Tax considerations and 'Quellensteuer'

Hi, as this is an overlap of two topics - ETF/Investing and Taxes - I hope this is the right place, otherwise please move or delete it. I wrote a small summary of my understanding of the situation, feel free to skip to the questions in the end :slight_smile: The way I see it, I am too poor for all of these articles :wink:

I am new in Switzerland as a foreigner making less than 120k/year, and as such I am subject to the horribly named - but quite advantageous - “Quellensteuer”. Horribly named because whenever I use google or this forums´ search for my topics regarding QS and ETFs I land on pages taking about withholding taxes for ETFs (L1W, L2W, etc). So excuse me if this question has been answered.

Please, for every assumption I make feel free to correct me if I’m wrong:
[1] As of 2021, there is no more way to retroactively lower your Quellensteuer by sending in all your possible tax deductions (etc. Pillar 3a, …) and still getting Quellensteuer-ed. To get these tax credits, you now need to do a “Nachträgliche Ordentliche Veranlagung”, which basically means getting treated like a Swiss person or Foreigner >120k/year and paying normal taxes.
Due to my combination of Kanton, County etc. this is way worse for me, even if I’d be able to deduct 10k CHF from my salary, I would still be better off just staying in Quellensteuer. (Its that good!!). Hence 3a is not an option for me, but thats not my question :slight_smile:

[2] The age old question of US-based ETFs vs. Ireland-based ETFs. I will disregard:

  • inheritance issues (I will stay below the CH-US treaties 11m for sure…)
  • TER differences (0.08 vs 0.22 for VT vs VWRL, but lets go without this one for now)

So for taxes, if I read correctly, we are talking about:

  • US based:
    3% L1WT (0 for the US companies, non-zero for rest of the world, averages to ~3%)
    15% L2WT, that I can (???, see below) get back through DA1
  • IR based:
    15% L1WT
    0% L2WT (yay tax treaties!)

So my big question is, can I claim DA-1 while staying in Quellensteuer? I have no plans to do a tax declaration, as it will lead to way more initial tax, so is there a way to just claim the L2WT for the US-based ETF straight from my Quellensteuer or would i need to do regular taxes? Because in that case I will just stick to the Irish one, as it is actually more advantageous after all.

Even if you’re taxed at source, you’ll have to fill your declaration if you earn more than 2k a year in dividends (or other not-already-taxed income) or if you have invested more than 100k (or 200k for a joint declaration of a married couple). I crossed the threshold for dividends in 2019 and 2020 and last year I informed the tax office about this - they send me the tax forms and I filled them (including with DA-1). I haven’t received yet any feedback from them, but when they’ll write back, I’ll let you know how it went.

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Sure. You would be „nachträglich ordentlich veranlagt“ and (according to you) pay more taxes, but you‘d still be subject to withholding tax on your salary.

As for just reclaiming WHT on dividends/fund distributions without doing anything else, that‘s like having your cake and eating it too (or „foifer und s weggli“, as we say).

Are you sure you’re not obliged to file a tax declaration anyway, because of your capital income and/or wealth?

Edit: 1000000CHF just beat me to it, by a couple of seconds.

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Hi guys, thanks for the quick and perfect replies, awesome!! Esp thanks for the info on wealth/dividend status.

/quick edit: Where I use €, I of course mean CHF, sorry…

I currently have around 40k€ in VWRL / 700€ in yearly dividends on my old non-swiss broker/bank, and am just starting to invest here. It will take me quite some time to reach the 100k/2k marks, so for now I am (sadly) not worried. Just to clarify, because again the “taxed-at-source”-part is confusing: 2000€ means any kind of non-salary income, right? It doesn’t matter that dividends of VT are taxed-at-source (the other kind) while VWRL are not? They both count towards the 2000€?

May I ask two additional questions:

  1. As it seems my understanding of “Nachträgliche Veranlagung” for DA1 is correct, I hence run better with VWRL / IE-based-ETFs if I don’t plan on claiming DA1, right? As in, my above assumptions for deductions on the ETFs are correct?

