There is a big difference because the US tax is taken at the source and you only receive 85% of the dividends. The Swiss tax applies no matter. So you pay 15% additional Tax. There were many article in NZZ, F&W etc exactly on this topic. Many investors Switch therefore from physical ETFs to synthetic that replicate the gross index (Hire Act 871m) is the clue.
Your dividends are taxed as income at your income tax rate.
It only could matter if your income tax rate is lower than that WHT 15%.
Not in my case, but could be in other cantons - I’ll let the others living there chime in.
P.S. What is the VTI equivalent with Invesco, i.e. US Total Market (not SP500)? I cannot identify it in their database.
It is the S&P 500 from Invesco:
That’s not the Total Market, I asked “not SP500”.
They don’t seem to have that on offer.
Well it makes a difference if you are taxed from 100 or 85…I earn rather more and are taxed on the 100…makes sense right? 
Ah what they have is MSCI World…
I suggest you read up on how taxation on your dividends (including international double-taxation treaties) works, and come back to discuss.
Please read the article that I send then you will understand.
Yes, there might not be actual dividend payments from U.S. shares to the fund, so there might not be something that withholding tax can be withheld from. The fund will likely, as far as I understand, incorporate equivalent returns from dividends synthetic replication - that is, they will likely credit a „virtual dividend“ to their shareholders, as part of their swap construction.
So will the (Swiss) authority.
Put bluntly, if there‘s no actual dividend payments from the fund, the tax authority will, quite literally, make stuff up out of thin air - and tax you on it.
2 Likes
So far they did not. As long as it is possible I am far better off with the synthetic UCITs ETFs…
Also those synthetic ETFs actually target the total net return benchmark. So if they don’t heavily beat the benchmark, it’s definitely not worth it. (Benchmark will use 30% withholding for US dividend, it takes the least favorable withholding rate possible).
Even a regular irish S&P500 ETF should beat it since it has a 15% treaty rate.
And as @San_Francisco says, unless the tax people haven’t caught up with it yet and it has a low “income tax” number due to being synthetic, you’re not saving on the swiss tax.
Just look it up. Even though it’s an accumulating ETF that doesn’s receive dividends, there’s a taxable income figure.
Based on the tax value, that‘s about 2.3% income.
3 Likes
Now here is where it get’s kind of funny (unless I am missing something):
-
From a quick look, dividend S&P500’s dividend yield shouldn’t even habve been 2.3% for 2019, more like 1.8%.
-
Vanguard’s (physically replicating but distributing) S&P 500 ETF IE00B3XXRP09 lists taxable income of only 1.8%.
-
iShares’ IE00B5BMR087 is physically replicating and accumulating as well - but has a taxable income of only 1.4%.
-
Oh, Vanguard has accumulating units as well (and yes, they’re physically replicating as well): IE00BFMXXD54, with taxable income of 0.2%. EDIT: This is a new ETF that was issued mid-year.
Disclaimer: I haven’t compared actual performance between these funds yet.
2 Likes
Seems to track the same as the ishares one: TradingView Chart — TradingView
So you likely lose the 15% withholding compared to US domiciled and the swiss taxes are higher.
If you want to avoid dividends you can just buy futures on an index. For example CME group S&P500 e-minis.
Maybe the cantonal authority will deem you a professional investor if you have your entire portfolio in stock index futures and charge you capital gains: “Private investors do not use derivatives (especially options), unless if it is for hedging the risks on their securities.”
But, would be interested in hearing if anyone has tried this.
Not sure if I’m missing something, but when you use a broker like IB and buy a US based ETF, you only have 15% withheld tax. You can claim back those 15% through DA-1, so in the end you have no withheld taxes. Of course based on the ETF there might be some minor unrecoverable dividens.
I personally would never use a syntetic ETF, as you have the additional risk to lose (part of) your assets, when the provider of the synthetic products goes bankrupt.
The difference is that with a US domiciled ETF:
- YOU need to Reclaim
- US Inheritance Tax
- Disclosure rights of US Authorities (Fatca)
With the UCITS synthetic ETF that follows the Hire Act 871m rule where futures and synthetic ETFs on S&P 500, MSCI USA and MSCI World are equally treated in Witholding Tax
- NO reclaim needed
- NO US Inheritance Tax & Fatca disclosures
For the counterparty risk there was 1st NEVER a default of an asset manager (ETF Provider); the SWAPs used in the ETF are backed by equity Investments and reset on a Daily basis. The synthetic ETF is everything but a black box because you know the performance and Dividend yield exactly + you have not a cash drag as the case with Vanguard and Ishares.
With a physical ETF that does security lending you have more counterparty risks btw…This is the reason why we see over the last 2years in Europe massive investments to switch from physical to synthetic. Many articles on that everywhere…
1 Like
Thanks for listing up pros and cons. Let me add some comments:
The difference is that with a US domiciled ETF (for Swiss investors):
ETF with physical replication
- YOU need to Reclaim → Only the 15% and its 1 form
- US Inheritance Tax → I guess thats an important point to consider, especially when you get older
- Disclosure rights of US Authorities (Fatca) → What do you mean by that?
- Considered to have a smaller 3rd party risk, as ETF actually holds shares and the 3rd party risk comes from security lending
Synthetic ETF
- NO reclaim needed
- NO US Inheritance Tax & Fatca disclosures
- Considered to have a higher risk, as the ETF does not own any shares. The etf only owns the swap and the collateral. In case of a default of the swap provider. For EU ETS (didnt see it for US ones) the collateral should cover 90% of the ETFS NAV. But the collateral is usually also invested. So in a hard market drop, in which the swap provider goes bankrupt, you could loose more than 10%.
I dont think the swaps are backup by something esle, then the collateral (correct me if I’m wrong here).
I found this post of the ECB from 2018 regarding ETFs counterparty risks:
It looks like in 2018 the majority of the (EU) etfs were relying on physical replication.
1 Like
Btw I just found this one:
It quotes the us-ch tax tready and comes to the conclustion that Swiss investors have the same inheritance tax exemption like US citizens, which would mean 11 mio. That would be quite new for me. I will try to verify that.
1 Like