Then why hold CH domiciled securities at all?
35% is way too much to hold, compared to something else. In comparison to the 15%, that‘s the equivalent of ~0.6% extra TER.
Yes, that’s what I have told her!
She bought these Swiss stocks some 20+ years ago, where ETFs where not so readily available, and a way of diversifying from your home country was to buy some blue chips from other countries.
The thing is that we are very lucky in Switzerland because we don’t have any capital gain taxes, so we can just sell stocks or ETFs whenever we find a better option without having to think on the tax consequences. In most of Europe, you have to pay these taxes - so if after 20 years the stock price has doubled, if you sell it, you have to pay a big chunk to the tax office. Say 25% taxes on the gains - from 20’000 euros of which you had gains of 10’000 euros, you’d need to pay 2’500 euros, so 12.5% of your position lost on taxes - much more than these 0.6% “TER” due to the excessive WHT.
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Might still be worth the tax hit to sell them. Juggling 20 individual stocks is not really great, if you aren’t very into stock trading and have a strategy.
Probably sensible to just sell all of them and consolidate into a simple broadly diversified etf portfolio. Your tax base is also 0 again then. Depending on how old she is, might not be that big of an effective tax hit.
I wouldn’t give up so easily, unless you really can’t be bothered about the amount. Even your exemplary 20k might be some 120 in wht paid per year. (edited, if only 20% out of 35% could be reclaimed).
CH should be pretty mainstream for EU banks compared to JP. It’s the kind of stocks even your mother might invest in lol (don’t give up on JP just yet, either 
)
I bet most banks do it as standard service, some for free, other might charge per document or line. Have you checked in general, or with her specific broker?
CH gives you 3 years, so you could pool it. There’s probably step-by-step guides in any major languages for the specific forms.
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Hm, the annual cost of capital gains tax goes to zero as the deferred time goes to infinity. On the other hand, the tax leakage can reach the full tax rate if you always realize gains immediately.
For 25% tax rate and 10% return per year, I still get around -13% less CAGR (so 8.7% return) for realizing every 20 years. Waiting 40 years instead, reduces this to about -7.8% less CAGR (so 9.22% return). Different numbers give different results.
Hm, but that is still not the correct counterfactual. Should be something like how much would you have when selling now and stop leaking withholding taxes vs. selling next year and leaking the withholding taxes until then.
If the local tax laws allow step-up shenanigans on death like in the USA, then there might be no need to pay taxes at all when liquidating, though.
Was not purely a tax/return consideration.
A loosely picked portfolio of 20 stocks is just very suboptimal. The outcomes can be wildly different with those.
I‘d pick a more predictable path.
And yes step up/inheritance is a consideration. If the mother is german for example, she could gift the stocks fully tax free as far as I know.
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I’ve done some further research for JP. It doesn’t seem possible to claim the overpaid WHT as a private person to the Japanese Tax Office (link), but it has to be done through the payer.
(…) by submitting both the form and an “Application Form for Refund of the Overpaid Withholding Tax in accordance with the Income Tax Convention (Form 11)” (hereinafter referred to as the “Application for Refund”) through the payer at a later date to the district director of the competent tax office, the non-resident, etc. may apply for a refund of the difference between the withholding tax amount
I understand that the payer is the broker. I have my Japanese ETF in Interactive Brokers. They don’t seem to give any such service according to this FAQ
Foreign stocks listed for trading in Japan which issue dividends will have the cash dividend allocation subject to an increased withholding tax rate. The tax will vary based on the domicile of the stock issuing the dividend; however in general the withholding rate will be the highest withholding rate applicable and will not incorporate a reduction based on prevailing tax treaties.
This treatment is due to the tax reporting status of our clearing agent. As our clearing agent is unable to process the relevant tax declaration documentation which would allow for the application of tax withholding at a reduced rate, shareholders will be subject to the highest rate.
In order to avoid the application of the tax withholding on the dividends of foreign stocks, positions in such dividend paying stocks should be closed prior to the ex-dividend date.
I wonder if other brokers (Saxo? Degiro? Swissquote?) allow you to apply for the reduction of the Japanese WHT from 15.315% to the 10% of the treaty. It’s a pity to lose this 5.315%. For last year’s dividend yield of 2.2%, it means a loss of 0.12% per year.
In the meanwhile, the Japanese ETF seems to have a TER and tax advantage with respect to a IE-based one: TER is only 0.05%, and this tax leak of 5.315% on the dividends (loss of 0.12% per year) is still smaller than the 15% for an Irish fund (so around 0.30% per year).
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I think this is a great topic with relevant information. I have therefore started a new thread to make this valuable information more easily accessible for future references:
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Hang on. I thought the unrecoverable tax is 5% of those 2.2%, which is, like 0.011%. And if Japan is about 5% of your holdings (as per market cap weighing), it’s 0.00055%, a rounding error. Or am I missing something?
- a factor of 10
- if successful, a fraction in %, but not in CHF, depending on the position
- the joy of learning something along the way
Oh, right. So 0.0055% overall TER. Getting close to the difference i would see in my spreadsheet, but, frankly, still small compared to other things that vary.
Well, the tax optimization part is up to +0.33% compared to a non-local option. Besides, the next best European one for that index standalone has a 4x higher TER (+0.15%), with 2% of the AUM.
But anyway, if you already have it (or any other JP stocks), for whatever reason not in scope of this topic, and you overpaid foreign WHT, I see no reason to belittle the effort to reclaim the money, which might yet be double or triple-digits per year 