  2. So in my head, given that I don’t make >120k by the time I (almost) reach these marks and I am regularly taxed anyhow, then I can pretty much start calculating whats better for me: falling out of Quellensteuer and paying substantially more taxes, or trying to find alternate ways of investing? Or does the 100k treshhold encompass all investments (Crypto, Real Estate, you name it) and once I am “too rich” there is no way around it anyhow?

Oh and one last one, I have entered my Swiss tax info on that foreign bank/broker account, is it otherwise on me to start doing my declaration once I hit the aforementioned marks, or how does it work? Do I generally have to report the dividends manually to the tax office? I haven’t seen any deductions yet, but tbf, VWRL also shouldn’t have any, right?

Ireland doesn‘t withhold tax on distributions the Swiss-resident retail investors holding funds through a brokerage and clearing system. Given that you won‘t reclaim US withholding tax and from a purely tax perspective (i.e., disregarding different fund structures and costs), Irish investment funds are more advantageous.

Also, from what I‘ve seen and heard, Swiss tax authorities were not very proactive in informing „Quellensteuerpflichtige“ about any potential obligation to file. It rather seemed that they hardly cared (though the provision may have been there in law).

Irrespective of whether you did provide the info to your broker or not, you still have to file and pay taxes according to Swiss law. :wink:

If your broker doesn‘t (can‘t) report you to the Swiss tax administration, you‘re just more likely to get away with not doing it.

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As I understand it, the threshold is for any income that is not already taxed at source by Switzerland. I.e. it would be the same for VT and VWRL. I’m no expert in this area, though.

The only alternative is investing in a Switzerland-domiciled index fund where 35% Swiss withholding tax is deducted on dividends. E.g. CSIF has a World index fund but it’s a mutual fund, not an ETF. However, as your net worth is likely beyond 100k or not far from it when reaching 2k in dividends, it probably doesn’t make sense to go down this route.

Please note that the thresholds are defined by each canton. 2k/100k is for ZG. In ZH it’s 3k/80k (Quellensteuerpflichtige Personen | Kanton Zürich).

The threshold is for your total net worth incl. cash, stock, real estate, crypto as you also need to pay wealth taxes on all of that. It’s possible that foreign real estate can be excluded as that’s not taxable in Switzerland but I’m not completely sure. Foreign ETFs definitely count towards the threshold.

Yes, it’s your responsibility to file for an ordinary tax declaration when hitting the threshold, as far as I know. The Swiss tax authorities may receive information from your foreign bank/broker as part of AIA.

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FYI the 100k cutoff is canton dependant. AFAIU it roughly corresponds to the cutoff where you start having wealth tax. Make sure to check the details for where you live.

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Hey guys, firstly a big thank you - this is probably the quickest and most helpful forum I have found in my years on the internet, absolutely amazing! :slight_smile:

Thanks, I checked the values for my canton, its 80k/3k, so that might become relevant sooner than I like it. However, I have been already inclined to stay on my VWRL, as I am also afraid of whatever will happen with PRIIPs this or next year, the possibility of inheritance problems if I ever move back home again (no treaty…), and the general currency risk holding the fund in USD instead of EUR.

In the end, if my math is correct, at 1.5% dividend of which we have a 12% diff (3 vs 15), we are talking about a 0.18% difference, which combined with the 0.14% TER difference (0.08 vs 0.22) is not negligible, but shouldn’t influence my decisions too much.

I will now have to read up on wealth tax, income tax, pillar 3a and whatever else I can deduct, because it gets interesting a lot sooner than I thought (not sure if I’d ever come above the 120k/year, but the wealth boundary was new info). So thanks a lot for the advice in that direction.

Last question - taking an accumulating instead of a distributing fund probably doesn’t do the trick, right?

No, it’s taxed all the same.

Other concerns might be relevant, but that one doesn’t matter at all.

