Tax optimisation for ETF investing

May I ask how did you learn about this stuff? You are so pro Invesco, you almost sound like their salesman. How do you check what is in their “swap basket” (whatever that is) and why should it matter to me? Also, if the basket is what it is today, how can be sure it will also be “good” tomorrow? Do I need to check it regularly?

It sounds tempting to invest in this ETF, but I would need to learn more about it and not just trust a guy on the internet. Especially that no other forum user seems to be excited by this (and many are more knowledgeable than me)

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You can see all SWAP Baskets on the ETF Providers websites…not only Invesco but also all others…well you don’t need to check them but for sure it is good to know that they hold mostly S&P 500 stocks in the basket. Well I was many years a structurer for ETFs and Structured Products and let’s put it that way I thought it was good to give you guys some insights about the structure of ETFs…I came across this forum as I was looking for something ETF related and this is why I started writing in this forum :)… Hope you don’t blame me not really being a Mustachian but I like the concept that people help each other…

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OK if that’s the case then I see how you’re so informed :slight_smile: . So, given your experience, you really think the Invesco is the best UCITS product (regarding performance and safety)?

What do you even mean by this? :slight_smile: I don’t know if I consider myself a mustachian. I’m just interested in early retirement and investing my money in a carefree way. May I ask what is your investment setup? Which of the Invesco ETFs do you hold (S&P 500 or MSCI World) and how much of your portfolio does it consist of? Which broker do you use and how do you go around the issue that the ETF is not traded in CHF?

And finally, since you know ETF business so well, why do you think we should stay away from US ETFs like VT, VTI?

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@Matchpoint Thanks for sharing. I assume you mean this MSCI World ETF (0.19% TER): Invesco MSCI World UCITS ETF | A0RGCS | IE00B60SX394

Given your knowledge, I would love to understand:
1/ Distributions are -by design- not feasible for such a synthetic etf and instead you would see a capital gains, right?

2/ ICTax lists this ETF (ICTax - Income & Capital Taxes) and shows an “Ertrag” of 1.661 CHF for 2019. Where is that coming from? I thought the ETF doesn’t hold any dividend-paying equities and thus can avoid any tax withholding?
(The same is actually true for the S&P 500 ETF from Invesco: ICTax - Income & Capital Taxes )

3/ Shouldn’t these ETFs be super interesting for folks that move to places without capital gains and dividend taxes? (Example: someone moving to Singapore, etc)

Yeah, that’s the one, SIX ticker MXWO. It’s based on MSCI World, so it only includes large+mid cap developed markets, but that’s OK.

There is no withholding tax. What ICTax is showing is taxable income. You put that on your tax declaration and pay regular income tax on it. Accumulating ETFs invest in stocks that pay dividend, they just reinvest it. Swiss tax office counts that as income, so in some magical way it calculates the “implicit” dividend that was never paid out to you, in order to stay fair to other investors.

One thing concerns me: let’s say my marginal tax rate is 40% and ICTax always calculates these incomes:

  • for Vanguard 2.0%, so income tax will be 0.08% of the position
  • for Invesco 2.5%, so income tax will be 0.10%

And there goes your advantage out the window. So I hope ICTax makes it correct, thus only 0.3% difference. Some real data:

ETF           Year    Income     Value     Ratio
VWRL          2018     1.217     73.55     1.65%
VWRL          2019     2.063     90.30     2.28%
VWRL          2020     1.451     94.00     1.54%
MXWO          2018     1.284     51.78     2.48%
MXWO          2019     1.661     65.79     2.52%
MXWO          2020     ?.???     69.22     ?.??%

The taxable income for Invesco is significantly higher. So much so, that you’re worse off in the end. Or am I missing something?

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@Bojack MSCI and VWRL don’t follow the same indexes. To make a good comparison, you should take MSCI World ETFs . Anyway, the differences dividend differences are too high in your table.

I have tried to compare multiple ETFs with the ICTAX data (all currency is CHF). There are no major trends and now I have even more questions :frowning: .

Few observations:

  • IE00BK1PV551 distributes only once a year. This would potentially have an impact on the ratio
  • I have some doubt about the return data from justETF
  • Why so much differences ?

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@Matchpoint any chance that you can share some insights regarding the above-mentioned points? i would love to really grasp this.

You really need to compare the same indices and the Vanguard ETF tracks the FTSE all World Index That includes approx 10% EM whereas MSCI World is without EM. Having said that there should not be a difference between MSCI World ETFs on the dividend. The dividend can be easily looked at if you look at the index and I guess this is how the tax authorities come up with the dividend yield. For the return data I would only compare those synthetic ETFs that replicate the gross index which is Invesco and Amundi vs the Physical Ishares and Vanguard. Here there will be a higher payout for the synthetic as they do not hold back 15% US Witholding Tax. If you take Lyxor, DBX and some of the other synthetic providers there can be indeed a difference in the payout as the replicate the Net Index and agree with an investment bank on a swap term for 12months and meanwhile if the dividend yield changes you still will get what was agreed on the time the contract between the ETF and the Investment Bank was closed for the SWAP. So best is reall comparing those synthetic ETFs that follow the Hire Act871m rule which is the Invesco and Amundi ETF and compare that to the physical replicated ETFs. Btw on some of the platforms it can happen that there are some data errors.Maybe this is also the reason for divergence but this is another topic…

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I don’t see how the 10% emerging market could cause such a huge disproportion. But ok, let’s try with the iShares MSCI World accumulating.

