Dividends in lieu on Swiss ETFs and withholding tax?

Hello guys and girls

I bought the iShares Core CHSPI ETF in late 2021 and got my first Dividends a few days ago. Sadly, since I participated in the stock yield enhancement program (which I don’t do anymore - not really worth it with ETFs) I didn’t get qualified dividends, but Instead I got an “In lieu Payment for Dividend”.

Now to my surprise… this payment doesn’t seem to have the 35% Verrechnungssteuer deducted. If I multiply the official paid amount x shares I get the same number as the one for my in lieu payment. Now that I opted out and the next dividend was announced, I get a reduced amount (most likely due to Verrechnungssteuer)…

Am I missing something or is the officially listed amount (on the iShares website) already containing Verrechnungssteuer?

Thanks for answering!
Is Verrechnungssteuer also a withholding tax? Most probably lol idk.

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CHSPI distributes two kind of dividends.

One has Swiss withholding tax (35%), while the other has not.

The second is not subject to income tax for Swiss private investors. The details is available on the Swiss tax authorities website: ICTax - Income & Capital Taxes

I don’t how the stock yield enhancement program of your broker works. Is it the same than securities lending ?

SFTA has published the circular 13 regarding securities lending, Swiss withholding tax and foreign tax.

If your “In lieu Payment for Dividend” had Swiss withholding taxes, it will be shown on the credit advice. You will be able to claim it back when filing your Swiss tax return. If there was not, simply report the gross amount (=net amount).

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The dividends listed on the iShares website are gross dividends. The one paid out on March 10th was 0.72CHF per share before withholding tax.

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I can’t see exactly what you mean by “two types of dividends”. Maybe I am blind but it looks to me as if the whole distributions of 2021 are considered as dividends with swiss WHT

Yes exactly. I got those 0.72 per share as in lieu dividends and I basically have three questions now:

  • Why there seems to be no deduction of those 35% swiss WHT if the 0.72/share are the gross amount
  • The next dividend payed on March 21st (0.58/share) seems to contain said WHT (IBKR shows incoming dividends and their amount) and it is exactly 35% less than the gross amount x shares - why does this dividend include WHT, but my in lieu dividends don’t?
  • Would it actually be more reasonable to continue lending, if there is no tax withholding while doing so?

In practice doesn’t matter since WHT is recoverable.

I’m not quite sure why it wasn’t withheld, could be either:

  • this was a KG/KEP distribution on the ETF side (but looking at 2020 and 2021, those are usually in July)
  • or more likely payment in lieu is not a dividend from swiss source so isn’t withheld
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as per SFTA website for 2021

Only July distribution was paid without Swiss withholding tax (and is tax free).

The above applies when you held your securities and the distributions are paid by Ishares to you (through your broker).

The processing is different for securities lending. Your broker will be able to clarify the applicable rules and how they deal with the withhoding taxes and the payment in lieu made to you (gross or net of taxes).

I guess you’re using IBKR ? extra info here regarding tax effects https://ndcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4215

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Yes I am using IBKR @nabalzbhf probably gave me the answer… It seems like they treat in lieu dividends as non-swiss and therefore deduct no WHT.

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Do I understand it correctly that the DA-1 stuff is only to get back WHT and that is only applicable when you use a Swiss Broker? The 15% from the IRS that IBKR takes can’t be recovered in any way, right?

No, you get it back with the DA-1. For the Swiss brokers it is the other form (R-US 164).

This depends on the canton. E.g. in ZH the R-US part is simply a separate column on the DA-1 form.

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DA-1 is for WHT of foreign stocks. Domestic stocks have swiss WHT (Verrechnungssteuer) which is calculated separately.

DA-1 has however nothing to do with using a swiss broker at all.