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Does that make you exempt from having to file a tax return?

Not too my knowledge. While 35% WHT is intended to encourage and make it financially worthwhile to declare, it doesn‘t give you a choice of paying-or-declaring.

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For ordinary tax assessment you’re definitely correct. You’re required to declare all assets and income independent of whether the 35% WHT was deducted or not.

For people taxed at source I’m not sure. The Swiss withholding tax is a ‘Quellensteuer’ as I see it. Ordinary tax assessment is required “wenn sie über Einkünfte verfügen, die nicht der Quellensteuer unterliegen.” (DBG Art. 89 1b). I don’t know whether dividends with 35% WHT can be considered taxed at source for this purpose or not. In practice it might not really make a big difference anyway due to the wealth threshold.

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If you’ll move back to your home country again, it makes sense to sell your assets before moving (because Switzerland has no capital gain tax for individual investors) and invest them again after you move - tax savings can be gigantic. In that case, it doesn’t matter which fund you picked in Switzerland, as you’ll have to build a new portfolio in your country.

There’s no risk - it doesn’t matter in which currency you buy the fund because the underlying assets are bought in different currencies anyway (for VT about half is USD). It just adds cost to your fund, as the fund manager first has to convert your EURs to USDs to buy the stocks, and then do the opposite when you sell.

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The selling part is actually genius, can’t believe I haven’t thought of that.

But for currency at least, if I sell the stock, I will have the conversion, right? Not the actual currency risk, which I understand is zero (thanks for the explanation, makes a lot of sense), but simply selling VWRL will net me EUR, while selling VT will net me USD, and if I move back to EU I might prefer having one less FX conversion to do?

Cheers

That’s correct, but if you use a decent broker that doesn’t matter given how cheap it is, it will be roughly the same cost as the internal FX change that VWRL (or the marker maker) will do.
In practice you probably won’t keep it as EUR anyway but will reinvest it in some instrument appropriate for your new country of residence.

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Thanks again for the help. Since you have been this helpful, allow me to ask two questions that defo fall into the category “googleable” for once, but I am not sure if I got it right:
In my understanding, if I buy VT, I

  1. Need to fill in the ominous W8-BEN at IB asap to save the first 15% of 30% L2 tax for my dividends? Or is that an automatic thing?
  2. Need to achieve at least 100CHF in withheld tax of that second 15% L2 tax to qualify for D-A1 reimbursement. At 2% dividend yield in 2022, this means I need to hold ~34.000 CHF in VT before I can get the money back? (100 CHF * 1/0.15 * 1/0.02).

Cheers

I think this form is presented during the account opening.

Yes. But VT dividend yield was more like 1.8% recently.

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Thanks a lot man, appreciated. It wasn’t for me for some reason, but I will hunt it down and fill it out now.
Ok, understood. Well, at least the TER makes it more worthwile then VWRL already, so I might have to do one year without dividend claims :wink: Only danger is of course if IBKR restricts access in 2022, but we can still sell the shares then and just buy VWRL, right?
Cheers

It was pretty much just a radio button or two, asking you if you are a US citizen/taxpayer or if your residence country has a taxation agreement with the US.
No “form to fill” per se, just part of the regular process; so you probably have already done it in this “implicit” way (except if you clicked the alternative answers).

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Ok, I spent an hour trying to find it and clicking random links, so I assume I already filled it out. I guess I will see, it means I should receive 85% of my dividend, right? And that the dividend itself should be slightly higher than my old VWRL one, as ofc the 15% difference in L1WT I can´t see.

Slightly unrelated question, did any of you guys do the referral program with IBKR? Will I only get shares for cash deposits or can I also move my ETFs from my old broker to IBKR for the bonus?

Ohterwise you can just ask them if everything is in order with the W8-BEN. Did that when I opened my account and got a positive answer in less than a day.

Otherwise dbu is right, basically it is done automatically for you while opening the account when answering questions about residence etc.

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