Nope undortunately not. It‘s around 10%. Non-recoverable.
US citizens would get some tax credits for that, for us that‘s not possible.
But it‘s still a little (like not meaningfully)better than Ireland, as US has better tax treaties (example L1 wht for Japan in Ireland is 15% in US 10%, Switzerland 17.5% Ireland 35%, but Europe ob average has better treaties with Ireland than the US)
I think this difference is so little that it‘s basically meaningless. It‘s only 20% of your small 2.X% of the dividend. Also swiss funds only distribute once a year. That also has an effect.
No.
Actually swiss funds, with swiss securities, are the most tax efficient (in regards to dividend taxation) for the swiss investor, as there is 0% withholding after tax declaration on any level (sometimes you dont get everything back with DA-1 due to various reasons, e.g. mortgage deductions).
Plus about ~10% of the dividends of swiss funds get distributed as capital gains, so are tax free!
Granted it‘s not a huge difference.
Regarding 1.) is that a big loss? I would hate to give up my ETFs in developed and emerging markets.
Regarding 2), I can understand your explanation. But then I don’t understand why e.g. ThePoorSwiss says that US ETFs would be more tax efficient. In this article he says, “U.S. ETFs are more tax-efficient for Swiss investors”. In this case, I have not yet fully understood this explanation.
I don‘t quite understand why this would make you want to give up your etfs?
It‘s basically a 0.3% hidden extra cost on your ex-US etfs (~3% dividend x ~10% wht). But they still serve their diversifcation purpose.
Because he assumes VT and others which includes all geographies. As any world etf is more than 60% US, 60% of that fund is then withholding tax free. That gives you a significant advanatge compared to Ireland.
Also ex-US holdings are also slightly better on average. So for an etf holding all world stocks, US domicile is clearly superior.
But he doesn’t differentiate in that article and makes some simplifications. You basically only really save tax on the US stocks inside the fund.
If you have a developed country only etf for example, it‘s almost the same for US and IE domicile, from a pure tax perspective. But still slightly better for US + larger more liquid funds available + better TER most of the time + in general the better products availabe.
For swiss funds, what I‘ve written above applies still.
I tried to rope in IBKR to accept one of those official Japanese forms, but no dice. They say: “[…] IBKR does not assist with providing support for further reduced tax rates for Japanese securities.”
I’m curious, what about a version of VT excluding all dividend paying companies? Of course, it should have full exposure to market beta. You could invest 50/50 in traditional VT / dividend-free VT to cut your dividend taxes in half. Call it “tax factor” investing, with a highly reliable premium
Someone’s mentioned BRK.B for the US part, but that’s too concentrated & US-centric for my taste.
I see. Got it.
I think most companies pay dividends unless they are super high growth or unprofitable.
I would not recommend to exclude dividend paying companies from portfolio.
Now that Google, Apple, Meta, MSFT, NVDA all pay the dividend, the list of Great Non dividend companies is becoming short.
If anyone is interested in actual performance of IE vs US domiciles for US exposure, following is an example
A
B
C
D
E
F
**
Performance S&P 500 Index funds
Domicile
Ticker
Jan 1, 2019
31-Dec-23
Growth
US
VOO
10000
17504
75.04%
US
SPY
10000
17476
74.76%
IE
SPY5
10000
17378
73.78%
(assuming dividend reinvested)
Source, justETF and Portfolio visualizer. Numbers does not account for Swiss income taxes which would depend on marginal tax rates of individual, so final difference would be a bit lower.
These numbers are in line with common wisdom of approx 0.225% drag on performance per year (assuming 1.5% dividend yield of S&P 500)
I find such calculations flawed. Now I am talking from the Swiss investor prospective. It assumes a reinvestment of gross dividend for US ETF, which is not attainable. There are always some tax drag that this tool can’t take into account.
A bit more reasonable comparison, from my point of view, would be this:
Yes. It assumes gross dividend of both ETFs. US ETF of course have higher gross dividend vs IE.
What I showed is the maximum drag. Your calculation shows the reduced drag which depends on marginal tax rate.
By the way, there is no TER difference anymore. SPY5 and VOO have same TER. The only difference is WHT disadvantage and marginal tax impact which reduces the disadvantage.
