I’ve spent a tremendous amount of time investigating on how to invest effectively from Taiwan. Many expats asked me the questions, so I’ve decided to write down how do I do it. I’ll also write different options you could explore. This article will likely apply to Tax resident in Taiwan, non-US citizens. I’m also not a financial advisor, and invite you to make more researches, please seek professional advice.
Make sure to have an emergency fund before starting
Do you have enough in your bank account for the next 6 months? This is one of the best recommendations. The goal of it is to never touch your investment until the next 15 or 20 years. The emergency fund will help you to give you enough buffer, in case you lose your job, have a bad accident. Withdrawing funds can take time, and also will hurt the performance of your investment.
I personally have my emergency fund in Revolut and Taipei Fubon Bank:
- Revolut: I’m often abroad and the flexibility that give you Revolut in any country is great.
- Taipei Fubon Bank: I want keep a single bank, Taipei Fubon Bank is known for being the cheapest to send money abroad (I’ll touch on this why this is important below )
The downside of both is that you won’t get much interest on them. Revolut doesn’t have any interest, and Taiwan Fubon Bank rates are quite low (0.05%/week). Those aren’t really profitable, but the goal is to have access to cash at time you won’t expect, and it will help you and won’t hurt your investment. Some western countries might also give you some better interest rate accounts, but check below if that suits you.
Which financial security to buy?
I’ll only focus here on a long term vision investment for the next 15 to 20 years. If you’re looking for short-term returns, this post won’t be for you.
When buying a security for the long term, you’ll need to consider:
- Low fees
- Understand the tax consequences of owning them in Taiwan
Diversification with ETF
On the long term, putting all your savings in a single company is risky. What if this company never grows, or worst goes bankrupt? This is called “put all your eggs in the same basket”. There is some financial securities that help you to diversify. They’re called ETFs. It’s like a group of share of multiple companies grouped in a single share. By purchasing a single share of an ETF, it’s like if you own a part of few to up to thousands companies, potentially in many countries.
IWDA is one of them. It has exposure to all developed countries (US, France, Japan, UK, Canada, etc…) and more than 1600 companies, including Apple, Microsoft, Amazon, in every sectors (tech, healthcare, finance, consumers…), and in the most developped countries. We call this called a market exposure.
However, IWDA doesn’t have exposure to countries like Taiwan, South Korea, China. They are called emergent markets. Having lived few years in China, and how vital are the high-end Taiwanese companies, I wanted to have exposure to those contries. EIMI is the perfect one for that.
Why so many countries and companies? The reason is simple… how do you know which country or company will perform better than the other? By investing in those 2 ETFs, you’ll basically tap into the world’s ability to grow. You will invest into the world’s biggest companies by purchasing a single share of it.
Low management fees
Too often, new investors don’t realize, or realize too late the importance of choosing low management fees funds. Even if that looks insignificant, every funds charge fees. It can be anywhere from 0.015% to more than 2%. Even if 2% sounds not that much, it will negatively impact your final return. By starting with $10,000, and adding $2,000 every month over 20 years and with 7% interest:
- In a 0,2% management fee , you’ll end up with $1,028,000, and paid $25,000 fees
- With a 1% management fee, you’ll end up with $932,000, and paid $121,000 fees
- With a 2% management fee, you’ll end up with $827,000, and paid $225,000 fees
Which broker should I chose?
Interactive Brokers (I’ll call it IB) is the one I highly recommend. You’ll access to all types of securities: ETFs, stocks and even currencies. It has the lowest fees to purchase them. It will also allow you to access to the ETFs I’ve recommended earlier: IWDA and EIMI.
The signup process is straight forward. Simply fill your information in the signup page, and wait a few days before validation. Make sure to fill your tax residence (Taiwan) since it will could impact how the tax could be taken directly by the broker (cf. below). Also, be aware of the monthly fee if your orders don’t generate at least USD 10 of fees per month.
