It states explicitly that the withholding tax get’s reduced to 10% for everyone that is not a pension fund or major (>10%) shareholder.
That Japan applies different withholding taxes for public and private companies has no bearing on what the treaty demands. It demands a maximum of 10%.
This is further supported by the fact that you can only claim 10% tax credit in Switzerland. Because that is what Japan can legally withhold.
That IBKR doesn’t care and also doesn’t help you with reclaiming the excess withholding tax is a you-problem for everybody else (IBKR, Japan, Switzerland).
Switzerland links the form for having the correct withholding tax applied (below page in German, but can be switched to EN):
Looking at it, it can work similar the US and Canada. You send your form to the Japanese tax office and the Japanese dividend paying company. Then they will only withhold the treaty rate.
The problem probably is that IBKR holds the securities as a broker in an omnibus account. So neither do you get the US-Japan treaty rate of 10%, nor can you claim, that you are the actual owner and get the 10% of the Switzerland-Japan treaty. You get the 15% non-treaty rate.
But it requires also filing the first form, and also suffers from the same problems. You could of course try with a printout of the dividend statements from IBKR, but well…
Thanks for the clarification. Your second link is for non-dividend refunds, but I got a form for dividends.
I’m not convinced whether it’ll be succesfull, but I guess I will give this a try in the coming days to see if and how long back I can get these 5% net L2TW down to 0%.
Doing taxes is supposed to be fun, filling this kind of forms is not.
What you can do to estimate cost of specific etf is going through their yearly report and look how much dividends they had and how much was withheld.
Thanks for the advice. I checked the VT annual report but couldn’t figure out which dividend values are relevant to be honest.
Even though it’s difficult to get to final number easily, I think the real difference between VWRL and VT will amount to 0.1 to 0.15% per annum after taxes in terms of their tax efficiency and tracking differences. I don’t worry too much about TERs because they can be misleading sometimes.
I tried to recreate some of calculations from the original google sheet and the Bogleheads Wiki post using the assumptions of % for L1WT and assuming 0% L2WT for both ETFs. I came to similar values. Total costs of 0.35% for VWRL and 0.13% for VT. However, I did not account any TD. I read people mentioning index providers use maximum withholding tax rate and comparing TD of IE and US domiciled ETFs is difficult. TrackingDifferences.com shows the average TD over several years but not for US domiciled ETFs. I found those values only on Trackinsight.com but only for the previous year.
I think total cost of VWRL (0.35%) includes 0.22% TER. However the tracking difference of VWRL is much less than 0.22%. In other words even though VWRL should be 0.22% behind its index, it’s actually not. So 0.22% is not real cost of holding this ETF.
So in my view that should be used to adjust the total costs of holding VWRL.
I think best way would be to ignore the TER difference of VWRL and VT. And just focus on the tax loss portion to make a decision. The tax loss I think is between 0.1-0.15%
Your comment about index assuming highest WHT is correct . But it should be same approach for FTSE all world (benchmark for VWRL) and FTSE all cap (benchmark for VT)
Sorry, I should have clarified. Yes, I meant including the TER. TWR alone I calculated 0.06% for VT and 0.13% for VWRL. Although based on what seems to be a bit outdated L1WT numbers from the wiki post.
Thanks for the clarification that sounds reasonable. Interestingly, the TD for VT was reported at -0.91% for last year. Anyways, by the looks of it, it seems I am splitting hairs. I was just generally curious about the differences and wanted to understand withholding taxes of dividends.
Well, it’s more complicated than this. I will refer specifically to MSCI indices, FTSE is probably similar, and give 1 example. Most ETF’s performance is reported on a “total return”, with dividends reinvested, basis, even if they are distributing. They track an index, usually a net total return version. To calculate it, it is assumed that dividend distributed by each stock is reinvested after deducting a tax of 30%.
Now, an Irish ETF on US stocks pays 15% withholding tax on dividends distributed to it, and there are no taxes for payouts from the fund. Assuming as an example 2% dividend yield, 0% TER and ignoring compounding in 1 year time frame, this ETF’s performance will be 0.3% better than that of it’s index, i.e. TD of -0.3%, although the fund didn’t do anything but receiving and distributing or accumulating dividends.
ETFs also earn money by lending stocks. iShare is rather transparent about it. A fund can earn more than 0.1% p.a. with this. These earnings also decrease TD.
Let’s say there are two ETFs -: ETFA and ETFB. Both track MSCI USA. ETFA is domiciled in US and ETFB is domiciled in IE.
Would both of these ETFs track exactly the same Total Return Indexes as benchmark? Or they track two different Indexes because the underlying WHT assumptions need to be different ?
It’s up to the management company to choose which index their ETF track. Most US ETFs on US stocks would track a US-based index, which would count no withholding tax, I guess. PBUS is vanilla MSCI USA.
By the way, I checked the fact sheet of VT and VWRL, it seems their benchmarks are assuming pre-tax dividend reinvestment for VT.
But I could not understand clearly for VWRL because I can find different comparisons. I saw one where only index price is compared so I think it excludes dividends anyways. Then I saw one where all gross income is reinvested but it’s not clear what happened to WHT.
I think VWRL performance vs benchmark might not have this WHT effect (at least based on link below) and can be purely attributed to its lending or simply its effective operations. But I am not 100% sure.
I think you might be looking into this comparison because you might want to buy VWRL but worried about money you might lose by not buying VT instead.
If that’s the case , then please consider following
These two ETFs are not exactly the same. VWRL doesn’t invest in small caps while VT does. So it’s not just choice of ETF but also about exposure to small caps.
VT is more tax efficient for CH residents, it is not insignificant, but it is also not so huge difference.
