Tax optimisation for ETF investing

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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The advantage of VT vs. VWRL in level 2 withholding tax is more like 7%.

7% of 2% dividend yield is 0.14%. There is another disadvantage of VWRL, 0.14% higher TER. These costs are also taken from dividends

So the difference of dividends distributed by VT vs. VWRL should be more like 0.28% p.a. I have no idea why you don’t see this difference. And I also don’t think these are index yields. I guess it is some kind of accounting artefact.

Try to check manually actual value distributed at a specific date divided by the closing price of the ETF unit a day before and sum up values for one year?

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I edited my post above and did the calculation for VWRD before you submitted yours.
And though it’s just a singular data point, seems you were pretty right on target :wink:

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Hi, thank you both for the replies and the interesting links.

Where I am coming from: I am still in source tax and it is highly advantageous for me compared to regular tax. I cannot get dividends back without a ‘nachträgliche ordentliche Veranlagung’, which I don’t want to do as it costs me more money than the dividends bring.

So of course, when the second tax is 0% thanks to reimbursement VT comes out on top. Interestingly enough, if I do count those 15% tax on 2% of the dividend i get 0.03% disadvantage - ironically almost the same as the 0.028% advantage we get from L1 tax and TER difference.

So for someone in source tax the two are almost identical? In that case VT only makes sense if you plan on leaving source tax at some point in your career, cause from that moment on you can reclaim and regain the advantage.

Edit: adding to that, as someone who plans to retire in EU (or, definitely not in the US) it is also advantageous to have the ETF listet in EUR already. I know exchange rate doesn’t play a role for performance, but simply not having to exchange when drawing money from it later is an advantage, no?

Please consider also the stock exchange purchase costs which might play a role depending on the size of your transactions

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Keep in mind that you’re required to switch to ordinary tax assessment anyway as soon as your untaxed dividend income and/or wealth reaches a certain number (depending on the canton). I.e. while you’re below that number, the difference is probably tiny in absolute terms.

There is an extra 0 in your numbers. It’s 0.3% and 0.28%.

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If you can’t get 15% level 2 withholding tax on VT distribution back, you are coming to almost the same expenses as with VWRL:

If your portfolio is large enough, it makes sense then to split it to Developed Markets/ Emerging Markets ETFs to save on TER.

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Other random tidbits:

  • They don’t track the same indexes: VT is FTSE Global All Cap, VWRL is FTSE All World.
  • They don’t have the same holdings: VT has 9318 holdings, VWRL has 3782. AAPL, the biggest stock in both, makes up 3.68% of VT and 4.10% of VWRL.
  • They don’t have the same dividend yield: VT has 2.33%, VWRL has 1.99%.
  • They probably don’t practice the same securities lending policy.

You may have taken that into account in your calculations, I haven’t checked. I’m just pointing it out to underscore that the tax treatment of dividends is but one piece of the puzzle.

Also to note is that US stocks usually have a lower dividend yield, so dividends are not evenly distributed accross countries by market cap (there again, you may have corrected for it already).

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This is super helpful. I read through the thread but one thing I was not sure if I got it correctly is how much I would pay in tax at the end with the marginal tax rate. I saw that one can roughly estimate the marginal tax rate with e.g., Income tax calculator 2023 - Switzerland - salary after tax

Can somebody please help me out if I understood it correctly.
For example, one buys US S&P500 domiciled in the US. Providing one uses a qualified intermediary as broker (e.g., IBKR) after filling out W-8BEN, I’d be taxed 15% (instead of 30%) withholding. This I can claim back using DA-1 form when declaring swiss taxes. Where I am stuck is, dividends that one gets payed need to be declared as gross income and are therefore taxed by swiss authorities. For this, the marginal tax rate is used?

So let’s assume one gets 2000 CHF dividends (gross) per year, they’d be taxed somewhere 20-40% with the marginal tax rate? And if using an irish domiciled ETF I’d be taxed 15% withholding of the dividends (e.g., 0.15*2000=300 CHF assume 100% of the stock is US, which I can’t reclaim) and then again 20-40 marginal tax rate on the 2000 CHF dividends (gross).

No that would be on the net. The US withholding just isn’t visible to you.

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Not you. The fund.  

Unless you take a Synthetic ETF from Invesco or Amundi with 0% US WHT as they are tax exempt according to Hire Act 871m

Anyone living in Basel Stadt and filing taxis with Baltax online? As in the past, VT is not shown as eligible for credit for non-refundable US taxes (only stocks are). There was a workaround mentioned in the past to disable the online retrieval and put in the data manually. This does not seem to work anymore for me. Even if I disable that, as soon as I type in the ISIN, the screen jumps to “Ohne Verrechnungssteuer” and would not let me enter non-refundable taxes. Frustrating :frowning: Grateful if anyone could share a workaround.

Put one line for total brokerage account (no tickers) containing end of year amount, dividends and WHT, and attach the year statement.
Worked 2 years ago at least.

Called them this morning, very friendly, recommended me to just make a comment and they’ll deduct it manually :smiley:

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Same thing happens to me every year. I wrote it under comments and attached some forms, it worked.