Investing while living in Switzerland now, moving to Italy later

Investing / Portfolios
1

Dear all,

Let me start with a big thanks to the Mustachian community here.
I found the forum very usefull for my personal financial development.

I live in Switzerland and I’m starting now to invest in some products and need to understand few things:
I would like to split my investments in ETF and Bonds.

  1. For ETF, I will consider the ones where the domicile is in Ireland o Luxembourg. Why not US? Because at some point I might go back to Italy (my own country) and from my understanding there I should trade only ETF UCITS. Has anyone a different opinion?

  2. Bonds. This is where I’m struggling with the taxation. I can not find a clear overview of what I sholud pay for taxes.
    Let’s say i have three different Bonds:

  • Italian Bonds
  • US Bonds
  • Swiss Bonds
    How are taxed these three types of bonds?
    Thank you all
2

I can comment on following US bonds and Swiss Bonds

US bonds -: no tax will be withheld at source on income or redemption if W8BEN is properly filed. You need to declare these income in Swiss tax return. Be careful with T-Bills because T-bills are taxed differently than T-bonds. I have myself done the same. If you are lucky, you will find the Bond ISIN in Ictax. If not, you can do the math yourself

Swiss bonds -: most likely they will come with tax withheld at source. So you need to declare them to get tax credit. I am not completely sure because I have not yet got any payment.

Based on what I have understood, following is tax logic on bonds . I might be wrong in interpretation but will share what I think

Zero coupon bonds (including bonds where coupon rate is very small and main income is generated using discounted price of Bond at time of emission) -: the taxable income includes

  • the difference between sales price and purchased price ,
  • plus coupon payments

Standard bonds -: income comprises of following

  • coupon payments
  • emission discount (difference between par value and emission value) - only payable at redemption. If sold before redemption then no tax payable on emission discount.
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3

I wouldn’t optimize based on hypothetical relocation, esp. since you’ll want to sell/rebuy your holdings anyway to avoid capital tax gain in most cases when moving abroad.

(also different taxation might make the best investment strategy different in different countries)

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Indeed, it would speak to preferring to hold the US ones specifically, so that when it comes to selling and buying instead the UCITS one, you cannot be accused of tax avoidance since you need to sell the US ones and buy the UCITS ones that you are allowed to trade in Italy.

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thanks for the details @Abs_max.
Next year will be the first time for me to do the Tax Report with Investments. Honesty I’m a bit scared and I hope to learn more the step by step process.
I’m thinking to use IB for investments. Should I ask the customer service to provide me the W8BEN right?

6

@nabalzbhf and @PhilMongoose I need to reflect a bit on what you are suggesting.
Yesterday I contacted IB and asked them what is the process if I move abroad Switzerland. Here the answer:

"Please note, in case you move to Italy you need to open a new account, as your current one’s governing entity is IB United Kingdom (B-UK), while residents of Italy are subject to our IB Ireland (IB-IE) entity. As these are two different IB entities you will not be able to just simply update your residential address details.
Steps:

  1. Open a new account with IB Ireland
  2. Full manual account transfer (you need to ask IBKR for a full manual transfer of your assets held on your current IB-UK account). Please note that the manual transfer is free of charge, Cryptocurrency positions cannot be transferred and the process may take several weeks to complete
  3. Close IB UK account"

IB also told me that the same process applies to Bonds: I can transfer the positions to IB Ireland.

Let’s make now an example:
If in 2024 I buy in Switzelrand iShares Core MSCI World UCITS ETF USD and then in 2030 I decide to move to Italy, why there should be a problem with capital tax gain? In Switzerland there are no taxes on capital gains, in Italy yes. But Italy should count capital gains on my ETF since 2030 and not 2024.
Am I wrong?

7

Normally this should be part of onboarding process. But if you are in doubt you can confirm with IB customer service. The tax return part is not very complex, it is quite simple.

For ETFs, tax softwares generally have all ISINs, so it is easy
For Bonds, you might not always find ISIN, but you can ask them to add or you can do the calculations.

By the way - What would be the reason to buy bonds from different countries? Is it for currency diversification ? I think IB does not sell Swiss Bonds. It does sell Swiss bond ETFs though. For Swiss Bonds you might need to find a suitable broker (like Swissquote or someone else)

Do not worry much :slight_smile:

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I am interested to see the answer about this question. I hope the counter for capital gains tax start from the time you change residence status but who knows…

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You are right, IB has a very good customer service. I have received answers in less than 30min.
I started late with my investments and now it’s time to move my money from under my mattress :slight_smile:

Speaking with my Swiss colleagues I found out that it’s not very common to invest in Bonds and honesty i don’t get it. It’s still part of diversification right? I understand that Bonds based in Switzerland are not so remunerative but In Europe/USA there might be good deals. Maybe they think the returns of non-CH Bonds do not cover the risk of Currency conversions.

