As a recent survey on this forum has shown, there are two dominant ways to invest:
- Irish ETFs at Corner Trader in CHF
- American ETFs at Interactive Brokers in USD
I have opted for the first option almost a year ago. Now I would like to use this thread to sum up and evaluate if it’s worth to switch.
At CT it’s easy. How is it at IB? Are there no problems in sending large amounts to USA? Are transaction costs easy to predict? What about sending money back from USA?
At CT you spend CHF, so no problem. How is it at IB? I tried the demo Web Trader from IB. I started with 500’000 USD. First I bought some shares listed in EUR directly. It created a negative EUR position. Then I bought some EUR on Forex. Is there any particular order in which this should be made? Can I block the ability to make negative positions?
At CT that’s 0.12% commission + 0.15% stamp duty. At IB that’s $0.005 per share. So for example it could mean 270 USD at CT vs 10 USD at IB per year.
As @hedgehog pointed out, Irish ETFs have a hidden cost of 15% WTAX on US dividends. If a dividend is 2% then we are looking at 0.3% annually. 300 USD from a 100’000 USD portfolio. A similar amount should be deducted from the American ETF, but levied on you, not on the ETF. By default it is 30%, but if you sign the W8BEN form, then it will also be 15%, correct? Do you fill this form this once, by opening of the account, or every year?
Reclaiming the tax
With Irish ETFs there is nothing to reclaim. With American ETFs you can fill a DA-1 form every year, and then the amount of WTAX will be deducted from your Swiss taxes, correct? What I don’t understand is why do you need to earn “a lot” to be able to discount all WTAX? Even if your portfolio is 1’000’000 USD then your WTAX will be something like 3’000 USD. You don’t need to earn much to pay 3’000 taxes in Switzerland?
In Europe you are the owner. If the broker goes bankrupt, they can’t touch your shares (right?). In USA, the stock is owned by the broker in your name. If IB goes bankrupt, you “should” be protected up to 500’000 by the SIPC, as one forum member recently checked. This is some complex legal stuff and I guess nobody can 100% confirm or deny it.
With European ETFs it’s no problem. But with US ETFs, over 60’000 USD there is about 40% tax upon your death. If you are a Swiss resident, then you are safe up to 5’000’000 USD. If you leave Switzerland, then you will probably better sell the US ETFs and buy European ones (right?).
This is something I have not yet made. I am on B permit and only starting this year will I be obliged to do it. Any differences as to what CT and IB provides in order to make your tax declaration?
If I do decide to switch, what would be the right way to do it? If I sell all at CT and buy at IB, I will generate a lot of turnover. I would not like to be classified as a trader and have to pay capital gains tax. Theoretically it says annual turnover should not be higher than 5x portfolio, but I don’t know how exact are the tax authorities. Also, will I need to declare the period at CT on my tax declaration, or only the status at the end of the year?