Big tax hint!

Since Trump became President, markets have gone up in general. It’s been hard to identify fairly or undervalued dividend stock to add to my portfolio.

Nonetheless, I made 2 buys in 2017.

My first buy was 60 shares of Novo Nordisk, the insulin-maker. They had taken a hit after their lowered forecasts for the coming years (but still pretty good in my opinion). This cost me €1,990 and should add at least €30 to my annual dividend income.

Novo Nordisk Headquarter in blue, HQ, Bagsvaerd, Denmark, Smørmosevej, Novo Alle, Logo, apis

Next, I decided to buy 200 turbo’s of Veolia Environment company (200 Veolia Environment BNP turbo long 7.1) for a total of €1,744. The company operates mainly in water & waste management and a small part in energy. This is the first time I bought into turbo’s. I used a low-finance level to keep debt costs under control. I did this for 2 main reasons.

First of all, shares were trading at 52-week lows and at P/E of only 14. The company has been going through changes and has been working hard at reducing debt. They are at an acceptable debt level and have good future prospects in my opinion. They pay a fat dividend while the payout ratio is around 75%.

Second, and most important, tax reasons. !Important for Belgian investors! As the Belgian government likes to steal 30% of our precious dividend, I tried to outsmart them. Few people know this, but turbo’s are very interesting tax-wise. Why?

It’s all about the structure of a turbo. When you buy a turbo (or speeder, sprinter, whatever), you don’t actually own the stock. The bank that helps funding you to buy the stock, owns the stock. At first sight this isn’t appealing, yet it is. For this reason, dividend payments are made on the account of the bank. Banks receive a privileged treatment of the government. They don’t pay as much taxes on dividends as we do. Afterwards, the bank subtracts the received dividend from the finance level, thus raising the value of your turbo by the dividend. This is particularly attractive for stocks on the AEX, CAC40 or DAX because Belgians need to pay double taxes.

Concerning the Veolia stock, which is traded on the French CAC, I should normally pay 30% to the French government and 30% to the Belgian government. This leaves me with only 49% of the dividend. Sad reality.

Due to my choice for turbo’s, I will receive at least 85% of the dividend. The general rule goes as follows: if the bank has it’s HQ in a particular country; it doesn’t pay any taxes on the dividend. If it is not, there might exist a special treatment for it. For instance, only paying 15%. In my case it is unclear. I bought it on the Amsterdam Stock Exchange from BNP Paribas, however BNP Paribas is basically French, I think I will end up losing 15% because of the Amsterdam thing. Nonetheless this is 36% better than the original arrangement. If Belgians want a 100% dividend, they can opt for Unilever shares (NL based) on the Amsterdam exchange from example ING (NL based too), this way you don’t pay any taxes on your dividends.

I understand the concern about turbo’s, if it drops too much, you’re forced selling. However, I picked a low-finance level. Initial share price was €15,21 and my stop-loss is at €7,10. If it would hit that level, I guess I would be fucked eitherway. Risk/reward an excellent choice.

What about the debt costs, I hear you asking? The current intrest rate of debt on turbo’s issued by BNP Paribas stands around 2%. Knowing that I borrowed €1,318, this will cost me €26,36 after 1 year. Assuming worst case I get 85% of the dividend, I receive €0,80 dividend x 0,85  x 200 turbo’s = €136,00. Ok I won’t see it on my bank account, but the share of the bank in my turbo will decrease which appreciates my valuation by the same amount.

Without the turbo mechanism, I would have been able to buy around 115 shares. €0,80 x 0,49 x 115 shares = €45,08

This makes a difference of €90,92 on the same invested capital! It looks more like capitalization than dividend distribution to me. Doesn’t matter, as long as I get it.

Barack Obamazz3xmu6

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9 thoughts on “Big tax hint!

  1. financialfreedomsloth

    So you are using turbo’s which are mainly used with high leverage and for short time gamble on price movements for a long term investment (with low leverage) and a way to lower the tax on the dividends? Haha, that’s the kind of stuff I really like!!

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    • When Do You Retire?

      Since 1st January 2017 the USA have introduced some kind of legislation to prevent such tax-profitable investments for foreign investors. Now the paid amount on turbo’s on US stocks is 30% (still better than normal though).

      For European stocks, there is no such thing (yet). In the beginning of May, I should receive the dividend of the French Veolia. I’ll keep you guys updated on how it turns out. I figured out it was worth a shot, seeing it’s potential 😉

      Liked by 1 persoon

      • When Do You Retire?

        True that. I’ll copy paste the source here for BNP Paribas: (in dutch)

        Wanneer de onderliggende waarde van een Turbo ex-dividend gaat zal BNP Paribas op basis hiervan het financieringsniveau van de Turbo aanpassen.
        Wanneer het een Nederlands aandeel betreft, past BNP Paribas het financieringsniveau van zowel Turbo’s Long als Turbo’s Short naar beneden aan met 100% van het uitgekeerde dividend. Wanneer het een buitenlands aandeel betreft betaalt BNP Paribas doorgaans 15% dividendbelasting. Dit betekent dat het financieringsniveau van de Turbo’s Long op een buitenlands aandeel naar beneden wordt aangepast met 85% van het uitgekeerde dividend. Voor Turbo’s Short op buitenlandse aandelen wordt het financieringsniveau naar beneden aangepast met 100% van het uitgekeerde dividend.

        Source: bnpparibas.nl

        Liked by 1 persoon

  2. Mattias

    ik twijfel toch een beetje. Als het geen aandeel is, dan is het iets anders. Er is in de personenbelasting een quasi-vrijstelling van belasting op meerwaarden op aandelen; maar als het geen aandeel is, kan je dan genieten van die vrijstelling? Die vrijstelling geldt enkel voor normaal beheer van privé-vermogen. Ik vraag me af of je belastingcontroleur die CFD’s als normaal gaat beschouwen. Maar alles hangt af van het feit of je soms controle krijgt. Vermoedelijk is de kans redelijk klein, maar ik geef het toch maar mee.

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    • When Do You Retire?

      Ik heb net eens de wetgeving nagelezen en het komt er ongeveer op neer zoals je zelf verwoordt. Echter had ik wel de indruk dat indien je met afgeleide producten zoals turbo’s en cfd’s werkt, je al vrij professioneel moet zijn als particulier. Als je hier maar een paar handelingen in doet per jaar, kan dit volgens mij geen kwaad. Als je echter dag in dag uit hier zeer rendabele trades mee doet, wordt het wellicht een ander verhaal. Toch denk ik dat je als particulier niet te veel moet vrezen, de wettelijke omkadering is vrij omslachtig en ik heb nog geen mensen geweten die er problemen mee kregen op fiscaal gebied.

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