ETF Investing - Confused - IRELAND, US?


#1

I was reading all the forum posts for investing in Vangaurd ETF and from tax perspective for investing in US based funds via IB which is more efficient Ireland or US ? Is the dividend taxed for both US and IE based fund?

I understand 15% divident tax for both US and IE fund, and another 15% from Swizerland? Is this same for both US and IE based fund?

I am looking for investing in either of these two funds:
Vanguard Total Stock Market ETF - US based or
Vanguard FTSE All-World UCITS ETF

Are there any funds which dont pay any dividend to begin with? Since I am now in the investing stage I dont see any value of dividends, I looked at accumulating funds but they basically reinvest the dividends so again its taxable, not very efficient.


[Guidepost] to the Swiss Mustachian Investment Forum
#2

There’s 15-30% withholding tax from the US whenever a payment cross its border: dividend payment from a US stock to non-US shareholder (e.g. you or the Irish fund), or a distribution payment from US fund to non-US shareholder (you). Dividend from US stocks to US funds isn’t taxed.

You can recover this tax only on a payment to you, if you owe taxes on it in Switzerland. US-CH have income tax treaty, income is not supposed to be double taxed, hence CH will reimburse or write off the non-reclaimable US tax on your CH taxes. But if withholding was done on a payment to the non-US fund, it’s the fund that gets hit here and there’s nothing you can do about it, but take the loss

The situation seem to be similar with many other countries: most countries withhold some non-reclaimable percentage of dividends and you’d only get compensated if you’re a direct shareholder and income tax treaty allows it. If you want to invest in a single world-covering fund, then optimize for US as it’s the biggest elephant in the room, and so I’d go for VT out of your two choices

Only for US stocks/funds and only if using a swiss broker. So just don’t use swiss brokers and this problem is solved.

Most stocks pay dividends, so it’s pretty hard to avoid them and taxes in a normal fund. But there are non-dividend payment companies that work a lot like investment funds. Berkshire for example.


#3

Thanks for the explanation.
So if I go with non swiss broker I get only 15%-30% hit on the dividends for VT? Is this reclaimable? or I need to pay one of them( US or CH ) either way?

Is there 60k wealth tax limit for US based investment?


#4

As long as you go for a Qualified Intermediary (in IRS sense) non-swiss broker, sign W8-BEN for the broker, and buy a US-domiciled fund, the broker will withheld only 15% from its dividend distribution payments. Yes, you can get this money reimbursed by filing DA-1 form with your swiss tax declaration. Beware of some limitations, like minimum 50 Fr reimbursement to make use of DA-1.

With this scheme, you won’t lose any money along the way on dividend payments from US companies. But you’ll still incur some losses on dividends from non-US companies in the fund, but these are relatively minor and much less worthy to optimize for in my opinion

I supposed you’re talking about US estate tax - there’s enough discussion about it in another thread: The $60’000 cap for US investments

It’s mainly a concern only for your next of kin if you die before you manage to sell your US funds, and the tax free limit is actually much higher than $60k for swiss residents.


#5

ok so as I understand: US based ETF + IB +W8BEN = mostly no dividend tax. Finally when doing Switzerland tax filing we need to declare these dividends and pay the tax as per our income slab?


#6

Yes, stocks are considered moveable assets and so you have to pay to full swiss income taxes on them regardless of stocks/funds domicile. Rates depends on your income and where you live. I don’t know about you but with a good paying (but nothing extreme) swiss job I’m paying like 30-35% marginal income tax rate on dividends here in ZH, so I very much prefer tax free growth through capital gains to dividends.


#7

with a good paying (but nothing extreme) swiss job I’m paying like 30-35% marginal income tax

omg, i am at 7.33%. I must be a low-earner! Source tax (Quellensteuer), though^^


#8

Any personal recommendation or favorite ETF which pays low/no dividend?


#9

I was talking about marginal tax rate, not average tax rate:

Marginal tax rate: ((tax owed at your current income + Δ) - (taxes at your current income)) / Δ.
It represents how much taxes you’ll pay on every additional chunk of your income.

Average tax rate: tax / income.

Average tax rate may be relatively low in Switzerland for normal paying jobs, but make no mistake - marginal rate skyrockets pretty quickly and it gets as expensive here as in the rest of developed world

Any personal recommendation or favorite ETF which pays low/no dividend?

Berkshire Hathaway, which I already mentioned. Strictly speaking it’s not an ETF, but an insurance company, but that’s just a front


#10

That tax at source rate corresponds to ca. 6100 CHF brutto per month for single with no church tax, so I guess about 70-80k per year. If you were ordinarily taxed, you’d be paying 20-25% marginal tax rate in Zürich:


#11

wow that’s a nice insight! looks nice!
where did you take the data from? do you have all swiss data in this tool?


#12

This is just my personal script for ZH. Each canton has different tax tarifs, it’d be too much research for me to do them all. Also allowable tax deductions varies somewhat for different cantons.

If you want to reproduce it, you can find the exact description of ZH’s tariffs here: https://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/steuerberechnung/steuertarife.html. Or in underlying laws: ZH Steuergesetz p.15, and Tabelle für die Berechnung der direkten Bundessteuer der natürlichen Personen.


#13

ah ok this is the normal taxatin. I am source taxed (Quellebesteuert), i have different tariffs


#14

Tax at source tarifs are basically just a tabulation of the ordinary taxes with the assumption of a typical set of deductions and average municipal tax rate across canton. If your salary increases or you make a pillar 3a payment, I’d expect to see a very similar marginal income rate as in case of ordinary taxation.

If you start making 120k+ gross in year, you’ll be required to file tax declaration and go through ordinary taxation process. Until that happens, though, you’re right, you’re probably benefitting a lot from the current system - you don’t really have to care about any taxes besides withholding. For US stocks, 15% is all you’d pay, rather than 20-25% marginal tax

Except if you have 200k+ wealth or you earn more than 2500 per year in dividends and other non-taxed-at-source income - then you’re supposed to file too and they’ll milk some more taxes out of you


#15

I got this answer on the phone from the Steueramt Zurich. Do you know where this is written down? since i am a starter-mustachian, my typical dividends are two-figures :smile:


#16

Google for “ergänzende Veranlagung zur Quellensteuer”


#17

perfect!!! i was looking for this specific piece of information for so long now!


#18

Is the fund not able to get back those withholdings and add them back to the ETF?


#19

Is the fund not able to get back those withholdings and add them back to the ETF?

nope