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I believe its because lot of Swiss folks have 2nd Pillar and 3rd pillar investments which might have large bonds (or alike) exposure

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It’s usually based on cost basis, not time of residence change. (Maybe Italy is different, but then resetting the cost basis of your assets is always the safest move)

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Thanks for pointining out this @nabalzbhf . I honestly was not aware of this issue.
It’s still strange to me why I should pay takes on capital gains “earned” in previous country (where anyway I paid already taxes!) to a country were I was not there before.
If you have any reference (laws/ istitutional websites/ topics in this forum that cover this topic) can you be so kind to save it here?
So far I have found not so much:

Really appreciate your help

13

that’s not always the case, many countries don’t have any exit tax for capital gains, so those gains would end up untaxed.

(for most taxpayers it’s a much better outcome, you can either reset the cost basis or delay the tax payment, imagine someone with a very large gain maybe they were planning to instead donate it or give it through inheritance, much better for them if they don’t have exit taxes)

I think by default most capital gain tax definition will use the price at acquisition to define the gain (ex france: Les cessions mobilières |impots.gouv.fr)

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I had this same problem, but in the end I decided to use IB to buy US etf.
I was quite sceptical that the tax office in Italy would do such a precise and complicate procedure such as calculate the profit from the date of trasfer. Plus a user on reddit posted his projection on how was more convenient on closing all the position before leaving switzerland and then buy again after the transfer, so he got me in. Getting back the 15% of all the dividends is a big bonus, expecially if you are investing big numbers.

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The good thing about this community is that people help each other and I’m glad that i have opened this discussion because i was not thinking at all to buy US ETFs.

Now I’m doing also my researches and I feel more confident. So thanks you all for your support :slight_smile:
@balbuziente I guess you are thinking the same for Bonds? Buy in Switzelrand, close before moving to Italy and then reopen the assets?

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I don’t know for me about bonds because i was planning to hold them on my 3rd pillar (will begin this year). having to move out of switzerland someday i would be forced to redeem my 3rd pillar (i think i understand it that way). holding it with a high % of bonds would allow me to have lower volatility and not have to be forced to withdraw my 3rd in an unfavorable period for the stock market. Other investments are more focused on stock market
for the way I invest prefer to buy bonds with short to medium term and carry them to maturity, so in such a scenario I think once transferred I would revise my position by buying other bonds.
one thing I would like to know is how other people like me, who have the option to transfer but don’t know when, handle 3a: do you go all-in on the stock market or do you hold a high proportion of bonds for that reason? what do you use to invest? there are some weak points in this thoughts?
I had started a 3a with an insurance company but started to read extensively about investments etc after two months and realized I was venturing into hell, and transferred everything to finpension.

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First I don’t think you’re usually forced to cash out (except places like the US where you really don’t want to hold foreign investments), and it can even be beneficial to keep your 3a while abroad. Many countries will consider it tax advantages and will let it go tax free until withdrawal (but will depends on countries).

Second I’d look at overall allocation, even if you decide to cash out you could immediately reinvest in stock with negligible gap (few days to a couple of weeks), so that shouldn’t be part of the decision of how you use 3a.

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18

Normally your gains are calculated as the selling price less the buying price.

If you hold the same shares throughout, then you run the risk of being taxed on the full gains.

Now some countries have an exit tax so that when you leave you are ‘deemed’ to have sold them before you leave the country, you can’t escape the tax on gains.

Now maybe countries also have a deeming provision to save you tax when entering the country - but obviously there isn’t much motivation to put in a law to save you tax.

So either you go and research to find such a law and hope you fall within it, or you avoid the problem by selling the shares and buying back.

Doing sale and buyback then runs into anti-avoidance laws which could then re-instate the full gain as if you didn’t do the artificial sale and buy back.

This is why it would be good if you have the US product as you argue that you didn’t do it for tax avoidance, but rather because products are no longer tradeable in Italy.

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Hello @NebulaJourney,
I am basically in your shoes.
After some hesitation, last year I started investing in US ETF (VT) because it makes the most sense tax wise.
When leaving for Italy, one has to choose between, IMHO:

  • cash out and re-invest after relocation
  • sell your US ETF (VT) and buy an equivalent UCITS one which is accumulating to stay invested (VWRA in USD or convert to EUR and buy VWCE)

Not sure what option is the best one.
Regarding 3a, I have been filling it up since a long time to save on taxes, but only recently I conservatively invested a part of it (I do not know when I will cash it out). If I find out that I can keep the 3a invested even after moving, I might change my allocation radically.

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Aren’t you simply not able to buy the US funds, but no restrictions on holding them, once you move?

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