Interactive Brokers - SGD now available for funding

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Shiny Things

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Hi Shiny, would we be required to submit a tax return to the IRS to declare the income earned on the SYEP? Is it easy to do so?

I don't know, but I'd imagine tax gets automatically withheld from dividend-in-lieu payments same as for regular dividends. BBCW, you got any idea?
 

BBCWatcher

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I don't know, but I'd imagine tax gets automatically withheld from dividend-in-lieu payments same as for regular dividends. BBCW, you got any idea?
Yes, that’s my understanding. Just make sure you’ve done two things (assuming you’re a non-U.S. person — it works differently for U.S. persons):

1. Make sure you’ve got an accurate, current W-8BEN on file with the broker;

2. Make sure the broker is withholding tax from interest/dividends/PILs. That should be at a 30% rate for residents of Singapore.

You’re legally responsible for the U.S. income tax whether or not the broker withholds correctly, so just check #2 when the time comes. If the broker is not withholding correctly, contact the broker right away to get it fixed. (And you don’t want to let this slide by, because the IRS and/or the broker could hypothetically freeze/take assets if you’re not paying your taxes.) I don’t think any of the payments under the SYEP would be U.S. tax exempt. Normal stock dividends and PILs (payments in lieu) certainly would not be exempt. Your 50% share of the interest that IB collects when they loan out shares...not sure, but I don’t think it qualifies as exempt portfolio interest. So expect 30% withholding on that, too, and call up the broker if you don’t see it.

CAUTION #1: The SYEP is generally inappropriate for U.S. persons, except for their IRAs. The problem is that PILs are taxed at a higher rate for U.S. persons than qualified dividends. Interactive Brokers says it tries to avoid PILs, but (from what I’ve read) IB hasn’t been very successful in avoiding them. For IRAs, it’s OK.

CAUTION #2: You lose SIPC protections when you participate in the SYEP. If IB were to collapse, you would become a normal IB creditor for the shares that you’ve loaned out under the SYEP.

CAUTION #3: There may be negative U.S. estate tax implications if you participate in the SYEP, if you care about that.
 

BBCWatcher

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Don't expect this to be a firehose of cash; for me it adds about 0.2% to my returns every year, and I aggressively try to take advantage of it. But that's still an extra 20 basis points of literally free money, so: why not give it a try?
Are you sure about that, ST? I believe you’re a U.S. person, and if you got any PILs (Payments in Lieu of dividends), then you got whacked on the tax side, most likely — and that would have swamped any modest gain you made on the other side of the SYEP ledger. (Unless your IB account is an Individual Retirement Account.)

IB tries to avoid PILs, but reportedly some sneak through. Check your statements and 1099s. If you lost qualified dividends but gained unqualified PILs, that sucks.

The other major reason not to turn the SYEP on is that you lose SIPC coverage. IB explains that point rather well, to their credit.
 

revhappy

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I didn't know, not filling in W-8BEN will stop the broker from withholding 30% DWT. Generally tax authorities take the worst case and tax us maximum and then we need to file to prove that we are eligible for lower tax. So this broker not witholding 30% for not filling W-8BEN doesn't make sense to me.

People might choose to evade tax this way. In any case we are not under US law. We belong to our own sovereign state and so US law can't apply to us.

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BBCWatcher

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I didn't know, not filling in W-8BEN will stop the broker from withholding 30% DWT. Generally tax authorities take the worst case and tax us maximum and then we need to file to prove that we are eligible for lower tax. So this broker not witholding 30% for not filling W-8BEN doesn't make sense to me.
It doesn’t make sense, but we’re talking about automated systems and humans who program them. If somebody forgot an “IF..THEN,” then improper withholding results. And that’s bad, because it turns into your problem, and with a very twitchy broker once the problem is discovered that’ll not hesitate to try to clean up the mess. You do not want any of this, trust me.

Also, there are some rare cases when not having a W-8BEN on file can cause some significant other problems. I looked them up once and don’t remember them off the top of my head, but there are some such cases. I think it has to do with KYC-related problems that in rare cases can end up in asset freezes.

....Do this by the book, please! You’re dealing with big amounts of money, typically, and it’s not something you should fool around with. File a truthful W-8BEN (or W-9 if a U.S. person), and keep it current if something on the form changes, like your country of residence.

In any case we are not under US law.
No, but your money is. Interactive Brokers is a U.S. broker. I happen to know that you also invest in U.S. listed/traded funds and stocks. That part of your wealth is under U.S. law, too, regardless of which broker arranged those positions.

This works in reverse, too. If you live in France and hold some ES3 (STI fund), CPF assets, and a HDB unit, all three of those pieces of wealth are under Singapore law. (And with tax considerations in France since you’re a resident of France.) Singaporean authorities will not hesitate to do whatever they want to do under Singapore law. Their wealth playground, their rules.
 
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revhappy

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Thanks, I sold my US etf and now hold only LSE based ones.

1c2sCDbl.jpg


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BBCWatcher

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Thanks, I sold my US etf and now hold only LSE based ones.
At a U.S. broker, correct?

