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.
ICtax always takes into account dividends of the accumulating ETFs using swap on the european market (UCITS ETFs).
Not sure why it is not the case for these canadian ETFs.
L2TW = Originally 30%. Thanks to double taxation agreements, a “qualified intermediary” can reduce taxes to 15% thanks to the W8-BEN document. The remaining 15% taxes can be refunded through the DA-1 document in the tax return.
1.) Is L1TW still 0% for ETFs like VEA (developed markets) or VWO (emerging markets)? I saw this question in the thread and the answer was that you have to calculate it specifically for each case.
US ETFs are more tax efficient because the withholding tax will only be repaid by the authorities one year later on your next tax return or deducted from your tax bill. However, this money cannot “work” for you during this year. For example, it could have grown thanks to a good financial year. However, you will get exactly this amount back from the authorities. That’s why the 15% US taxes are preferable to the 35% Swiss taxes because you have 15% more of your dividends and therefore more money in your bank account that can “work” for you this year. After a year, thanks to economic growth, this money could be higher than the fixed and equal amount that the authorities deduct from your tax bill. That’s why the following applies: the less withholding tax you pay, the better.
2.) Is this explanation true as to why US ETFs are more tax efficient than i.e. Swiss ETFs?
Nope undortunately not. It‘s around 10%. Non-recoverable.
US citizens would get some tax credits for that, for us that‘s not possible.
But it‘s still a little (like not meaningfully)better than Ireland, as US has better tax treaties (example L1 wht for Japan in Ireland is 15% in US 10%, Switzerland 17.5% Ireland 35%, but Europe ob average has better treaties with Ireland than the US)
I think this difference is so little that it‘s basically meaningless. It‘s only 20% of your small 2.X% of the dividend. Also swiss funds only distribute once a year. That also has an effect.
No.
Actually swiss funds, with swiss securities, are the most tax efficient (in regards to dividend taxation) for the swiss investor, as there is 0% withholding after tax declaration on any level (sometimes you dont get everything back with DA-1 due to various reasons, e.g. mortgage deductions).
Plus about ~10% of the dividends of swiss funds get distributed as capital gains, so are tax free!
Granted it‘s not a huge difference.
Regarding 1.) is that a big loss? I would hate to give up my ETFs in developed and emerging markets.
Regarding 2), I can understand your explanation. But then I don’t understand why e.g. ThePoorSwiss says that US ETFs would be more tax efficient. In this article he says, “U.S. ETFs are more tax-efficient for Swiss investors”. In this case, I have not yet fully understood this explanation.
I don‘t quite understand why this would make you want to give up your etfs?
It‘s basically a 0.3% hidden extra cost on your ex-US etfs (~3% dividend x ~10% wht). But they still serve their diversifcation purpose.
Because he assumes VT and others which includes all geographies. As any world etf is more than 60% US, 60% of that fund is then withholding tax free. That gives you a significant advanatge compared to Ireland.
Also ex-US holdings are also slightly better on average. So for an etf holding all world stocks, US domicile is clearly superior.
But he doesn’t differentiate in that article and makes some simplifications. You basically only really save tax on the US stocks inside the fund.
If you have a developed country only etf for example, it‘s almost the same for US and IE domicile, from a pure tax perspective. But still slightly better for US + larger more liquid funds available + better TER most of the time + in general the better products availabe.
For swiss funds, what I‘ve written above applies still.
I tried to rope in IBKR to accept one of those official Japanese forms, but no dice. They say: “[…] IBKR does not assist with providing support for further reduced tax rates for Japanese securities.”
I’m curious, what about a version of VT excluding all dividend paying companies? Of course, it should have full exposure to market beta. You could invest 50/50 in traditional VT / dividend-free VT to cut your dividend taxes in half. Call it “tax factor” investing, with a highly reliable premium
Someone’s mentioned BRK.B for the US part, but that’s too concentrated & US-centric for my taste.
I see. Got it.
I think most companies pay dividends unless they are super high growth or unprofitable.
I would not recommend to exclude dividend paying companies from portfolio.
Now that Google, Apple, Meta, MSFT, NVDA all pay the dividend, the list of Great Non dividend companies is becoming short.
If anyone is interested in actual performance of IE vs US domiciles for US exposure, following is an example
A
B
C
D
E
F
**
Performance S&P 500 Index funds
Domicile
Ticker
Jan 1, 2019
31-Dec-23
Growth
US
VOO
10000
17504
75.04%
US
SPY
10000
17476
74.76%
IE
SPY5
10000
17378
73.78%
(assuming dividend reinvested)
Source, justETF and Portfolio visualizer. Numbers does not account for Swiss income taxes which would depend on marginal tax rates of individual, so final difference would be a bit lower.
These numbers are in line with common wisdom of approx 0.225% drag on performance per year (assuming 1.5% dividend yield of S&P 500)
I find such calculations flawed. Now I am talking from the Swiss investor prospective. It assumes a reinvestment of gross dividend for US ETF, which is not attainable. There are always some tax drag that this tool can’t take into account.
A bit more reasonable comparison, from my point of view, would be this:
Yes. It assumes gross dividend of both ETFs. US ETF of course have higher gross dividend vs IE.
What I showed is the maximum drag. Your calculation shows the reduced drag which depends on marginal tax rate.
By the way, there is no TER difference anymore. SPY5 and VOO have same TER. The only difference is WHT disadvantage and marginal tax impact which reduces the disadvantage.
I think it’s unbelievable how far EU ETFs have come. They are offering on par costs versus US equivalents. WEBG is launched to offer world ETF for 0.07%, SPY5 is 0.03%. Now we just need Vanguard to wake up and then all is good.
P.S-: I wouldn’t use the word “flawed”. It can be called “incomplete” . But since you are Dr PI, I am fine with the word flawed too
Oh, let me make it clear. “Flawed” was referring specially to numbers showing that VOO has produced 75.04% and SPY5 73.78% return during that period. Your estimation of difference in tax drag was as good as one can get, I think.
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