one or more other investment funds, listed or not. The same rule also applies if the transfer or sale of shares comes from an unlisted investment fund and its importation is reinvested in the acquisition of shares of a listed investment fund.
As with shares, the dividends obtained by the participants of an ETF are subject to personal income tax. It is an income that is included in the savings base within the income from movable capital. At the time the dividend is received, the financial intermediary withholds 19% of the amount received and this withholding is a payment on account of the tax that will have to be settled when the IRPF declaration is made.