hey,
it is quite some time back when i had my mind deep in that stuff. it’s basically rephrasing the according bogleheads articles.
hm, backup, good point ill make one.
as dividends vary over the years, you can play around, this is no precise information, only guesswork.
assuming tthe DA-1 works (i never did it but there is no reason that it should not): yes, the 15% L2WT would be credited for overall income taxation, effectively lowering it to zero. this corresponds to 0.3% saving. This represents the optimal way to go in the VT/VWRD topic.
yes, astonishing but true in the low-cost-area of ETFs.
no i don’t know why i left L1TW epty, probably because i was too lazy to calculate it. please, go ahead and read the topic on bogleheads, then you should be able to calculate it & fill it in.
L2TW is zero because as an IE domiciled fund, you as a swiss resident don’t pay any witholding taxes to ireland
Very informative – thanks! Can I ask about the liklihood of Capital Gains taxes withheld when not using a Swiss Broker (using IB, for example)? Upon the sale of shares with a realized gain on share price, are capital gains taxes withheld by the brokerage which could subsequently be reclaimed through my Swiss Tax Return? I am confused about this because I know capital gains for the sale of a property outside of Switzerland would still be subject to local capital gains taxes with no chance to reclaim, regardless of me living in Switzerland. Therefore I am trying to understand if such taxes are withheld based on my residency or based on the domicile of the brokerage or HOPEFULLY not all all! thanks
There should be normally no withholding for capital gains taxes for stocks. If you got some money withheld (e.g. in IRS backup withholding) you’re doing something wrong
I am confused about this because I know capital gains for the sale of a property outside of Switzerland…
Stocks are normally considered movable property and taxed at your tax domicile, unlike real estate
You usually have capital gains for selling real estate in Switzerland too, if you have the property for like less than X years. Only stocks, fund etf etc are capital gain free
Did I understand it correctly that buying an ETF like VXUS (international stock excluding US) in Ireland or in the US regarding taxation of dividends for a Swiss investor the same is ?
It seems like everyone is talking only about the US taxes. How about other developed countries? If you buy an ETF exUS with Europe and Pacific, what are the taxes on dividends there? What are the greediest countries to avoid?
It’s because the biggest and best ETFs are domiciled in USA. In Europe the most popular domicile for ETFs is Ireland, where the tax is 0%. But the tax is paid on three levels:
tax on the stock of the companies which are part of the ETF (like Apple - US, Nestle - CH, Toshiba - JP, Volkswagen - DE etc)
tax on the ETF (US, IE, CH)
final income tax that you will pay, and the ability to deduct what you already paid in point #2
for a sophisticated approach to the taxation topic, refer to my guide or the bogleheads source of my guide
as Bojack wrote, the majority of ETF is domiciled in US. any US domiciled fund that pays dividend to a swiss resident witholds 15% or 30% (depending on you broker & the W8-BEN issue) of the dividend. on top of that, the underlying assets (stock companies) first pay their dividends to the funds, where 0% is withold in case of US domiciled companies and many different percentages for all the countries that non-US companies are domiciled in.
then comes IE as second important Domicile, because any IE domiciled fund only witholds 0% of dividends paid to swiss residents. Typically IE has better tax treaties with foreign non-US countries than US, so the many different witholding percentages for all world wide non-US companies are on average lower than for US domiciled funds. US domiciled companies withold 15% of dividends when paid to IE domiciled funds.
oh its complex but make a drawing of this
there also exist FR & LUX as domicile countries, but i never saw numbers for these, and never actually intereting ETFs.
the very rugh summary of the above is
if your fund holds mostly US domiciled underlyings, go for and US domiciled fund
if your fund holds mostly non-US-domiciled underlyings, consider the IE domiciled fund
What I find puzzling is that there is no equivalent to VXUS in Ireland (All World ex-US). You have the VWRL which is no better than VT when you factor in the TER.
Hi @nugget, given the above, why did you chose VXUS/VSS for your ex-US investments (instead of iShares) ? Did you run some numbers ?
I’m still trying to understand which would be the best choice to complement my VTI…
sorry for not answering that long
the question was why i would opt for US-based VXUS/VSS and not some IE-based alternative.
i decided for the US-based versions because
they are from vanguard, which i consider is better than for example BlackRock (iShares), “conflict of interest”
they have much more positions than comparable ETFs, i.e. are stronger diversified
they are super cheap to trade, far greater volumes than IE-ETFs, and larger
noone has lower TERs than vanguard
there are a few cons that I, in total, valued less than the pros:
bulk risk of having all ETFs with one company (vanguard), in one domicile
for non-US ETFs, holding US versions has a chance of being taxwise inferior (for VWO (EM) this is not the case, see the number in the example) to IE ETFs. overall the difference is very small. if i find out that it is till too big, the cost of swiching the ETF is very small.
@nugget fantastic summary, thanks. Just to be precise: if I have VWRL IE based with CT, I don’t need to declare any DA-1, because there is nothing to gain, right? My losses are locked in during LW1T
I’d say yes, exactly.
one could try an manually calculate the LW1T losses from the fund annual reports and declare them with the DA-1. I have not deen any reports about this working out so far
Could you please explain what you mean that VWO is better than an IE ETF? From what I read on the forum so far it looks like ETFs which contain not US companies should better be IE as you avoid the unnecessary 15% US tax on dividends. What’s different here?
the difference here is that with the DA-1 procedure and with the CH-US double taxation treaty, both funds will make you end up with the same zero L2TW, and L1TW should be about the same as the latter is defined by the domicile countries of the underlying stocks. at that point, VWO has less TER and more stocks in the basket (=more diversification).
this tranlates into an overall very slight advantage for VWO. Beware, this advantage is really small.
i’m sorry i never calculated. if you want to dive deep you can do this according to my initial post/ the bogleheads wiki articles. if you do that, please report your findings!
Jeez, I wrote this in some post a few days ago. The Irish ETFs are for all the people who live in a jurisdiction without the bilateral deal with USA. Because then you need to pay 30% withholding tax and cannot reclaim it. That’s like extra 0.60% annual cost, sucks, right?
Here’s a Bogleheads wiki page dedicated to this topic (calculations apply to a domicile without tax treaty):
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ill make one.
