About to start investing with IBKR and VT, sanity check my understanding please?

So I have been doing as much reading as I could over the last few months and this is what I came up with.

I want to keep it very simple, so I’m going to buy VT exclusively. I read that if I buy it in EUR, then it’s in Ireland and I would get taxed 15% on the dividends which I cannot claim back. If I buy in USD, then I also get taxed 15% but I can reclaim that by filling a W8-BEN. It seems it’s also offered in CHF but in that case I don’t know about the taxation. I am on a B permit with tax at the source on my monthly salary, so is this even relevant since I can’t claim any deductions? Am I getting this right?

Then, there is the question of inheritance if it’s in USD. From what I read it’s not really a problem for my heirs until it reaches a value of 11 millions (which I don’t think will ever happen, let’s be frank.) Is that really a non-issue I can ignore if I stay below 11 millions?

Finally, there is the question whether IBKR will ban us from buying US ETFs in the future because of the missing KIID. The consensus seems to be that it isn’t a reason for not buying VT while we can, and then we’ll see. Maybe they’ll even let you add to your existing position but won’t allow new customers to enter the ETF anymore. Correct?

Is there anything else I’m missing?

Here we go again…

It doesn’t matter in which currency you buy.
It matters which fund you buy. There’s an U.S. one (VT). The Irish one isn’t VT, but only something “similar”.

There will always be tax on some dividends that cannot be claimed back.
The Irish ETF will surely be more tax-efficient for some countries than the U.S.

The often-heard 15% advantage in taxation applies to effective taxation of dividends from one single country (and maybe coincidentally, a few others), the U.S. - which makes up for more than half of the fund’s holdings though.

It depends on your status and (other) holdings.
And the fact that it might be subject to inheritance tax after having been assessed by the U.S. doesn’t mean it’s no “issue” - if someone has to declare to the U.S. your whole wealth. It’s certainly doable - but do you want to risk a wrong declaration to the U.S.?

Maybe. I have nothing to add beyond the consensus.

Unlikely in my opinion. That’s just not how these things work at brokers.

Additional declaration on your Swiss tax return by form DA-1. A few issues have been reported on the forum now and then (and lately).

Right, so VT (US domiciled) is taxed 15% with a W8BEN, which you can deduct from your Swiss taxes when you file to avoid double taxation.

What about the Irish version of that fund? It’s taxed 20% and you can’t claim any of it back so you’re taxed again fully on it in Switzerland?

And how does that all work for the rest of us who are taxed at the source and can’t file a tax return?

I don’t understand what you mean. There seems to be confusion on the forum on that point. MP says that over 60k USD holdings, you owe 40% taken by the US upon death. Others here have said this is wrong, and nothing happens until the 10 or 11 millions $ mark. So, what happens if you own say 500k worth of VT and you die. Does the US take 40% or 0% before your heirs get it?

What kind of issues? I’m also confused whether people who are taxed at the source and earn less than 120k can file any kind of tax return, claim any deductions, and avoid double taxation with a DA-1 form or if the tax paid at the source on your monthly salary is the end of it: no tax return to file and nothing more to pay.

If you own more than 60k of US assets, your heirs “only” need to file some papers, because thanks to the CH-US tax treaty you can have the same deduction as the americans, but proportionnaly to your US assets.

You have 500k of US asset and 1M of non-US assets. Your deduction is 500/1500 * 11 M = 3.67 M. so you don’t pay anything. The 11M is changing (almost?) every year so if Sanders get elected, it can be divided by 4 for example. In that case it your deduction would be 500/1500 * 3M = 1M so you still wouldn’t pay anything.

The Irish version is effectively taxed at 0% (withholding tax) anyway, when distributing to you as a Swiss resident personal investor. So obviously you can’t claim anything back.

Whereas with the U.S. ETF 15% will be withheld by IBKR, which you might able to successfully recuperate by filing DA-1.

(Note that I edited my first reply above slightly)

Irrespective of what Uncle Sam will take in the end, my point was that this:

Even if you or them wouldn’t have to ultimately pay inheritance taxes to the U.S. in the end, it’s not necessarily a (quote) “non-issue” to simply “ignore” - if you or your heirs have to file with the U.S. or risk a penalty in not doing so.

Unless of course, your plan is to

  1. try to sell everything before you die in the emergency of impending death
  2. pay somebody to do the filing professionally
  3. or simply ignore it only for yourself, as you (personally) would then be dead anyway. Which is what I do: I am honestly not worried about taxes after my premature death.

Just for starters, this thread is still on the front page of the forum.

Yes, irrespective of your salary and income from gainful employment, you might still be required by (the letter of the) law to file a tax return. Though it’s somewhat loosely enforced for taxpayers whose income from employment is taxed at source - unless they’re “rich”.

Thanks for the explanations.

Right, so the Irish domiciled fund might actually be a better option then because you don’t pay any taxes upfront vs 15% on the US one. Then there is no reason to take the US over the Irish ETF, is there?

The US whithheld 15% from the US-companies’s dividend when they are paid to the Irish ETF. You can’t claim those 15% because YOU didn’t pay them (but the ETF did).

The US don’t whithheld 15% from the US-companies’ dividend when they are paid to a US ETF, because 15% are whittheld when the US ETF gives a dividend to the investors. YOU pay those 15% so you can claim them.

OK, I tried to link to my and others’ posts about it but am too lazy to find them. So I’m jotting it down once again as I understand it (for you as a Swiss-resident personal investor, with form W8-BEN):

You receive 100% of distributions from the Irish ETF to you.
You receive 85% of distributions from the U.S. ETF to you - though might be able to recuperate.

The Irish ETF receives 85% of dividends distributed from U.S. companies (15% non-reclaimable).
The U.S. ETF receives 100% of dividends distributed from U.S. companies.

EDIT: REandSTOCK narrowly beat me on it :wink:

I see. So with the US ETF, 15% is withheld and you get a chance to claim it back if you file a tax return and if you’re not on a B permit. With the Irish ETF, 15% is deducted anyway but you can’t claim it back ever because the ETF paid it so B permit or not, it’s lost to you.

Yes. There’s two levels of withholding tax:
At the level of companies distributing to the ETF (as a shareholder of listed company).
At the level of the ETF distributing to you as the personal investor (holding ETF shares).

The U.S. ETFs has the advantage of itself receiving dividends in full from U.S. companies. It has the the disadvantage that 15% withholding tax will be withheld when making distributions to you - though luckily you might be able recuperate these 15% due to the double taxation agreement.

Some countries, like the U.K., don’t levy withholding taxes in the first place, so for these (U.K. companies distributing dividends to an ETF) it doesn’t matter, from a tax perspective.

Also, there will probably at least some (third) countries for which the Irish ETFs enjoys a more favourable tax agreement than the U.S. (according to the respective double taxation agreeement). If an ETFs holds a smaller percentage of U.S. shares and, for example, more European ones, then an Irish ETFs might be the more tax-efficient solution.

But of course at least in VT, the bulk of holdings (55%) will be U.S., so that will be the prevailing factor.

Thank you, I get it now!

Although VT is 100% stocks, what do people do for bonds?

Cash for me, given negative yields of chf.