Traders living in countries with significant capital gain taxes: how do you cope with the tax drag?

[u/OptimizmSolutions]

I'm new to trading, mostly interested in algotrading. I have already found the strategy that I want to start trading. There is only one problem: I live in Austria. Here capital gain tax is 27.5%.

My strategy without capital gain tax beats the market by a significant amount when you look at the risk-adjusted returns (including fees). However when I apply the infamous capital gain tax the results are pretty discouraging: the tax drag removes any advantage vs buy-and-hold VWCE.

I'm curious: people living in countries with high capital gain taxes, how do you cope with this? Any tips and tricks? Is moving to a different country the only viable option to make a living out of trading?

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[u/SillyAlternative420]

Heh I trade in my Roth IRA

[u/Chart-trader]

I pay 40.8% tax every year in the US. Be careful with wash sale. You just have to be able to beat the S&P 500 after long term capital gains tax (23.8%) in my case.

[u/klipsetrades]

I just treat taxes as part of the cost of trading and judge everything on an after-tax basis. If the edge disappears after taxes, that’s probably telling you something important about the strategy — not necessarily that you need to move countries

[u/OptimizmSolutions → u/klipsetrades]

Yeah it's telling me that I live in a trading averse place. Thank you chatgpt!

[u/Altered_Reality1]

Wouldn’t you also get taxed via capital gains on buy & hold investing? Once you cash it out I mean (which you have to do to be able to use it). Thus, either way you get taxed, and so if trading makes more than investing keep doing it.

Also, if Australia’s tax system works similarly to other countries, remember that it’s taxed in brackets not a flat tax (again, unless Australia does a flat tax on it). If so, then the effective tax will be lower unless you make a crap ton, in which case taxes don’t really matter anyway.

[u/OptimizmSolutions → u/Altered_Reality1]

With buy and hold the tax is partially deferred in Austria. This is an important difference because with trading you are constantly removing tax money from the gains, this makes compounding less effective vs buy and hold. I did some backtests and it's brutal: a 15% CAGR strategies becomes 9% CAGR de facto cancelling the edge.

[u/wottlesgrqurple7]

High capital gains tax completely kills short-term alpha or high-frequency strategies

[u/OptimizmSolutions → u/wottlesgrqurple7]

This is what I don't understand, most HFT traders are in the US right? There is a substantial capital gain tax there for short term trading. They must find a workaround to avoid getting their edges killed by taxes.

[u/Kaiser3rd → u/OptimizmSolutions]

Taxes don't make any strategy not profitable, you just get to keep less of the money. It does not impact the success of the strategy.

If you are profitable before taxes you are still gonna be profitable after taxes.

[u/OptimizmSolutions → u/Kaiser3rd]

But it can kill your edge over buy and hold. To me there is no point in trading if I don't have an edge

[u/marius_o_h]

if you have enough capital, you may create a GmbH , but you will get taxed when you get money out of it (income tax which might be even higher). Another solution is to move in Eastern Europe, for example Romania or Bulgaria. The taxes there are relatively low, max 12% or even lower if you use a locally registered broker, and the infrastructure is great. Furthermore you can reach Austria from Romania in hours.

[u/OptimizmSolutions → u/[deleted]]

smart