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 The way I see it, I am too poor for all of these articles
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 - âQuellensteuerâ. Horribly named because whenever I use google or this forumsÂŽ 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 Iâm 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, âŠ) and still getting Quellensteuer-ed. To get these tax credits, you now need to do a âNachtrĂ€gliche Ordentliche Veranlagungâ, 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 Iâd 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
[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 sureâŠ)
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.
Sure. You would be ânachtrĂ€glich ordentlich veranlagtâ and (according to you) pay more taxes, but youâd still be subject to withholding tax on your salary.
As for just reclaiming WHT on dividends/fund distributions without doing anything else, thatâs like having your cake and eating it too (or âfoifer und s weggliâ, as we say).
Are you sure youâre 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.
Hi guys, thanks for the quick and perfect replies, awesome!! Esp thanks for the info on wealth/dividend status.
/quick edit: Where I use âŹ, I of course mean CHF, sorryâŠ
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 âtaxed-at-sourceâ-part is confusing: 2000⏠means any kind of non-salary income, right? It doesnât matter that dividends of VT are taxed-at-source (the other kind) while VWRL are not? They both count towards the 2000âŹ?
May I ask two additional questions:
As it seems my understanding of âNachtrĂ€gliche Veranlagungâ for DA1 is correct, I hence run better with VWRL / IE-based-ETFs if I donât plan on claiming DA1, right? As in, my above assumptions for deductions on the ETFs are correct?
So in my head, given that I donât 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 âtoo richâ 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 havenât seen any deductions yet, but tbf, VWRL also shouldnât have any, right?
Ireland doesnât withhold tax on distributions the Swiss-resident retail investors holding funds through a brokerage and clearing system. Given that you wonât 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 Iâve seen and heard, Swiss tax authorities were not very proactive in informing âQuellensteuerpflichtigeâ 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.
If your broker doesnât (canât) report you to the Swiss tax administration, youâre just more likely to get away with not doing it.
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. Iâm 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 itâs 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 doesnât make sense to go down this route.
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. Itâs possible that foreign real estate can be excluded as thatâs not taxable in Switzerland but Iâm not completely sure. Foreign ETFs definitely count towards the threshold.
Yes, itâs 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.
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.
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!
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 treatyâŠ), 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 shouldnât 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 Iâd 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 doesnât do the trick, right?
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 doesnât give you a choice of paying-or-declaring.
For ordinary tax assessment youâre definitely correct. Youâre required to declare all assets and income independent of whether the 35% WHT was deducted or not.
For people taxed at source Iâm not sure. The Swiss withholding tax is a âQuellensteuerâ as I see it. Ordinary tax assessment is required âwenn sie ĂŒber EinkĂŒnfte verfĂŒgen, die nicht der Quellensteuer unterliegen.â (DBG Art. 89 1b). I donât 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.
If youâll 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 doesnât matter which fund you picked in Switzerland, as youâll have to build a new portfolio in your country.
Thereâs no risk - it doesnât 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.
The selling part is actually genius, canât believe I havenât 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?
Thatâs correct, but if you use a decent broker that doesnât 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 wonât keep it as EUR anyway but will reinvest it in some instrument appropriate for your new country of residence.
Thanks again for the help. Since you have been this helpful, allow me to ask two questions that defo fall into the category âgoogleableâ for once, but I am not sure if I got it right:
In my understanding, if I buy VT, I
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?
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).
Thanks a lot man, appreciated. It wasnât 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 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 âform to fillâ per se, just part of the regular process; so you probably have already done it in this âimplicitâ way (except if you clicked the alternative answers).
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 canÂŽt 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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The way I see it, I am too poor for all of these articles 
