I don’t know why I forgot about this, yes, we went through it many times. Anyway, thanks for the correction.
@hfng you may want to read up on this here:
https://www.bogleheads.org/wiki/Nonresident_alien_with_no_US_tax_treaty_%26_Irish_ETFs
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Ok, withholding tax is 0% but there is a tax removed at source equivalent to 15% (of 55%) right ?
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US stocks have made up approximately 55% of these all-world funds.
They will account for less than 55% of dividends flowing into these fund, as U.S. corporations tend to pay lower dividends: See here and here.
Dividend yield for MSCI USA is 1.7%, compared to 2.84% for MSCI World Ex-USA. MSCI World of course sits in-between at approximately 2.1%.
None of these three indices include Emerging Markets. But for the MSCI/FTSE All-World indices that do, EM make up only 10% of. With them still having a higher dividend yield than the US, it doesn’t make much of a difference overall.
So US dividends should account for about 45% share of the dividends received by the ETF.
Not much less than 45%, but most certainly less than 50%.
It’s on these US dividends paid to the fund, that the difference in taxation comes into play.
I think this provides a good explanation - though for Singaporeans. Note that Singaporeans do not benefit from a double taxation treaty, so the Irish ETF seems to be the better choice for them.
US dividends paid to Singapore resident (or SG fund): 30% withheld (effectively).
US dividends paid to Swiss resident (W8-BEN) or Irish ETF: 15% withheld (effectively).
US dividends paid to US ETF: 0% withheld (effectively).
Irish ETF distributing to Swiss residents (via clearing system): 0%. There is nothing to be refunded.
US ETF distributing to Swiss residents (W8-BEN): 15% withheld, but can be credited (“refunded”) against Swiss taxes.
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I cannot thank you enough for taking the time to explain this in detail.
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Don’t the swiss ETFs pay 15% that they can’t claim, like irish ETF ?
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AFAIK if there’s a Swiss fund available only to swiss investors, you wouldn’t have any US tax leakage.
(in a way, similar to how now pillar3a don’t have US tax leakage).
But I don’t know any fund that’s restricted to swiss investor tho (besides pension fund). (and if there is I assume it would have high TER making it not interesting, esp. since we have access to US domiciled funds)
(And that’s how it works in a few other countries, if you check for example investment best practices for NL, people will usually recommend an NL fund due to how it can make use of the tax treaty and end up with no leakage).
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I think the question is whether the Swiss ETF is an eligible “resident” to benefit from the reduced rate.
For a personal investor, that’s simple enough. For a fund though, that can be bought and held by investors residing in dozens of countries everyday? Also, is the fund tax resident in one country (Switzerland), that is, does it pay taxes on its income in that country? See here for some questions arising (though already 9 years old).
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AFAIK all is included in the 0.1%
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Just to add a data point
just looking at the data from swiss authorities, that determines your taxable dividend at wealth tax:
VT
ICTax - Income & Capital Taxes in chf
value: 78.84
taxable dividend: 1.848 (2.343%)
VWRL (did I get the right isin?, is it the exactly same index and holdings?)
https://www.ictax.admin.ch/extern/en.html#/security/IE00B3RBWM25/20191231
value: 90.30
taxable dividend: 2.06 (2.281%)
this is outside any withholding you get back after filing DA-1 form. which, I think get some back with VT but not VRWL.
It’s not the same index.