Tax optimisation for ETF investing

Aw so there are permanently lost? Do you know what is the most tax efficient way to invest in Europe as a Swiss? In the USA it is to buy US domiciled ETFs like VOO.

I thought that UCITS EU domiciled ETFs that invest in Europe have preferential tax treatment in Europe/EFTA/Switzerland :disappointed:. Maybe an equivalent low cost fund that mirrors VEUR, registered legally as a Mutual Fund would give me better tax treatment?

Better to reply in this thread…

They have - but it is not restricted to Europe only.
When shares are held through a recognised clearing system, Irish Funds can distribute in full, without withholding tax deducted.
With U.S. ETFs on the other hand, 15% or 30% will be withheld.

The Fund itself should apply for refund of withheld taxes, if applicable and/or possible.
You are not supposed to file personally to obtain a double refund from the foreign tax authorities.
Also, the refund of withholding taxes aren’t passable through to you, through the fund.

You’re holding shares of an Irish fund. On distributions made by Irish ETFs through a clearing system (like in your case), no tax will be withheld. Thus, where no tax has been withheld, there’s no reason to file DA-1 in this case.

As for the dividend distributions made from European companies to the fund itself, they are simply not your business (so some non-refundable tax may be withheld).

You are of course free to hold EU stocks directly:
Apply for (partial) relief of withholding tax withheld with DA-1.
And then, in addition, request a refund of the remaining amount directly from the foreign tax authority, for a 0% effective foreign tax burden

…in theory. In practice you might incur expenses in doing so, which in some cases could be higher than the actual amount to be refunded. For example, a certificate acceptable to the foreign tax authority might be required as proof of the tax withheld.

As an aside, afaik if there was a low cost fund reserved to swiss investors, they could get withholding back (use the dual taxation treaties), the issue with ETF is that anyone can buy it so can’t use treaties.

IIRC withholding isn’t very high in most of EU anyway, so probably not worth spending too much time on it (e.g. 10% withholding over 2% dividend is 0.2% which can be close to the TER difference between some funds).

@nabalzbhf @San_Francisco I see thank your the answers the make sense. Regarding the part of the taxes being withheld at the Irish ETF side, are there Mutual Funds or ETFs tailored to be tax optimal specifically for Swiss investors (and have low TER).

I guess this is really hard and like nabalzbhf said I should just consider the withholding as an invisible TER of 0.2%. After all 0.2% is not that bad.

It’s not that bad, but if you imagine that you reached FIRE, have 1’000’000 portfolio, then 0.2% extra return over 30 years will make 62’000. That’s like a used Porsche Panamera :stuck_out_tongue_winking_eye:

Or if you invest 1000.-/month for 30 years and get 6.8%/year instead of 7.0%/year, you’ll have 1.13 million instead of 1.17 million. Those 40k will result in a higher withdrawal rate (135CHF/month) for the rest of your life.

Costs matter.

Maybe. They’d probably come with higher costs though.

That said, I think one shouldn’t base his investment decisions on (the equivalent of) a used car. :stuck_out_tongue_winking_eye:

My understanding is that it shall also contribute to dividend tax from us based assets. But not 100% sure

@San_Francisco @Bojack

So I got my first dividend payment of my European ETF, AMS:IMEU, bought through Degiro. This fund is domiciled in Ireland.

The value of the dividend is 0.1944 EUR per stock, and the dividend tax is -0.0513 EUR per stock. This is 26,4% tax rate, to be honest I am a bit surprised by this. I thought withholding taxes are pre-paid by the ETF before I receive any dividend, but it appears that I am paying a withholding tax as well. Can I recoup this tax when I file my taxes at the end of the year, I am asking because I am heavily invested in Europe (85% of my portfolio is AMS:IMEU), and thus these dividends / taxes represent a large percentage of my returns.

Wait til it’s final.

As said above, 26.375% would the German tax rate (including solidarity surcharge).

I vaguely remember having read something about them (DeGiro) showing the deduction at the Germanr ate first - but then in the end not deducting it or something. It should be a post somewhere in this forum.

All I can say is that the stuff I owned at CT (VUSA @ SIX and VEUR @ SIX) would always first see the withholding tax charged, to be fully reversed a few days later. Don’t know more than that.

Sure I will keep you updated both. The dividends are not paid yet actually. The dividend ex-date passed, and the numbers quoted in the previous post are the numbers listed under the “future dividends” section.

Once they are “really” paid I will post an update with the exact percentages :slight_smile:.

This is the thread I was thinking of.

1 Like

Dear all
This is an extremely good thread, thank you @nugget for starting it and everyone else for contributing.

To summarize, what is the most tax efficient/recommended way to invest in ETF as a Swiss resident?
My take away from the thread:

  • avoid Swiss based ETF due to high tax rate
  • invest in ETFs based in US (in $) rather than IE/LU based

Is this correct?

Thank you all!
Don

Depends on your tax rate and interest that you have to pay.

The tax office will at most refund (dividends-interest)*marginal tax rate.

If that is less than 15% of your dividends, then IE based ETFs may make more sense, especially for ETFs that hold non-US assets.

As so often, it depends.

U.S.-domiciled ETFs tend to be most efficient for investing in U.S. equity - which of course accounts for a large part of All-World indices. Though you don’t necessarily have to invest in All-World equity ETFs or U.S. equity.

True, I am indeed over-simplifying here but thanks for the note.

Interesting point @xorfish, can you please provide an example? Thank you.

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