This is the thread I was thinking of.
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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 donât 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.
Iâve been reading a bit on the forum but something is still not clear to me.
As a B permit resident in ZĂŒrich city, taxed at source, I cannot (and in any case wouldnât make sense) file a DA-1. (?)
Without it, the 15% US withholding is inevitably lost, so I should basically compare the percentages highlighted under TC of the original post.
In that case, while VT and VWRL would be comparable, EMIM would be cheaper than VWO.
Is there someone that, from interactive brokers, is using US funds when mostly targeting the US (VT, VTI) but IE funds for ex-US or EM?
Does that make sense?
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This is only part of the truth: from those 15% you have to deduct (approximately) your source tax percentage (actually the marginal tax rate which is higher). what is left over then, that is âlostâ. if you earn 80k/y, that difference should be of the order of 5-8% of your dividends. If you earn more, the loss is smaller. And since your dividends are <2500 CHF (otherwise you would file the nachtrĂ€gliche Veranlagung including DA-1) your loss is at maximum CHF 200.
The rest i forgot, sorry^^
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Deep and interesting topic !
However, one aspect is not discussed. It is the case of swiss residents who earn tax-free revenues, for example working in CERN or the UN. What about them ? Can they also get back the withholding taxes on ETFs ?
It will depend of the agreement in place between the organisation and Switzerland. Your nationality may have an impact (Swiss citizenship or not).
For Geneva, an interesting recap is available here:
Foreigners working at CERN are exempt from wealth tax and income from moveable assets (i.e. your investments). Therefore, they cannot claim the withholding taxes on ETF.
A Swiss citizen working at CERN does not benefit from the above exemption. He will be able to claim back the foreign taxes paid.
In case of doubt, the best option would be to give a call to your local authorities.
Ok, thanks a lot.
Does it mean that for a non Swiss national, Swiss resident and working in CERN or the United Nations in Switzerland, if you invest in an ETF domiciled in Ireland with a majority of the stocks from the USA, you pay the 15% withholding tax and thatâs it ?
For CERN employees, thatâs correct.
I havenât looked at the rules applicable to UN employees (Swiss or foreigners).
There is no withholding tax on dividends paid by an Irish ETF, only from the investments within the ETF.
My answer wonât replace a formal confirmation from your cantonal tax authorities.
Sure I will do further checks, thank you 
I need to break down the things to fully understandâŠ
Letâs take the situation of someone working in the private sector in Switzerland and a dividend of 100.
1ST SCENARIO - Ireland domiciled ETF with USA assets
1/ Domicile of the underlying asset: USA. For example: âVOO - IE00B3XXRP09â
Withholding tax of 15%. I receive a dividend of 85 on my broker account.
2/ Domicile of the ETF: IRELAND
No withholding dividend tax for foreigners.
3/ Fiscal residency: SWITZERLAND
I cannot ask Switzerland to account for the withholding tax of 15% which was paid in 1/.
There is no dividend tax paid here.
The net dividend (85) is added to my income and therefore I pay income tax on the dividend.
=> Would âIWDA - IE00B4L5Y983â fall in this category of USA domiciled asset ETF ? The geographic breakdown shows that 66.61% of it is based in the USA.
2ND SCENARIO - Ireland domiciled ETF with non-USA assets
1/ Domicile of the underlying asset: USA. For example: âVFEM - IE00B3VVMM84â
How much of withholding tax is paid here ?
2/ Domicile of the ETF: IRELAND
How much of withholding tax is paid here ?
3/ Fiscal residency: SWITZERLAND
I can ask Switzerland to account for the withholding tax of 15% which was paid in 1/ as a tax credit.
There is no dividend tax paid here.
The net dividend (85) is added to my income and therefore I pay income tax on the dividend.
=> From the moment the underlying assets are not in the USA, is there an advantage to invest in Ireland domiciled ETF compared to France or German domiciled ETF ?
- For dividend distributions of the 100% U.S. stocks in this ETF, withholding tax will be withheld according to U.S. tax law and the U.S.-Irish double taxation agreement.
Which has often been reiterated to be 15% in this case.
To approximately two thirds (according to their 66% share of U.S. securities).
Shouldnât be non-USA for this Emerging Markets fund, but 48% China, 14% Taiwan, 10% India etc., shouldnât it?
The rules will be analogous to the Irish-domiciled S&P500 ETF in the first paragraph:
- For dividend distributions of the 48% Chinese stocks, withholding tax will be withheld according to Chinese tax law and the Chinese-Irish double taxation agreement.
- For dividend distributions of the 14% Taiwanese stocks, withholding tax will be withheld according to Taiwanese tax law and the Taiwanese-Irish double taxation agreement.
- For dividend distributions of the 10% Indian stocks, withholding tax will be withheld according to Indian tax law and the Indian-Irish double taxation agreement.
- âŠand so on.
If you go and look up the rules for each country and its weight of the dividend distributions the ETF receives, you can calculate an overall rate.
There might be.
- On the level of the fund receiving distributions: Since Ireland might have different double taxation agreements (with the source countries from which dividend distributions occur) than France or Germany, there could be both advantages or disadvantages. Depending on the source country in question.
For German companies distributing to a fund domiciled in Germany - or French stocks to a French fund - it will of course be purely domestic rules that play a role. Especially when investing in a DAX or CAC40 fund, itâs worthwhile to research the tax situation. - On the level of the ETF distributing to holders of units, the question is whether German or Irish funds distribute free of withholding tax to you (or if you are able to reclaim that tax).
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Ok, then the tax applies to the portion of assets based on the country and then you have an overall rate, makes sense !
Basically, we know that for US assets and Ireland domiciled ETFs, this is 15%. For the rest of countries, do you know any source which would summarize this information ?
If someone has answers for the points 2/ and 3/ of each scenario, I am interested
You have to refer to the ETF annual report available on Vanguard website.
The report will show total gross dividends paid, as well as the foreign withholding taxes. Youâll be able to determine the average.
Be careful with distributions ETF in Germany or France. The distributions will be taxed at source (approx 26% for Germany and 30% for France).
Ok Guillaume, thank you.
Regarding accumulating ETF and distributing ETF can you confirm their end up being equivalent from a tax viewpoint for a Swiss resident ? I read opposite opinions and there is nothing clear on this on the Swiss tax websites.
Many ETF have accumulating and distributing share units (such as Vanguardâs VWRL and VWRA, for example) that report their tax figures and are included in the ICTAX database at the Swiss Federal tax administration.
The database is straightforward in telling you the (virtual) income you will be taxed on an accumulating fund.
I went on the ICTAX database, could you take the time to let me know why I find these differences ?
Why iShares World (Acc) (IE00B4L5Y983) has a ârendement imposableâ of 1.82%
while VWRA-Vanguard World (Acc) (IE00BK5BQT80) has no rendement imposable ?
and VWRD=Vanguard World (Dist) IE00B3RBWM25 has a ârendement imposableâ of 2,28% which is significantly higher.
It was created on the 23th july 2019. It will be on the 2020 taxes