Tax optimisation for ETF investing [2024]

Taxes
148

At Swissquote or at IBKR?

150

Yes, if you cannot get back L2 tax you pay on the US distributions in full, it makes sense to keep exUS in the UCITS. Otherwise you get taxed twice.

But you pay for this implicitly by increasing complexity of the portfolio. Maybe worth doing if the portfolio is sufficiently large.

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151

Yes. But you need to find suitable fund that is cheap and has low tracking error and low transaction costs etc etc. for a single fund solution you can look at EXUS and the very new WEXE UCITS

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152

Some amount of home bias as ex-US replacement for example. With a swiss etf on swiss stocks you pay 0% withholding tax + 10% of dividends are tax free capital gains.

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153

I am wondering what is causing you to get lower refund?

I know the mortgages can cause issues but what’s your root cause ?

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154

@Compounding If you are not afraid to hold many funds to recreate ACWI ex US then you can search following UCITS
ISIN Fund
IE00BK5BQX27 Europe M/L
LU2089238385 Japan M/L
IE00BFXR5W90 Asia Pacific ex Japan M/L (ex CW; Coal; UN Compact)
IE00BKM4GZ66 EM IMI S/M/L

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156

I’d say yes, even with full WHT refund. I’m doing that for some 10 years and haven’t found a better solution, yet.

As for the lower refund, when my refund was denied, I focused so much on alternative that I almost missed the quite obvious error they did in the calculation. So I’d also recommend to start there.

There should be no connection with the wealth management fee, alone. It’s too low to matter under most circumstances if you maxed it out.

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157

for ex-US are people using UCITS (which one) and what’s the pros cons of UCITS vs non-UCITS e.g. vanguard?

158

EXUS is traded in CHF, interesting alternative (however the volume is really poor :sweat_smile:).

159

Volume doesn’t matter tho, as long as there’s market makers and the spread is tight.

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160

finpension has an article about which domicile is the best for Swiss investors:

  • US stocks: US
  • CH stocks: CH
  • European stocks: IE or LU
  • EM stocks: IE or LU
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161

I run the following setup (as advised somewhere around the forum):

  • US: VTI @ IBKR
  • DEV xUS: UBS/Swisscanto @ VIAC/FP (for less hassle with divvies WHT) combo of:
    • Europe ex CH
    • Japan
    • Pacific ex Japan
    • Canada
    • Switzerland
  • EM: IEMG @ IBKR (IIRC due to Korea treatment vs. Vanguard and VIAC/FP :sweat_smile:)
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162

I understand that when DA-1 is not fully refunded, we should try to optimize. However, while folks try to optimize, I would also recommend to check what would be the absolute advantage of optimization. For smaller portfolios, maybe the absolute amount “saved” would be quite low.

For example -: 100,000 CHF portfolio of WEBG ETF (TER 0.07%) will lose approx 100 CHF per year (after accounting for Tax) on account of US dividends which are lost vs. full power of VT (TER 0.07%)
If the portfolio is 1,000,000 CHF, then it is a different matter.

Just make sure, you do not end up losing the money in transactions costs, higher TER for sub funds, rebalancing etc.

Assumed dividend for US stocks -: 1.5%
Portion of US stocks Effective WHT for US stocks Marginal Tax rate Lost dividends
WEBG 60% 0.135% 30% 0.095%
WEBG 60% 0.135% 25% 0.101%
WEBG 60% 0.135% 40% 0.081%
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163

To optimize for taxes, 3a needs to be filled with the following prioritized segments (with examples):

  1. WHT without credit:
  • Europe ex CH
  • Pacific ex JP
  • EM
  1. No WHT
  • US pension fund
  • JP pension fund
  • CH stocks & domicile
  1. WHT with credit
  • CA stocks & domicile
  • (US stocks & domicile)
  • (CH stocks & domicile)
  • (JP stocks & domicile, but only 10% credit for 15% default WHT)

This rule is disregarding actual rates of capital gains and dividends.

Edit: Some clarification

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164

Could you add the rational, please?

If you pay, e.g. US WHT you get credited, why would you priortize US domicile in 3a?

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165

If, after adding tier 1, there still is space, you add tier 2. Paying no tax is advantageous over not getting tax credit (tier 3). What else would you add?

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166

I see, I read it differently, i.e. not in tiers.

Just to confirm, seems I’m not up to speed right now :smiley: : wouldn’t a multi-country ETF like Europe or EM in 3a still pay L1 WHT and thus from this perspective has no in advantage in 3a vs. taxed account?
Or would those all be exempted at least in a pension-fund like setting?

Why would you disregard the level of returns, either way? Your Tier 1 tends to be the higher dividend payers. But hypothetically, if you’d get 1% dividend in EM and 3% in US), why would you still prefer EM over US?

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167

Hm, I’d have thought that my US-domiciled EM ETF’s WHT was refunded/credited during the past few years, but I’d have to double-check that, unsure now.

168

Yes, the additional L2WT from the US can be credited. L1WT is still fully lost.

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169

I would not. But this rule does. Other rules are high dividends & interests go into 3a, high capital gains do not.

Looking at all factors results in a rather complex model. More mathematical formula than qualitative explanation.

If there is any WHT (L1 or L2) that you can’t recover, it goes into tier 1. It goes into 3a because you don’t want to pay additional Swiss taxes (or rather just reduced Swiss taxes on 3a payout).

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