....Now I remember the KYC-related problem. If you don’t put a W-8BEN on file, then the U.S. broker is within their rights to deem you a U.S. person subject to mandatory IRS withholding. (There are such people. The IRS imposes mandatory withholding on U.S. persons who have been tax delinquent.) And why not? You haven’t told the broker otherwise, in a sworn statement that they can pull out and show the IRS when they come calling. So the broker could assume the worst, and that’s the worst.

So, what does that status mean? Well, it means all the distributions from your stocks and ETFs, even the LSE listed/traded ones, get whacked with withholding. All withdrawal attempts, too. Never mind that the Irish fund managers already paid the 15% treaty rate for the U.S. portion of the fund, and only for the U.S. portion. Yes, OK, you can eventually recover those withheld funds, but you’d have to file a 1040NR, wait an eternity, and get no interest while you wait.

Now, I’m not saying this will happen, but it could. The broker is within its rights to do so, and the broker is penalized for underwithholding. Typically the way the broker decides this stuff is to look for “U.S. indicators.” Maybe you telephoned the broker from a U.S. telephone number a few too many times, or maybe the name Revhappy popped up as an apparent U.S. person somewhere. Or maybe there’s a Revhappi that appeared in an IRS list, and your broker isn’t going to let a one letter difference get in the way of assuming the worst. Who knows, but it’s the sort of thing KYC and risk people are supposed to monitor, because they get penalized if they don’t. And they slam these controls on first, then maybe ask you questions later. (Did I mention they’re penalized for underwithholding and within their rights to withhold this way if you don’t tell them otherwise in a sworn statement, called a W-8BEN or W-9, as applicable?)

Anyway, put the damn W-8BEN on file with your U.S. broker, please.
 
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elendil5259

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It’s been a real pleasure trawling through the extensive discussion here. I just wanted to confirm the details of trading via IB to make sure I wasn’t missing anything out. My goal is an initial 10k USD purchase of IWDA followed by a monthly 1k USD DCA.

1. First 3 months of minimum activity fee waived
2. 10 USD min activity fee, which can include the min trade commission (either tiered or fixed rate)’and the 2 USD FX transaction fee
3. Near spot rate of FX conversion from SGD to USD
4. 1 free monthly withdrawal from IB to my local bank account in case of sale of holdings

Using Stan Chart with this DCA strategy costs me the same in commissions (0.2%, but min. 10USD) but kills me in the long run due to the poor FX rates.

Am I correct in these details?

Finally, does it matter whether I DCA on a monthly or quarterly basis based on these figures?
 

peipei1

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Omg so IB syep no investor insurance? I better uncheck it.

Why is this the case? I guessing your stocks become under IB for their loaning pleasure.

Wait if non of my stocks got loan out with syep enabled, does it mean i am safe or it doesn't matter whether loaned or not, if you chose syep, your shares are under IB? The later, we all better uncheck it!

SPECIAL*CONSIDERATIONS

- Loaned shares may not be protected by SIPC, however, the cash collateral received for the loaned securities is segregated within the 15c3-3 Reserve Account and therefore subject to the same investment restrictions;
 
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tangent314

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It’s been a real pleasure trawling through the extensive discussion here. I just wanted to confirm the details of trading via IB to make sure I wasn’t missing anything out. My goal is an initial 10k USD purchase of IWDA followed by a monthly 1k USD DCA.

1. First 3 months of minimum activity fee waived
2. 10 USD min activity fee, which can include the min trade commission (either tiered or fixed rate)’and the 2 USD FX transaction fee
3. Near spot rate of FX conversion from SGD to USD
4. 1 free monthly withdrawal from IB to my local bank account in case of sale of holdings

Using Stan Chart with this DCA strategy costs me the same in commissions (0.2%, but min. 10USD) but kills me in the long run due to the poor FX rates.

Am I correct in these details?

Finally, does it matter whether I DCA on a monthly or quarterly basis based on these figures?

Using IB, you should use Fixed pricing for the initial purchase ($5 commission vs $8 for Tiered), then switch to Tiered pricing for the subsequent $1k/month ($1.70 vs $5.00 minimum commission) This allows you do 2 trades (i.e. IWDA + EIMI) within the same month and still remain under $10/month. In fact, you can do up to 4 minimum commission (up to US$2125) trades, which may help for rebalancing.

So using IB your costs will be US$120 per year which covers everything you need.

Using SCB, assuming 1% forex charges (I believe it's about 0.5% to buy and 0.5% to sell), you will already be hit by $120 per year for forex when DCAing $1k/month. That's not counting the commissions of $10/month, although you can reduce it to $40/year by DCAing $3k every quarter instead.

So yes, for your case it's definitely better to go with IB.
 

Shiny Things

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Are you sure about that, ST? I believe you’re a U.S. person, and if you got any PILs (Payments in Lieu of dividends), then you got whacked on the tax side, most likely — and that would have swamped any modest gain you made on the other side of the SYEP ledger. (Unless your IB account is an Individual Retirement Account.)

