5 questions about Interactive brokers and ETF

Thans for helping.

Note that at the moment my capital is fully cash (EUR) since one year so any rational investments could be sufficient for me without the need to fine tune every possible cost . As a non expert I am just trying to avoid big mistakes with the taxation of other regulatory things.

Most countries have a similar system like Switzerland, where you can get the 15% of withheld taxes back. It isn’t a huge issue if you can’t get it back because the US ETFs are also cheaper.
You won’t be able to buy new shares in Europe.

Thanks, in case I am not forced to sell then I should probably consider to buy american ETFs since I planned to invest 70% of my capital and that could save me some commissions (expected 90/100Fr saving as per the reference cost you provided in your previous message)

Deciding the domicile of the ETF is quite complicated because I don’t really know what are all the pros and cons yet and considering the amount of money invested I am a bit concerned about taking the step or not.

I’m not sure about the tax treatment for US dividends to an etf in Luxenbourg. Note that this etf mearly has a bit over 100 holdings and holds Total return swap. You would probably be better of just buying a real swap etf like the one from invesco.

Swap etfs are more tax efficient, because they do not lose any withholding taxes.

To be honest I chose both the ETF without going to deep in technicalities (I checked the fund size, costs and compared the back-tests with few other combinations) . It is actually a combination copied by sample lazy portfolios using EU ETFs here

I suppose the Invesco ETF you are talking about is [IE00B60SX394] (Detailed Comparison for ETFs | justETF) . That’s IE domiciled . The TER is a bit higher though . Do you believe I should reconsider?. I suppose that the 15% of taxes I save investing in IE will probably reduce the TER by some decimal points.
Besides that , how did you check the number of holdings? I read the fact sheet and I could not find it.

You want to hold quite a lot of bonds. Do you need the money in the next 5 years? When do you want to move to Europe?

I don’t have plans to spend those money now but I am not sure. My primary intention was to avoid the negative interest on my bank account investing in ETF, create a conservative portfolio and try to speculate (rebalance/become more aggressive) when the markets fall.

Yes, the tax saving should be around 0.25% per year.

Note that the MSCI world only covers around 75% of the total world market. It is missing small caps and emerging markets (and frontier markets, but nobody cares about them)

I only found the holdings in the halve annual report.

Here is a portfolio, that covers a bit more and avoids small cap growth companies:

However it also misses Small caps from Japan, Australia, Canada and Israel.

Don’t time the market. It is not a sound strategy.

If your investable amount is a six-figure amount and you’ll be making a lump-sum investment, I’d rather worry about 90 CHF on the purchase of your next shoes :mans_shoe::high_heel: than on broker commissions.

To be clear, there’s two or three good reasons to prefer U.S.-domiciled EFTs for many, probably most (though not necessarily all) people. Maybe not for you. It can also depend on your future jurisdiction.

Anyway, these one-time commissions should only be a very minor decision-making factors, if at all.
(Strictly speaking the aren’t one-time, since U.S. are distributing, and you’d pay commissions on reinvestments of distributions).

If your investable amount is a six-figure amount and you’ll be making a lump-sum investment, I’d rather worry about 90 CHF on the purchase of your next shoes :mans_shoe::high_heel: than on broker commissions.

yes, that’s actually was my conclusion as well at the moment. I was only trying to better understand whether the impact of those “details”(optimised taxation/regulations) is negligible to some extent + getting some feedback in general.

Actually I was willing to ask for advise from an independent professionals as well but I really could not find one.

Thanks for sharing and the info. That portfolio is very aggressive but it is still a good reference :slight_smile:

It is not quite as aggressive as mine:

If you use Client Portal, in the Order Form you can press “Preview” to see commissions and how the trade is going to change your portfolio in general.

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When this is going to happen? Any time or in few years?

There is no problem to sell and, as others pointed out, you better do it while you are Swiss tax resident and is not taxed on capital gains. Meanwhile keeping recurring fees (TER + withholding taxes) low is more important.

Damn. I’d definitely buy at 266!!!

When this is going to happen? Any time or in few years?

Few months, quite likely. So I think there is no point in buying and selling in my opinion.

Thanks for providing the link.

@Fliss

Damn. I’d definitely buy at 266!!!

yeah, considering the way the stock market is climbing, I got your sarcasm :wink: .

If you are not buying US ETFs, then I think you don’t necessary need IB. You can go for e.g. a German bank (flatex, DKB) broker or even Degiro in one of EU countries. This way you don’t even have to do a currency conversion. Worth comparing.

If you are not buying US ETFs, then I think you don’t really need IB. You can go for e.g. a German bank (flatex, DKB) broker or even Degiro in one of EU countries. This way you don’t even have to do a currency conversion.

I have some kind of gipsy life. IB supports more countries, and that would save me from changing broker or creating complications (hopefully). It has probably more securities available . Fees are probably lower (perhaps not that much for non US securities?). Another interesting comparison for European investors.
That’s why I thought it is better to use it.

Rather than investing 70% of your money in bonds I’d consider changing bank and keeping those in cash; most banks don’t charge (yet) negative interests, unless it’s a very large sum.

