Interesting, my impression was that in companies, corporate tax was levied on unrealized gains for publicly traded assets like ETFs already, and while corporate tax is lower you still have box 2 taxes when you eventually distribute. So I didn’t get the impression it is much better (corporate + box 2 tax is higher than box 3 in percentage, though you have a bit less volatility decay as the non-deferred taxes are lower).
Guess I actually gotta see a tax advisor if I move back to the Netherlands.
For Switzerland it might be an optimization starting at a higher level and it’s very optional, meaning you can live wealthy and K.I.S.S. at a very comfortable level without being over-taxed as an individual (well, it depends on your tax tolerance / aversion).
For Switzerland the big thing against a company is the lack of capital gains tax for private investors only. AFAICT that is really hard to beat.
What I understood, currently money gets put in a BV, with several BVs below. First thing to do is lend 500k Euro to yourself, which you invest in stocks. Your net worth (for this part) in Box 3 is 0 … no virtual gains tax paid whatever the capital gains are… (can’t borrow more than 500k from BVs though). You have to pay interest for the money borrowed … which is tax deductible and offsets income from other sources.
BV also finances your own mortgage, which is separate from the 500k above.
There is definitely quite a bit of tax optimization to be done.
I don’t plan to go back, but will keep a second house in NL for visits – gotta figure out the taxes for that
Your net worth (for this part) in Box 3 is 0 … no virtual gains tax paid whatever the capital gains are… (can’t borrow more than 500k from BVs though).
That is what changing now though. In Box 3 you now get taxed for the unrealized gains of your stocks minus the interest of the loan.
Whether the government uses its tax revenues in a sensible manner and whether total amount of taxation was in order - thats a different story. But fundamentally, a tax on unrealized capital gains does not sound that wrong and imho better than one upon sale only. Clearly, wealth tax as we have it in Switzerland is probably even better but other than that, they should just:
Count income on unrealized capital gains AS WELL AS Dividends as somewhere between 50% and 75%, compared to labour income
Add a special clause where in case of massive losses > 25%, the prior 5 years taxes would to a max of 50% be paid back (pushing losses to past instead of the future)
Unlisted assets were subject to deemed capital gains equating the general Index (unlisted shares => shares Index and the like); Virtual Income for Zero Bonds and the like
The second box shall be abolished
Yes, this goes against FIRE Principles and we lose out. But to be honest, its no human right that you just need to invest 1M at age 0 and can then live happily thereafter from your nest-egg at ages 18+. If we allow capital to continue to have such material tax benefits than it had now, we enrisk a class system, revolution and people‘s heads getting cut off (after a few more generations)
Clearly, its a different story if overall taxation shall be increased. If Switzerland implemented the above and in return reduced VAT, Wealth and Income Tax to ensure tax revenue remained as-is, I think it would be net positive for the country.
Option 1: Income Tax is as-is, no Tax on (unrealzed) capital gains
Option 2: Income Tax is reduced by 2/3, but as well covers Tax on unrealized capital gains … whereas the reduction was so that total tax revenue the government collects was the same
I do indeed prefer Option 2, as it fast-tracks the vulnerable years of fire, on the expense of those years that don‘t matter much as we already won the game.
Besides: Science indeed favors such tax regime, this is not about left or right but about neutrality and efficiency of taxation. Google dual income tax (slightly different concept but goes in a comparable direction)
We must separate the issue of „how much does the government steal from us, using taxation as a lever“ from „what specific taxation mean does the government apply“.
Under this premise, the idea of taxing unrealized capital gains is not a bad idea. It becomes bad when the government uses it as an excuse to collect more tax revenue; but this is not a mtger of capital gains taxation as such.
Wealth tax is even better, as it incentivizes people to invest their money, which is crucial for the economy. It just doesnt truly work that well right now in Switzerland, as we currently face nearly zero inflation.
If capital gains are taxed, whether it’s realized or not the liability exist. If the tax is flat (not progressive), the same amount of money will be collected, right?
(Outside of shenanigans like cost basis reset on inheritance which don’t make any logical sense in term of fairness)
Btw the gouvernement is not an abstract thing, we’re talking about democracies, where people vote (often to protect their social benefits that need to be funded). It’s usually the people (directly or indirectly) that decide to raise taxes.
Taxing realized gains has its merrit too. Important, I am talking about liquid securities rhat can be sold (to pay tax). Ver important premise.
Taxing realized gains has the disandvantage that tax revenues are very unpredictable YoY, that there was a major incentive to let existing positions run (which impacts efficiency of capital allocation), that it can become something like a hidden inheritance tax and that less educated (Investment wise) people pay signifficantly more tax than smart ones (that push the tax bill down the road to the extent they can). It further incentivizes leverage, which impacts financial stability.
The only disadvantage from taxing unrealized gains is that taxes are due every year and therefore compound. But this can (and has to) be addressed by applying a lower tax rate. Once the tax rate was reduced so that it mimics the tax rate X duration of a tax on realized gains, there is no disadvantage. People just need to liquidate some of their liquid position to pay the bill (remember - liquidity is key here). At a larger sceme, that liquiditation is actually very important as it serves as a balancing and stabilizing factor to investments. People are incentivized to sell a bit if shares grow heavily - and given the tax reduction leading to potentially no income tax at all as we face a crash, people are incentivized to invest as shares are cheap. So the taxation system supports the overall stability of the financial system.
IF calibrated so that total tax revenues are the same, meaning tax rate on unrealized gains was lower than rate on realized gains… taxing unrealized gains clearly beats the alternative, both on an individual, spciety and financial markets/stability level.
Btw the initial dutch version was a bit more complex, I think the assumed returns were per asset class? (Savings accounts having lower return than equity)
Originally no, but after the first set of (lawsuits?) complaints they split it into 3 different assumed incomes (numbers are 2025 numbers): bank accounts (1.37%), investments(5.88%) and debt (-2.70%).
Now of course one could switch asset classes just before the measurement date (Jan 1st) and back, but this was at some point considered tax evasion if it was too obvious. I’ve seen some people online talk about maybe doing a split of savings accounts + futures instead of 100% equities to get some of the lower assumed income, but no idea if that works out due to the difference in (implicit) debt interest in the future and the interest on the savings account.
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