How about local banks? Local banks will charge you crazy fees to access to foreign securities, but could probably be a good pick if you want to invest in Taiwanese securities. I won’t expand on this since I didn’t dig into this yet.
Make sure to change to tier pricing instead of fix. By default, the fixed pricing is set in your IB account. It only makes sense if your orders are over USD 8,000 (~228k TWD). If below that amount, you to switch to the tier pricing. I’ve saved hundred of USD by doing this one-click change.
How to send money to Interactive Brokers from Taiwan? To be able to purchase financial products, you’ll need to fund your IB account with real money. IB will provide you information of a bank account located in the US (Citibank) to send your money. Follow carefully the instructions. From a local Taiwanese bank account, Taiwan Fubon Bank is the bank having the reputation to have the lowest fees to send money abroad. If you want to stick with your own bank, it is totally ok. Simply shows up to your bank, and ask an employee to help you fill the document with the correct information. Protip: With Fubon, Ask to also link the Interactive Brokers account, so you could do the wire transfer online without coming to the bank again.
Can I send NTD/TWD to Interactive Brokers? No, you’ll need to convert first your NTD to USD, EUR, HKD, etc…, and then do the transfer. It should be doable from any Taiwanese banks. I personally keep all my money in USD or EURO, so I can avoid any currency exchange fees.
Is there a way to send money from Taiwan to Interactive Broker for free? There is no straightforward way to send money from Taiwan to Interactive Brokers, but here some tips:
- Taipei Fubon Bank was the cheapest way I’ve found to fund the IB account located in the US that is accesible to the most people in Taiwan.
- However, since IB use Citibank, you could take advantage of the “Global Transfer”. On the website: “Foreigners and the people with Citi company account can’t apply for Citibank Global transfer service.” I wasn’t successful at getting the Citibank free transfer option, even with a 3 years ARC. I however heard foreigners friends that already has a Citibank abroad could get that feature.
- If you’re from Europe, a hacky way would be to get your money in N26, and “withdraw” your money in Interactive brokers for free.
Tax in Taiwan
Tax on capital gain
The great benefit of Taiwan when investing that there is no capital gain. It means if you buy a share for USD10 and sell it when it worth 100USD you won’t pay tax on the USD 90 profit.
Tax on dividends, and the importance of fund domicile
Taiwanese residents investing directly in the American market are taxed 30% on dividends. However, you can lower it to 15% by buying shares with a fund domiciled in Ireland.
What is important to understand when calculating tax on dividends, is that it exists multiple levels of taxation. I’ll give more detail on how they applied on each level as a Taiwan tax resident:
- L1TW (Level 1): Percentage of tax withholding by a security’s home country on dividends distributed by that security to the fund . This will be applied at the broker level, and you won’t have anything to do. By default it is 30%, but if you buy shares via a country with a tax treaty, it can be lower. Ireland has a tax treaty with the US, so it can be lower to 15% if you use and Irish fund to get US shares.
- L2TW (Level 2): Percentage of tax withholding by the country where the fund is domiciled on the dividends distributed to the investor by the fund. Ireland doesn’t tax their non-resident. Since you reside in Taiwan, it will be 0%.
- L3T (Level 3): Percentage of taxation that the individual investor needs to pay in their home country. Since there is no tax on oversea income.
This is why I’ve picked IWDA that is located in Ireland. Since IWDA is composed of 60% of US companies , there is a bit of math to do to exactly know how much tax will be taken. This also means that all the dividends issued via a US shares you buy directly with be taxed 30% the L1TW level (Level 1).
Calculating the tax on the dividends for a given ETF is a bit tricky. Since an ETF contains share of many companies from different countries, you’ll need to understand the composition of your ETF. Since there is a treaty between the US and Ireland, and most companies being in the ETF are located in the US, the tax on the dividends are in average ~12.1%. In average because the exposure to different countries varies from year to year.
How to fill your tax?
Simply shows up to the tax office during the tax season and declare your gains. You can easily generate a statement in Interactive brokers as a proof. The tax office employees are really helpful. They talk english and will help you fill the forms.