I think in long run, you will be fine with either one. #1 VT , #2 VWRL for global investing with one ETF
I moved all my equity allocation from VT to VUG+BRK.B shares last year.
Why? Main reason was marginal tax drag on dividends is huge in Suisse Romande.
Being single, a high earner, having military tax, and living in Geneva my marginal tax rate is 50%. Since VT pays ~2% in dividends per year my marginal tax rate gives a 1% tax drag on holding VT.
Compare that to VUG with ~0.5% dividends and BRK.B with 0%. Holding them in equal weight gives ~0.25% dividends or 0.125% tax drag. Expense ratios are also slightly lower but this is less relevant.
Essentially, as long as VUG+BRK.B does not underperform VT by >0.9% over the long run then I am still better off.
Summary of differences between VT and 50% VUG + 50% BRK.B:
Tax drag: VT has 1% while VUG/BRK.B has 0.13%
Market correlation: VT has 98% correlation and VUG/BRK.B has 94%
Growth/Value: Holding a growth fund like VUG and value focused holding company like Berkshire gives rough diversification here
Geographies: VT is a global fund but as all market cap weighted funds are, is dominated by the US with 65% of its holdings there. VUG+BRK.B is 100% US.
I appreciate that this approach has more US exposure, more tech exposure, and is quite concentrated in specific stocks like AAPL. However, I don’t necessarily see those as bad things going forwards and so for the sake of almost 1% lower tax drag I am content to hold this for the long run.
Performance since 2015. This is starting with $100k and investing $5k inflation adjusted per month since. It is not adjusted for the tax savings (so for VT subtract 1% per year and VUG+BRK.B subtract 0.13% per year).
Note that only 2 years since 2015 (2015 and 2019) did VT outperform. During periods of international stock outperformance VT should do better. Or if there is a big US tech crash and Berkshire doesn’t offset substantially. Otherwise VUG+BRK.B has had pretty incredible returns over the last decade+.
I’m not sure growth is the way to go here. It had some good years recently, true. But isn’t it an anti-factor (of the value factor)?
Since you state that you earn a lot (and therefore have or will have a lot of money), did you consider warpping your investments into a company to shield it from tax? (And leaving Geneva, because 50% wtf)
Well I’m not actively seeking out growth here, its just a byproduct of me seeking lower tax drag. Hopefully in the long run the value from Berkshire and growth from VUG act as good diversifiers.
Not sure how wrapping investments into a company would be more tax efficient. I assume its quite a lot of hassle and with a structure like this there isn’t much tax drag already.
As far as leaving Geneva, I’m sure I will at some point. I have a great job here for now but if an opportunity in a Zug/Dubai/Singapore came about then the tax savings would likely more than justify it.
I believe it’s common that EU domiciled funds track a benchmark “net of worst-case WHT”, ie not considering potential tax treaties. For US exposures, the BM provider would hence assume a WHT of 30%. That’s my understanding when I checked a few ETF a while back on Bloomberg. Not sure on the US ones. I had a look at the VT factsheet and it seems it tracks a benchmark that considers only WHT at the fund but not investor level. Eg the US part would be assumed to be subject to 0% WHT.
This seems also consistent with fund performance. IE domiciled ETF tracking US heavy benchmarks (such as “All World”) often beat their BM as the index assumes 30% WHT for US while the fund only pays 15%. VT in comparison is almost precisely 7bp below the benchmark, reflecting that it very closely tracks the BM, except for fees…
If you might leave at the drop of a hat, a company is not so useful, I agree. A company needs a local representative. Moving a company cross-border probably means lawyers.
It’s not thaaat complicated. Hairdressers and carpenters manage. For a small company, you only need to do accounting and pay taxes on it. For very simple buy and hold, some Excel table will do. Filing taxes doesn’t differ much from doing your own taxes. Founding costs start at 400 CHF at startups.ch.
Fringe benefits: It can domicile where you live and help pay rent. You can sell some of your work through your company (less protections, less taxes, duties, and contributions). No fear of professional trader status. Buy and sell all the options, get tax credit on losses. Have some insulation between you and your leveraged investments.
Looking at taxes: Even Geneva taxes below 15%. A company also pays capital gains tax. And you additionally pay tax on dividends you take out (which are reduced for major shareholders).
But yes, for low dividend stocks portfolios that is not that attractive, since you pay nearly no taxes to begin with.
Looking at MSCI ACWI gross returns (should likely be net) since 1988:
In company
Directly
Taxed
Total Gross
Dividends Gross
Since 1988 p.a.
8.21%
1.96%
Tax
15.00%
50.00%
Drag
1.23%
0.98%
And you would still have to pay additional taxes to take the money out of the company. Ahh… Geneva and their 50% tax wins.
In the end in Suisse Romande I think you just have to go for as much capital gains as possible. Any dividends or bonus taxed at marginal rate is just a big cost of working here.
Not really, and if there was a popular one, ictax would probably eventually invent a virtual dividend, like they do for accumulating etfs.
There are some Canadian Horizon “total return” etfs. But you‘ll likely have unrecoverable withholding tax layers with that (or maybe not, as they are synthetic, haven‘t looked that deep into them), so probably not worth it and might be eventually taxed, who knows.
There is however a swap fee integrated of “no more than 0.3%”
Which can be quite a bit.
But actually on second thought might be interesting. I‘ve looked those up in the past, but did not dig deeper. I‘ll need to have a closer look on those.
There may be some IE or LU domiciled swaps based UCITS that might have zero income. Not sure about their cost structure though. And also is they track gross or return returns of jndex.
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, tu confirmes avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