ETF           Year    Income     Value     Ratio
MXWO          2018     1.284     51.78     2.48%
MXWO          2019     1.661     65.79     2.52%
MXWO          2020     ?.???     69.22     ?.??%
IWDA          2018     1.037     48.49     2.14%
IWDA          2019     1.115     61.10     1.83%
IWDA          2020     0.982     64.85     1.51%

So for 2019 the difference was huge, 0.7%. Put 40% income tax on that, you got yourself a 0.3% loss. So not worth it, really, at least for that year. And for 2020 there is still no data, so if I wanted to file my tax declaration today, I wonder how would that work.

Does anyone own a NL-ETF (Netherland ISIN, eg VanEck NL0009690239, NL0009690221)? Wondering what the L2WT is for Swiss tax payers. Ie do they deduct anything from dividend payouts like US-ISINs or is it 0% like IE-ISINs? Thx!

The estv has a page with the details for each country:
https://www.estv.admin.ch/estv/fr/home/internationales-steuerrecht/fachinformationen/quellensteuer-nach-dba/auslaendische-quellensteuern-pro-land.html#1776269918

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Thank you!

I (… tried to…) read it - also the pwc one at Netherlands - Corporate - Withholding taxes - but I’m not certain enough I get all the tax language correct: I think that 15% WHT is deduced and you can get that accounted for swiss tax (DA-M) - in which case it would be similar to the 15% US-L2-WHT - but it’s bit confusing and I might totally misunderstand it.

That’s why I was hoping someone who already bought a NL-domiciled ETF paying taxes in CH could explain what they experienced.

If NL is similar to US with L2-WHT, then it would be less ideal to buy than eg IE domiciled ETFs … as with IE you pay 0% L2-WHT and that does make life a bit easier in my view.

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Super helpful thread, thanks all

Hi,

I think this question has been asked before but I have still not a clear answer.

I am a EU Citizen on a B permit living in Canton Lucerne. I earn less than 120k per year and since recently I have about 20 k CHF invested in distributing ETFs on Degiro (iShares Core SPI ETF (CH) and Vanguard FTSE All-World UCITS ETF USD Dis). I have recently been paid out some small dividends and it looks like Degiro has held 35% of it for tax. Given that I am taxed at source, do I need to do anything else to declare the future dividends that I will be paid out?

Thanks.

Don’t think they should be withholding 35% on the Vanguard fund, as that’s not domiciled in Switzerland. And neither is DeGiro - or are they?

§ 105 Steuergesetz:

"Personen, die gemäss § 101 Absatz 1 der Quellensteuer unterliegen, werden nachträglich im ordentlichen Verfahren veranlagt, wenn (…)
b. sie über Vermögen und Einkünfte verfügen, die nicht der Quellensteuer unterliegen."

(Note: b should refer to the Quellensteuer on your employment income according to this cantonal law. Do not confuse this with other withholding taxes you or your dividends may be subject to somewhere in the world. Put differently, your dividends will constitute income that is not subject to this withholding tax and would appear to need additional declaration - even if a “withholding tax” of some sorts is withheld on it somewhere in the world)

Thanks for the answer.

The withholding was on a dividend of the iShares Core SPI ETF (CH), so I believe it was withheld by the swiss authority?

Ok that is what I thought, but I was hoping that there was a threshold below which one does not need to declare? If possible I would rather avoid doing a full declaration when my salary is on Quellensteuer, so far I have only been paid 5 CHF of dividends. I do not speak good German so I am struggling to find information specific to the Luzern Canton.

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Yes.

Such a threshold exists in other cantons (e.g. CHF 3’000 in ZH), however, I can’t find a threshold either for Lucerne.

As I understand it, you aren’t required to do a full tax declaration if your net wealth is below CHF 62 500 and 35% Swiss withholding tax is applied to all your dividends. Those dividends should be considered taxed at source but you also wouldn’t get anything of those 35% back without a full tax declaration.

However, as you also have an Ireland-domiciled ETF where dividends are not subject to (Swiss) withholding tax and there doesn’t appear to be a threshold in Lucerne, my understanding is that you are obligated to do a full tax declaration.

If in doubt, I’d ask the “Gemeindesteueramt”. Hopefully, at least someone there speaks English.

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Thank you for the very clear reply!

Sorry for opening up this legacy thread - but it is the most fitting and I do not want to open a new thread for something that has been discussed this often.

I spent a lot of time reading and working through MP´s, Boglehead´s and this explanation and I am pretty confident I know the theoretical difference between IE and US ETFs for a Swiss investor: To put it short*,

  • IE ETF you lose ~15% no matter what, as that is the tax rate between the US company and the fund itself. However, you do not pay tax when you yourself receive the dividend.
    So: Company ➔ -15% ➔ ETF ➔ -0% ➔ You
  • US ETF you do not lose anything between the company and the fund, but as Swiss you lose either 30% or much more likely 15% (with a filed W8-BEN) to taxes, which you can however get back through a tax declaration.
    So: Company ➔ -0% ➔ ETF ➔ -15**% ➔ You

**: As explained, can be -30/-15/0 depending on your filing.

Now my big riddle is this - shouldn’t we see a roughly 15% better performance when comparing the dividends of a US ETF to an IE ETF on paper? Because that is the 15% we actually see overall. The US ETF deprecating -15%** should only be applied once the dividend hits the depot.

But, alas, if I open the statistics I see that they tend to be almost identical for both; here an example for VT and VWRL which might not have exactly the same companies, but the dividend yields are scarily close and no clear 15% difference is seen:

VT Dividends
VWRL Dividends

image

So if I look in my depot now, only VT gets subtracted another 15% before payout, so where am I going awfully wrong?

Cheers and thanks in advance!

*for the sake of the argument I am conveniently ignoring that the considerations technically only apply to US stocks which make up about 57% of these ETFs, but every single post does the same…

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I beg to differ.

VT: 2.34% (sum of last 4 dividends divided by current price).
VWRD: 2.08% (sum of last 4 dividends divided by current price)

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