I think it’s unbelievable how far EU ETFs have come. They are offering on par costs versus US equivalents. WEBG is launched to offer world ETF for 0.07%, SPY5 is 0.03%. Now we just need Vanguard to wake up and then all is good.
P.S-: I wouldn’t use the word “flawed”. It can be called “incomplete” . But since you are Dr PI, I am fine with the word flawed too
Oh, let me make it clear. “Flawed” was referring specially to numbers showing that VOO has produced 75.04% and SPY5 73.78% return during that period. Your estimation of difference in tax drag was as good as one can get, I think.
I am currently using the bellow allocation, looking into potential optimizations, in case I could use better ETFs with lowest costs etc. From the above it’s not clear I could do something better, but I am asking for your advice. Considering I want to keep the below % Portfolio allocation and tilts, would different ETFs make sense? Portfolio was started when I was not a CH resident and it’s in the lower six digits numbers.
yes, willing to split US+exUS if it’s more tax efficient for a swiss resident
I don’t care about how many ETFs I hold if the portofolio is overall more tax efficient considering the above allocation.
If US domicile is ok for you look up AVGV. It combines value, profitability (quality) and is tilted towards small cap. It’s a fund of funds and total TER mentioned in fact sheet is very reasonable for what they offer.
Thank you - now I’m torn into achieving the above allocation considering the conclusions from the thread Splitting the world: creating tax-advantaged global stocks portfolio using funds in 3a account, regarding holding US stocks as US ETFs at Interactive Brokers and Developed Markets ex US as CSIF funds in 3a account (finpension). Until I find how to do it, I’ll leave the portfolio as is.
PS: I am stuck with that specific allocation as in the past a financial consultant showed me the projection with the lowest possible drawdown for the above portfolio allocation in bearish times, along with the lowest number of years for recovery, using the smart beta value tilt, at the same time delivering above the market gains. I can’t run the numbers again myself - but in case you’re interested you could also try simulate and use it - this could be the most tax efficient, smart beta portfolio delivering slightly above the market returns
It’s time for my 5-year ETF portfolio review where I double check my general assumptions, ETF selection and weights.
So far, I’m a fan of holding multiple funds, although reduced that to 4 last time around from previous 8. Besides the joy it brings and the potential to tinker around (well, that could be a disadvantage) one objective is to optimize tax drag / double taxation and TER.
I used to have no issues to reclaim withholding taxes via DA-1 in the past, but this changed in the meantime. Therefore, I focused on this previously ignored aspect.
To start, I compared my 4-ETF portfolio as proxy for global markets with various ETF with two total market ETF domiciled in US (VT) and IE (VWRP, IWDA). This ignores small differences in various indexes, and generally past performance and tracking ratio. I simply compare a combination of tax drag and TER based on information from Vanguard’s and iShares latest annual reports, and my last tax return.
% of asset
US
IE
Various
wht l1 (% of dividends)
5.4%
11.6%
5.2%
wht l1 (% of NAV)
-0.1%
-0.2%
0.0%
wht l2 after reclaim
0.0%
0.0%
0.0%
wht l2 w/o reclaim
-0.4%
0.0%
-0.2%
TER
-0.1%
-0.2%
-0.1%
Total w/ reclaim
-0.15%
-0.38%
-0.12%
Total w/o reclaim
-0.53%
-0.38%
-0.31%
In summary, nothing new: With regular DA-1 reclaim, for a single global ETF, US-based beats IE and multi-ETF wins by a thin margin.
Side note: On regional level, it seems an US-based ETF like VGK has lower withholding taxes than an IE. That’d would be counter-intuitive, but could also be due to different indexes compared or the reporting of Vanguard vs. iShares.
Without wht reclaim on personal level, IE beats US for the single fund due to double-taxation, the mixed approach remains slightly ahead.
Anyone did a similar comparison? Would be interesting to see how reliable the reported tax data is from a given year and ETF, and whether the conclusion looks different.
In a next step, I’d like to compare different ETF and look for any further potential (or simplification) with additional (or less) different funds. Obviously, with additional ETFs it gets more complicated to avoid overlaps and positions below 5% of total.
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