Suggestions for tax optimization of a new portfolio

Investing / Portfolios
1

Hello,

a bit excited for my first post on the Mustachian.

I am planning to move to Switzerland soon with a B permit and I will have to file a tax declaration as I overcome the threshold to not do so. As I will have access to US-domiciled ETFs on IB, I am planning what my new portfolio will be, similar of course with the one I do have now, and take the chance to find an optimum:

Stocks (80%):
(45%) US - Vanguard VTI;
(35%) International Developed - iShares IDEV;
(20%) Emerging - iShares IEMG.

Bonds (20%):
(100%) Euro Government - SPDR GOVY

I am not new to investing and I do follow already the personal finance community. Also I read already a lot of material regarding witholding taxes in Switzerland and how to claim them back through DA-1. But I still have few questions.

From what I understood, for US stocks, to go with a US-domiciled ETF is no-brainer.

But what about international developed and emerging?
For international, I think US-based ETFs are still slightly better, because TER is lower and there is more choice, but also because some countries (ex. Japan, Canada) are more convenient from Witholding Taxes point of view.
For emerging I have no clue. Are US-domiciled still better or IE-based would be more convenient (ex. IBC3), even though TER is 2x?

What do you think about?

Thanks

2

Most likely doesn’t matter much, anything below 0.1% TER is already pretty low (esp for 20% of your portfolio).

(we’re talking about the difference between 100 and 50 CHF per year for a 500k portfolio)

I assume you’re planning to move to EU after/you are still primarily feeling attached to the eurozone? (otherwise doesn’t make a lot of sense, esp given increased yield/taxes).

Note regarding your allocation, make sure you’re confident about what your bets are and why you’re doing it (underweight US, overweight emerging). There’s nothing worse than doubting yourself when you see those things underperforming the market after a few years (which would have been massively the case over the past 10y with this portfolio).

3

US based etfs for ex-US only make sense, if you file your taxes and get a withholding tax refund via DA-1 formula.

Other wise you‘ll get double withholding tax. L1 10-15% and then another 15% on top.
At ex-US dividend yields, that hurts.

Then EXUS etf + an emerging markets fund make more sense.

4

Utility of bonds for a swiss based private investor is questionable, and even more so if these are bonds in foreign currencies, hedged or not. With 80% stocks in the target assets allocation you don’t need to take any risk on the fixed income side, can stay completely in cash and very close equivalents (saving accounts, short term deposits, mid term notes, pension fund balance?).

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5

The reason for euro bonds is that I still have interests in an european country.
So I will receive dividends in USD from stocks, CHF from salary and Euro from bonds. Thats a bit of currency diversification as well. Moreover, euro bonds means I am not paying for Euro hedging, way different

6

That’s one thing not so clear for me.
The DA-1 can claim back witheld taxes from US.

But in the case of a single international ETF such as IDEV, how does it work? Do you have to split the ETF in each contry costituent and claim it back from each country? I don’t think so. Could you explain me how does it work in that case?

7

No.

The etf is domicile in the US, so when the fund distributes to you, US withholding tax applies. That‘s level 2. And level 2 is creditable with DA-1.

Level 1 on fund level is already lost, when the stocks distribute to the fund (in the US) and is unreclaimable.

With an ucits fund, you only have level 1 taxes, as Ireland/Luxembourg don‘t levy level 2 taxes.

For US stock funds (domiciled in the US), there is no level 1 tax, as it‘s the same country. Only level 2.

For US stocks in ucits funds there is only level 1. for Ireland 15% and Lucembourg 30% (they dont have a treaty)

8

So with the DA-1 I can claim back from US-ETFs what is automatically witheld from IB, during the distributions of dividends, regardless of in what those ETFs invest, correct?

9

Correct.

10

Have you calculated how much this „optimisation“ would cost or profit you over the coming 10 years versus your current portfolio?

I am asking because you used the word Optimise. So this gives me an impression you feel something is not optimal in your current mix.

The VTI/IDEV/IEMG is new portfolio . What is the current one?

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