IB tries to avoid PILs, but reportedly some sneak through. Check your statements and 1099s. If you lost qualified dividends but gained unqualified PILs, that sucks.

Yeah, but I don't think that makes a lot of difference to the net returns. Checking my 2017 statement...

For last year, my div yield was about 2% (a fair bit from munis); my payment-in-lieu yield (payments-in-lieu divided by my NAV) was about 0.02%. I'll grant you that most of my PILs were on muni ETFs, and turning tax-free muni divs into unqualified PILs is pretty dumb tax strategy; but the magnitude of the PIL screwups is so small that I'm not worried. The stock loan yield (about 0.2%) was an order of magnitude larger than the tax losses on the PILs.

The other major reason not to turn the SYEP on is that you lose SIPC coverage. IB explains that point rather well, to their credit.
Yeah. TBQH I'm well over the SIPC limit anyway, so I'm taking IBKR's credit risk if they blow up because of malfeasance, but:
a) I'm comfortable with that, I don't think IBKR are clowns;
b) In any case other than "MF-Global-grade malfeasance where they start raiding the seg accounts", the cash collateral I get in return for stock loan more than covers the value of the shares. And I'm still SIPC-covered for the shares that don't get loaned.
 

BBCWatcher

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TBQH I'm well over the SIPC limit anyway, so I'm taking IBKR's credit risk if they blow up because of malfeasance, but:
a) I'm comfortable with that, I don't think IBKR are clowns;
b) In any case other than "MF-Global-grade malfeasance where they start raiding the seg accounts", the cash collateral I get in return for stock loan more than covers the value of the shares. And I'm still SIPC-covered for the shares that don't get loaned.
It's an issue of custody risk. For example, if you've got shares of T (AT&T) on record at DTC (Depository Trust Corporation), it's all very simple: they're yours, with clear title. On the other hand, if you loan the shares to IB, you become a creditor to IB. Creditors rank well behind account holders if IB were to blow up.

One hypothetical solution would be to grant IB some limit on these loans, e.g. 20% of total account value or something like that. But IB doesn't have such a setting. It's either in or out, by whole account. So if you're in the SYEP and IB decides to borrow 80% of your shares, they can.

Another possible solution is simply to have a large enough chunk of wealth at another custodian/broker such that you wouldn't be too distressed if you were to become a creditor to an insolvent IB.
 

MikeDirnt78

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https://www.blackrock.com/corporate...aper/balancing-risks-and-rewards-may-2012.pdf

During the financial crisis, several sec lending counterparties ran
into difficulties, including Bear Stearns, RBS and Lehman Bros.
Notwithstanding these difficulties, Bear Stearns and RBS did not
default on their loans, therefore, they had little impact on sec
lending markets. Lehman Bros. defaulted and tested the
system, including the legal framework and collateral
management practices. However, lending agents were able to
liquidate collateral and repurchase replacement securities
without disrupting markets. As a result, we believe that lenders
generally did not experience losses from counterparty risk.

https://personal.vanguard.com/pdf/icrsl.pdf
 

Zahlen

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Does IB require w8ben for US markets? Don't remember if I filled it up or not.

Tried to buy some US stocks to play around with the UI (currently my account has $0), and I have checked all US options for stocks (not the others like options, fx etc) in Trading Permissions under Account Management, but they still showed me that I do not have permissions to trade the instrument type. Could this be due to the fact that my account has $0?

Also are they strict regarding the 10k USD for funding account? If 10k SGD any problems? Or simply put, what if the amount in SGD after conversion becomes short of 10k USD?

Apologies if these have been covered already in this thread
 

elendil5259

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Thanks very much for your detailed reply Tangent!

Using IB, you should use Fixed pricing for the initial purchase ($5 commission vs $8 for Tiered), then switch to Tiered pricing for the subsequent $1k/month ($1.70 vs $5.00 minimum commission) This allows you do 2 trades (i.e. IWDA + EIMI) within the same month and still remain under $10/month. In fact, you can do up to 4 minimum commission (up to US$2125) trades, which may help for rebalancing.

So using IB your costs will be US$120 per year which covers everything you need.

Using SCB, assuming 1% forex charges (I believe it's about 0.5% to buy and 0.5% to sell), you will already be hit by $120 per year for forex when DCAing $1k/month. That's not counting the commissions of $10/month, although you can reduce it to $40/year by DCAing $3k every quarter instead.

So yes, for your case it's definitely better to go with IB.
 

BBCWatcher

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Does IB require w8ben for US markets? Don't remember if I filled it up or not.
Interactive Brokers requires non-U.S. persons to fill out and submit IRS Form W-8BEN at account opening and at least every three years thereafter. For more information, click here.

U.S. persons should use IRS Form W-9.
 

K|muRa^84

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wanna check if the Citibank acct no. to FAST transfer to is still:

0850832021

thanks
 

tangent314

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wanna check if the Citibank acct no. to FAST transfer to is still:

0850832021

thanks

The acct number is different for everyone. That's how they know which account to credit when the money comes in.

Check under the IB transfer page what your account is and for all the details you need to enter into the FAST transfer page.
 
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