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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I see, I read it differently, i.e. not in tiers.
Just to confirm, seems Iâm not up to speed right now 
: wouldnât 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 youâd get 1% dividend in EM and 3% in US), why would you still prefer EM over US?
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Hm, Iâd have thought that my US-domiciled EM ETFâs WHT was refunded/credited during the past few years, but Iâd have to double-check that, unsure now.
Yes, the additional L2WT from the US can be credited. L1WT is still fully lost.
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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 canât recover, it goes into tier 1. It goes into 3a because you donât want to pay additional Swiss taxes (or rather just reduced Swiss taxes on 3a payout).
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I think I got the answer: my tax rateâs too low for a max WHT refund.
Gotta work on that salary of mine, I guess 
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Sounds good
For time being no other financial jugglery needed then 
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Yep, as itâs not marginal tax rate they use for the calculation (which in my eyes is completely unfair and should maybe even be challenged in court⊠as youe received dividends are taxed at marginal rate, to me there is an unfair difference here), itâs your average tax rate. So if your average tax rate is below 15%, youâll not get the full refund.
So even if you donât deduct wealth or loans or anything, youâll never get the full da-1 in ZH, as long as your average tax rate is below 15%.
I made a spreadsheet for da-1 calculations and it suddenly was super obvious to me 
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There is no tax rate difference between e.g. employment income and dividend income. You canât say employment income is taxed first and then dividend income is taxed at the marginal rate, or vice versa. The marginal tax rate is relevant for comparisons and deductions, but I think it makes sense that the average tax rate is used for DA-1, unfortunately.
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It should work like a tax deduction then. There you also get effectively the marginal rate back.
I think it actually does work somewhat similar to a deduction of taxable income but without affecting the tax rate (âsatzbestimmendes Einkommenâ stays the same). Which is consistent with how e.g. income from foreign real estate is taxed.
Except that the refund is capped at the absolute US WHT amount, as itâs only an elimination of double taxation (in contrast to foreign real estate where the other country typically has an exclusive right to tax it).
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I think marginal tax rate is a fictional number which is just for understanding the value of last increment of income or value of the deduction.
Average tax is what Tax office gets and thatâs what matters. Its the rate which is applied to final taxable income
In fact in tax returns itâs clearly mentioned.
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Got it, itâs really abstracted to this.
This I still donât get. Please bear with me another round 
For L1 tax leakage, wouldnât it even be the other way around? The ones with L1 WHT go to taxable, as they would have minimally lower dividends, all else being equal?
Unless pension funds or 3a can reclaim those? For example CH-US tax treaty exempts them from WHT, but I understood that corresponds to L2 level (which you could typically reclaim yourself, as well), but not extended to L1.
Can 3a funds limit avoid or reclaim L1 WHT on an EM or APAC fund that a regular ETF in taxable couldnât? Would be interested to read more about that.
Or am I missing some other fundamental point?
I know itâs counterintuitive. So letâs try Canadian (tax credit) vs European (no tax credit) stocks:
| Stocks | Account | Fund Domicile | L1 | L2 | L3 | After Tax |
|---|---|---|---|---|---|---|
| Canadian | IBKR | CA | 0% | 15% | r-15% | (1-r) |
| European | IBKR | IE | 15% | 0% | r | (1-15%)*(1-r) |
| Canadian | 3a | IE | 15% | 0% | 0% | (1-15%) |
| European | 3a | IE | 15% | 0% | 0% | (1-15%) |
Simplifying assumptions:
- Tax rate r > 15%
- European stocks have 15% WHT
- Both regions have the same base return
- Using IE ETFs for 3a. You can use CH funds, which have the same result but you temporarily pay and then fully get back 35% Swiss WHT.
Letâs say you split assets equally between 3a and IBKR. You also want equal amounts of Canadian and European. Where do you put European and where do you put Canadian if you want to minimize taxes?
But this assumes CA in 3a is IE-domiciled and has a L1 of 15%.
Iâd assume the fund (CH ISIN) can reclaim it just as I do, basically acting like L2 on my behalf. then, CA in 3a would become 1 instead of 1-r.
This goes back to the question from the very beginning of the thread. @San_Francisco quoted UBS which confirms this for US, but is not clear on other major markets.
The next question is, whether the 3a or pension fund could get back some or all of the 15% from the European fund, as well.
So does the fund act like an individual that could reclaim WHT in DE, FR, etc.? Or are those UBS, Swisscanto etc. fund rather comparable like the IE-based ETF that canât?
Give me one 3a CA fund that has no L1. (Or L2, if it is CA domiciled)
That is the problem with calling it âreclaimâ. You reclaim taxes from the foreign government down to treaty rate. There is no reclaim after you got down to treaty rate. The Swiss government gives you a tax credit for foreign treaty rate taxes paid. You donât pay any Swiss taxes? You donât get any credit.
Can you tell me, which Swiss taxes do you pay in 3a?
We have a special tax treaty with the US (and Japan), that makes our pension funds exempt from their WHT. The treaty rate is 0%. Pension funds can reclaim from the IRS any tax paid down to this treaty rate of 0%.
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european stocks have pretty low L1 with IE domicile iIrc. Itâs below 10%.
at least the euro countries, so an EMU etf for example. Switzerland is pretty trash with 35%.
See simplifying assumptions
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As far as I know following markets donât tax dividends for Swiss pension funds. These cover 70% of MsCI world.
- United States
- Japan
Some info at link here
For emerging markets , I donât think there is any real difference between pension fund or a normal fund. Just treaty rates apply.
Couldnât find more details for European Union. But I would be very surprised if EU countries tax pension funds from each other
OK so for the slow and stupid like me, do I understand that right:
- Letâs say I have shares of VT that paid out CHF 1â000 in dividends in 2023, of which Uncle Sam kept 15%, so I actually recieved CHF 850. In my tax returns however, the full 1â000 are declared and added to my income, which then amounts to, letâs say 100k net.
- My tax rate for this 100k net for 2023 for, letâs use ZH, is: 6.296%
- I take the basis of taxation of my municipality (without church taxes), example Zurich: 218%
- I multiply those: 6.296% Ă 218% = 13.72528%
- Then I take my federal tax rate (again, net income of 100k): 2.802%
- I add those together: 13.72528% + 2.802% = 16.52728%
I then fill out DA-1, which is basically me saying: hey I paid Swiss taxes on these 1â000.â dividends, but the US has already taxed that, give me back the part that was double-taxed.
- In the above case, US and CH both taxed 15%, and additionally, the Swiss taxed 1.52728% on top of that. I get back what both had taxed: 15% (which is the full 15% withholding tax)
- If the tax rate calculations from above would have resulted in, say, 10%, US and CH both would have taxed 10%, and additionally, the US taxed 5% on top of that. I get back what both would have taxed: 10%.
Is that correct? And in which equation above would I now have to include deductions for wealth management (e.g. 0.3% in ZH)?
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