Tax optimisation for ETF investing

bump

to raise awareness of my brushed up initial post on international witholding tax and its consequences for ETF choice

please comment/ add relevant information! :slight_smile:

I didn’t want to open a new thread for this.

Do I get it right, that when I have a US domiciled fund, for example from Vanguard at IB, I can get back the whole 30% withholding tax when I file the two forms mentioned in the initial post?

as I understand, no, but almost:
you can reclaim 15% out of the 30% by filing the W8-BEN with IB.

then you can have the remaining 15% being credited for your income tax by filing DA-1 with your Tax authority. thereby reducing your income tax bill by this amount.

plz correct me if I am wrong!

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if I hold a CH domiciled ETF (i.e. SPI ETF) via IB London, are then the following two statements true:

  • dividends witholding is 35%
  • with tax declaration, I can deduct the full 35% from my income tax

thanks :slight_smile:

[quote=“nugget, post:24, topic:67”]
dividends witholding is 35%[/quote]
Yes

No, you’ll pay income tax on whole gross dividend, and they’ll reimburse you 35% withholding tax usually in next tax year in the form of tax credit.

If you’re taxed at source only without right to file tax return, I guess you’re schafted, 35% tax and no reimbursement

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thanks for the specification! the point i wanted to make is: the full 35% are not “lost” in the end (if i do my tax homework…), other than the 15% of US Witholding tax I lose if I don’t file w8-ben?

This I know is not the case: i called them and they pointed out how to do it in case of source taxation. however, back then the reimbursed taxed would have been far too low to justify the effort :wink:

They are lost if you’re taxed at source and don’t have a right to file tax return, but then you don’t have to pay any extra taxes either. Otherwise yes you’ll get them back but with a large delay and usually only in the form of tax credit for next year

If you’re taxed at source you don’t have to file a tax return, but that doesn’t mean you can’t. In fact, if you have a 3rd pillar or any other large deduction, you should! My girlfriend got back over 2k CHF because of that!

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i think it is even more:
if you are source taxed and want to re-calculate the tax (because auf 3rd pillar etc…) you need to send the documents to the Kantonale Steueramt.

for reclaiming witholding taxes, I’d need to send documents to the Gemeindesteueramt. what happens after that i dont’t know, i havnt tired so far. this year it might get worthwile for me to go into it, as my dividend income approaches considerable amounts^^

[quote=“Alex, post:28, topic:67”]
If you’re taxed at source you don’t have to file a tax return, but that doesn’t mean you can’t. [/quote]
No actually it’s quite possible that you can’t.

There are three distinct possibilities:
a) no right to file tax return at all, but you can still always request corrections to tax at source for pillar 3 etc. Beware of very short filing deadlines for it (31.03)
b) ergändende Veranlagung - where they compute additional taxes on your non taxed at sourced income such as dividends. Threshold in ZH is 200k wealth or 2500 extra income per year. You file a partial tax return for this, just the WV, they compute how much tax you owe in addition to tax at source. It’s probably possible that you can get withholding and foreign taxes refunded here. I don’t know what tax rates they use here, but I guess it can easily be higher than 15% for withholding taxes
c) ordentliche Veranlagung: full tax return and tax at source becomes just a prepayment for it. Beware of some nasty surprises here - if you live in a commune with high tax rate, such as Stadt Zürich, you’ll owe more than tax at source even without any extra income already

i confirm this

also this. it kicks in once you either get C permit OR earn >120k in one year

well if you all have time one more year, I will probably find out the only certain way :wink:

I can confirm that at least in Geneva you can still file a full tax return even with a B permit. It’s easier to just do a correction request and may actually be all you need, but they certainly accept the full return as well.

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I think I’ve heard somewhere of exactly the opposite experience - GE refusing to process a tax return with income less than 500k (they have higher threshold than 120k in other cantons)

Maybe it varies by municipality, higher taxing ones should be more accepting as they get more tax in general in this way

Thanks for all of the informations. The only one problem is there is a little too much for an unsophisticated investor like me so I will try to resume what I extracted from this read.

From what I have understood for a Swiss resident the best is to invest in Ireland located ETF as it seems to be both the simplest and most efficient in term of taxes on dividends.

So if I am correct I should make a special effort to select those Ireland based funds. Vanguard.ch seem to offer only Ireland based ones:

https://www.vanguard.ch/privateinvestors/individual/investments/en/product.html#/productType=etf

When I buy VUSA though, e.g., Postfinance do I need to be extra careful to pick the proper Irish incarnation of the fund or is it even possible to make a mistake?

US-based funds are most tax efficient in terms of dividend taxes among funds for US or world equities. 0% withholding at fund level for all US stocks, and 15% on a payout to you with W8-BEN, reclaimable as a tax credit for your swiss taxes here

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As explained by hedgehog, it’s better to buy the US based ETF.
Concerning VUSA, be careful to buy the one which is traded on the SIX echange in CHF.
Vanguard ETFs are traded on multiple exchanges with different currencies

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I disagree here: for any ex-US part of a n ETF, the IE-based solutions have usually less tax burden when recieving dividends from the respecive companies. then, US based funds even add 15% (30% if you don’t do right) which IE based funds don’t.
example: VWO vs VFEM (FTSE EM) where the US based version ~triple the amount of losses due to taxes

source my spreadsheet and source bogleheads

1 Like

[quote=“nugget, post:37, topic:67”]
I disagree here: for any ex-US part of a n ETF[/quote]
I only mentioned US and world, where US is a significant weight

Only if you’re taxed at source and can’t claim the taxes back by filing swiss tax return, in which case total withholding taxes is all you care about.

With ordinary taxation, fund-level withholding taxes are a loss and withholding on fund’s distribution is absorbed into your swiss taxes that you have to pay on fund’s distribution.

3 Likes

Dear Nugget,
is your excel https://docs.google.com/spreadsheets/d/1RihdVwvASX10avz57qIhSan4rI7qzzL2MpW9IbKJ3y4/edit#gid=0 right? MSCI EM IMI should have L1DW some percentage and not zero, no?
Thanks!
Miuko

@nugget thanks for the great knowledge post. BTW, I saw the dividends are not equal so I corrected it. By the way, do you have a backup of that google sheet? Just in case of some troll?

I see that according to the sheet, the total cost for both VT and VWRL is around 0.50%. Now, do I understand correctly, that up to 0.3% can still be saved on VT if you send the DA-1?

The sheet shows nicely how the TER doesn’t matter that much, the taxes are the bigger costs.

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