Rather than investing 70% of your money in bonds I’d consider changing bank and keeping those in cash; most banks don’t charge (yet) negative interests, unless it’s a very large sum.

I thought about that, I thought to wait for the market to drop as it is growing a bit too fast but based on the backtests of the combined ETFs, I can tolerate the market fluctuations and I prefer to have the money on the market instead of wasting time looking for bank accounts.

For your information my bank in the NL, lowered the negative threshold for negative interests from 2.5M to 150K in 12 months.
Postfinance has already several thresholds set to 100K 250K 500K depending on your situation.

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About US domiciled ETFs for non-US persons, you can read this vey helpful article and explanation, then look into the table for specific countries of residence. Hint, you will find for Switzerland as neither to “avoid” nor “prefer”. Neutrality in its glory, I guess :slight_smile:
Nonresident alien’s ETF domicile decision table

This is a deeply complicated matter where your physical residence doesnot matter as much as your fiscal residence does, and that last one, gets even more complicated as sometimes it also depends on which country youre a national of. For example, there are countries (the US is notoriously known for this, but also some in the EU) where have you been a national you continue being liable for *parts* of your global earned income even if youre permanently working and living in another county. On the other hand, there are others, where as long as you moved out permanently, the taxman forgets all about you.
You will have to take into account where you come from, where you are now and where you will be and sort what applies/shall apply to you.

Trivial sidenote for the “land of the free”… :rofl: I have a vague impression–maybe am wrong here-- that even if one renounces citizenship, Uncle Sam still collects. Or something.

Which EU countries do this? I only know about the US and Eritrea, but I think the idea is getting more popular. The green party in Germany for example wants to tax Germans based on their citizenship and there’s a good chance they will be part of the government in September. Hope for the best, prepare for the worst…

Switzerland appears for one(okay, non EU, Europe), if my reading is correct :sweat_smile: :sweat_smile:
“Government officials or individuals working for a public law corporation or institution who live outside the territory of Switzerland and are in this jurisdiction subject to a partial or total income tax reduction remain liable to taxation in Switzerland.”

Ireland another, I think, in different way.
Sweden, “or who have previously been resident in, and still have close ties to, Sweden, are liable to income tax and must report their worldwide income.”
Bulgaria, “resides abroad on assignment of the Bulgarian State, its authorities and/or its organizations, or Bulgarian enterprise, and also the members of his/her family, or”
Lithuaniia, " any natural person who is a citizen of the Republic of Lithuania but does not meet the above mentioned criteria, and who receives remuneration under an employment contract or (…)"
Could go on.
But in any case, it’s a deep dive into a rabbit hole, is bilateral, depends on limited /unlimited liability claims per side, respective treaties, etc. and we`re no experts to start digging. Prudent to stick more to a principle of know thyself, i.e. where one individual “was, is, will be” as I mentioned before.

This seem to be edge cases like working for the government abroad or having “close ties” when your family is still living in the country, but you work somewhere else for a part of the year. I’d not worry too much about this as an average expat. :slight_smile:

About US domiciled ETFs for non-US persons, you can read this vey helpful article and explanation, then look into the table for specific countries of residence. Hint, you will find for Switzerland as neither to “avoid” nor “prefer”. Neutrality in its glory, I guess :slight_smile:
Nonresident alien’s ETF domicile decision table

thanks, that article is spot on !
Though I struggle to understand why Luxembourg is not recommended since the table shows a 15% dividend taxation for both countries.

@nugget : perhaps you want to integrate your (useful) wiki post with the link above? It includes info for Luxemburg based ETFs in addition to other countries that you omitted in your article.
This article about the ETF domicile is also quite interesting but it is still not 100% sure to me whether the ISIN code represents the domicile or not (LUxxxx, IExxxx).
Domicile: “the country in which the fund’s holding company is legally incorporated”.

Beside that, what is the process to get this tax benefits with the Irish/US tax treaty compatible ETFs? I am quite sure that the first step is to inform the broker (during the registration phase, “eligibility for a U.S. benefit tax treaty”). Then there is probably a form to fill but it is not clear when I would have to do that W8-BEN form though… . Is the broker going to ask for it? Or perhaps the tax office? Or I just have to send it somewhere.
Beside that is there something else to do? (question open to everybody)

I won’t entirely agree to that.
Could be, could be not. I’m no expert to know. :slight_smile: But I highligted few points here and there that I could easily spot and can be interpretted either way, and I can always assume that the taxman’s interpretation overules and may be not as ubiased as one would naturally want…
For example, I see Bulgaria insist a claim if you’re Bulgarian working for a Bulgarian company abroad (punt here, Microsoft has a centre in Bulgaria along with several oher multinationals, what about started working there and they later transfer you abroad?), Sweden claims on close ties, is your Swedish parents being alive and living there such?.. Lithuania appears to make it very clear about carrying your citizenship around working for a company, etc.
But as I said it is a deeply complicated based on specifics matter, let’s not deviate the discussion from the topic of question from the OP :grinning:

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