Switching from UCITS ETF to VT

Investing / Brokers
1

Hi all

I lived many years in an EU country before moving to Switzerland and I have a good amount invested into SPPW.

I estimated using ICTax - Income & Capital Taxes that I receive under the hood (accumulating ETF) around 1100 CHF Gross WHT (according to the number of shares I hold).

I am now trying to estimate how much I would save/benefit if I would sell and go with VT (and get credit for the withheld dividend tax).

What is the right way to approach this?

2

I mean, VT is always cheaper for both the WTH and the TER. Why do you need an exact number?

Regarding the WTH, if you have a mortgage, it’s possible that you won’t get 100% back. See my answer in another thread for more information.

“The DA-1 credit is designed to offset the US withholding tax, but Switzerland’s tax system considers your overall tax liability. If your taxable income is significantly reduced by deductions (like mortgage interest), your overall Swiss tax liability might be low enough that there’s little or no Swiss tax left to be “credited” against the US withholding. In short, they’re saying you haven’t paid enough Swiss tax to justify the full DA-1 refund. They are not saying the US tax is invalid, but rather that your overall tax situation in Switzerland does not warrant the full credit.

Mortgage interest is a deductible expense that reduces your Swiss taxable income. It is not directly related to the US dividends themselves, but it indirectly impacts your eligibility for the DA-1 credit by lowering your overall tax burden in Switzerland. This is a matter of Swiss tax rules, not US tax rules. The DA-1 is a credit against Swiss taxes owed. If your Swiss taxes are reduced by deductions, so is the amount of the credit you can claim.“

4 Likes
3

Your max benefit of using VT vs UCITS is approx 100 CHF per year for 100K portfolio. Assuming marginal tax rate is about 30%

I say max because sometimes people don’t get complete benefit when they file claim via DA1.

Max benefit = US exposure dividend yield x US exposure % x 15% x (1- marginal tax rate)

1 Like
4

Question regarding saving is answered. My two cents: I would not sell. Just start buying VT and keept the UCITS ETF.

3 Likes
5

Interesting details thanks

My employment income happens to be tax exempt.

I declare and I am taxed on income from rented property abroad and my stocks/ETFs dividends.

Then also wealth tax for property value and bank / investment accounts.

I will do some detailed estimations to see if it’s worth selling and vying back VT in my case

6

Where, in Switzerland? So you are a tax resident of Switzerland?

As you hardly have any taxable income, I am quite certain that you won’t get any CH tax credit for US withholding tax. Did you try to ask your colleagues?

7

Could you clarify for my understanding please? Shouldn’t this be either

Max benefit = US exposure dividend yield x 15% x marginal tax rate

or

Max benefit = Total dividend yield x US exposure % x 15% x marginal tax rate

My understanding of “US exposure dividend yield” in case of VT would be ~65% of the total dividend yield before any witholding taxes.

Why (1- marginal tax rate)?

8

Because higher WHT results in lower taxable income?

9

Wouldnt’ you most likely be at marginal tax rate after switching if you were before? I mean, a 1000 CHF income difference should not affect your tax rate by a lot no?

Ah I think I got it now: With UCITS you lose those 15% but don’t get taxed on them either. With
VT you get the 15% but get taxed on them. So e.g. instead of nothing (e.g. lost WHT of 1000.-), you get 700.- (1000.- minus 30% taxes in case of marginal tax rate).

1 Like
10

Then you’ll likely have a very low average tax rate, if that’s you only taxable income and will not get much at all back from DA-1, and then likely it is better to stay with ucits funds. Because if you don’t get back the 15% the US withholds, your ex-US holdings inside the fund even have a double wht layer.

1 Like
11

Let’s use some numbers to explain.

VT has 62.5% US exposure and dividend yield of MSCI USA is 1.3%. Let us also assume there is a UCITS based VT equivalent called VTU which has same exposure to stocks as VT

Now for simplicity purposes let’s assume dividend yield on ex-US exposure is 0%

  • So the gross dividend for VT would be 0.8125% (1.3% * 62.5%).
  • While VTU will only have 85% of 0.8% =0.69% because this ETF will lose 15% WHT in US

Now assuming marginal tax rate for Swiss investor is 30%,

  • final post income tax dividend for investor for VT would be 0.8125%*(1-30%)=0.569%
  • Final post income tax dividend for Swiss investor for VTU would be 0.68% * (1-30%)=0.483%

The difference between the two yields is 0.569% - 0.483% =0.086%

If I use the formula

62.5% x 1.3% x 15% x 70% =0.0853%

difference is mainly due to rounding errors

3 Likes
12

Correct. I am in Geneva. Thanks for the insights

13

Excellent break down thanks

1 Like
14

Agreed thanks

1 Like
15

Great, thanks for the example!