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.
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.
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