DA-1 Refund calculation

Taxes
12

Thanks. That would explain what happened.

So I worked out the simplified formula for the refund to be:

refund = min(US_div * 15%, US_div * eff_tax_rate * (100% - mgmt_cost / (US_div + IE_div)))

In my case:

refund = min(1071 * 15%, 1071 * 23.49% * (100% - 4000 / 4993))
= min(161, 1071 * 23.49% * 19.89%)
= min(161, 50.04) = 50.04

I am mostly interested in the following bit:

100% - mgmt_cost / (US_div + IE_div)

So if your management costs (which are capped at 0.3% of your total portfolio) exceed your total dividend, you get no DA-1 refund, as this formula above goes into negative, right?

So let’s consider a typical case:

portfolio_value: 1'000'000 CHF
management_rate: 0.3%
management_cost: 3'000 CHF
dividend_rate: 2.00%
dividend_income: 20'000 CHF
reduction_rate : 3'000 CHF / 20'000 CHF = 15.00%

But in my case, the dividend income is very small (only 5’000), which makes the reduction super high. So I guess once TSLA starts paying dividend, I should get a smaller reduction? And the self-management cost is anyway capped at 6’000 CHF, so that means above a portfolio value of 2’000’000 CHF, it will stop growing, right?

I have to say, this formula is very convoluted, and I will surely forget how it all works in a week, or so. Now imagine someone new comes and asks “is it worth it to hold US-domiciled stock and get a DA-1 refund”? The only answer will be: it depends on 10 different factors. Whenever I deal with taxes, I just want to :face_vomiting:

13

(Small correction: 0.3%)

Yes, I assume that would be the case. And that makes sense, in my opinion. If your deductible management costs are higher than dividends, you don’t pay any Swiss income taxes on your dividends. This means that there is no double taxation and thus, also no basis for double taxation relief.

Yes, that seems correct to me.

I agree, it would be nice if it was simpler. However, it does make sense that Switzerland makes sure it doesn’t provide a refund for something that you don’t actually pay.

Uncertainty of US WHT refund in the long term (especially after retirement) is one reason why I’m shifting a part of VT into VEVE+VFEM.

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14

Isn’t something like that happened in Germany a while ago and someone got caught getting millions of refunds for nothing?

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15

Yes, I assume you mean CumEx-Files - Wikipedia

Not quite the same but it was indeed also a ‘refund’ of taxes that weren’t paid in the first place.

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16

Thanks, I corrected my post.

Well, kind of. The portfolio management cost is a virtual cost, but it is something you have to do, regardless if you have income or not. But yeah, I guess it makes sense to compare that cost with your actual securities income. If long-term your costs and higher than your income, then you shouldn’t be investing (save for the cases where you make most money on capital gains).

What I did is I sold VT and put all in TSLA, and in my Swiss broker I hold VWRL. I wish there was an accumulating UCITS Total World ETF available, as I don’t like that I receive dividends in USD, which I then have to reconvert to CHF.

17

Since last week there is one: Most cost-efficient European ETF - #55 by leman

I hold both VT and VEVE/VFEM at IBKR, so I don’t really mind the USD dividends.

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18

Is this formula still valid?

I have an apartment with 700k mortgage and a tax value of 360k, so negative wealth.

19

I have no idea how the tax office handles negative values.

20

As I understand it, the amount of debt is not directly relevant in the calculation. I.e, ‘Total-Assets’ should match ‘Total der Vermögenswerte’ before debt is deducted and thus, should always be positive. It’s called ‘Wert Total Aktiven’ in the DA-1 calculation in ZH.

21

Does anyone know how much you can deduct for wealth management?

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22

It’s not the same in all cantons. In ZH you can deduct a flat fee of 0.3% of the tax value of all securities managed by a third party, up to a maximum of CHF 6’000. Proof is required for higher deductions.

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23

Excellent, thanks. I love how shareholder-friendly Switzerland is: no capital gain taxes and deductible management fees :+1:

24

Btw, do you guys indicate every single stock trade for the whole year when fillig out your taxes?

Seems very tedious :sweat_smile:

25

Nope, basically I have a line “IB cash” where I show interests and “IB Depot US” where I indicate the dividend for obtained over the year (I have only VTI and VXUS) in CHF as indicated on the IB report (which I attash).

Worked in Zurich, trying it out now in Aargau.

1 Like
26

Excellent, thanks.

One last question: How can I verify in the Zurich tax form if the 15% withholding tax will be refunded to me?

There are two options:
-beantragte ausl. Quellensteuer (Anrechnung)
-Steuerrückbehalt USA

I don’t know which option will give me the refund?

27

The first one is for the actual withholding tax. The second one is additional withholding done by Swiss brokers, not relevant with a foreign broker such as IBKR.

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28

Very much appreciated, thanks :+1::smile:

29

A post was merged into an existing topic: Final tax bill timing

30

However, if you have relatively high deductions or a relatively low effective income tax rate, the maximum DA-1 return may be lower than the 15% of the gross dividend, in which case you get less back. The reason is that effectively the US taxed you more than Switzerland and Switzerland will never return more than what you pay in Swiss taxes (for the DA-1 assets).

Thanks for this nice summary. It helped me a lot in understanding the whole topic.

I am wondering if it then actually pays off to declare the management fee in your tax declaration for those, where the management fee is a significant (50%) part of the foreign dividends from which it is then deducted.

31

You should usually not be worse off with the wealth management deduction even if this results in a lower DA-1 tax credit. At least based on the idea behind this calculation, the tax savings from the deduction should never be smaller than the reduction in DA-1 tax credit, especially if you also have non-DA-1 assets.

That said, there might be corner cases where the deduction results in a disadvantage because of the way deductions are distributed across DA-1 and other assets (and because the reference tax rate used for DA-1 may not match your actual tax rate). If you want to be sure, you’ll have to do the full calculation yourself for both cases. It’s unfortunate that (at least in ZH) the official tax software doesn’t already calculate that.

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