Taxed at source and Dividend/investments strategies?

[steph]

Hello everyone and congratulation on a super-useful forum

I recently moved to Zurich and planning my investment strategies for the next years. I have a B permit (IT citizen), and income at 98k . That puts me in the category of people taxed at source . If I understood well I do not need to file any tax form, but I could if I believe that deductions and a refund could be worth it . I plan to fund a portfolio of index funds + some bonds + small fun component of picked stocks

I am debating between these two different scenarios:

• keep on not filing any tax declaration form : this means that all dividends are taxed at Swiss rate by the broker ( I plan IB and PostFinance) but I might be losing some money in over-taxing on the US/EU-domiciled ETFs (correct?) What about other products, e.g. bonds? I’m not too expert on bonds but are the gains taxed by the broker automatically ? Do they pay out income at regular intervals like dividends? In general, are there relevant investments product that would minimize the dividend/taxed component? Should I just load my pillar 3?

• facing the tax declaration forms and filing it : is this something I need to spend a lot of time to be educated on? I speak very elementary German, I wouldn’t want to do mistakes but at the same time I don’t think it is worth to pay an advisor to do it. I do not think I have any other relevant deductions other than owning some VT or similar. So I am not sure at what point it becomes worthy to go through this process rather than just try to optimize the investments to have a lower component that is taxed by the broker.

SInce I am here I will add a small question on an index fund, unrelated to taxes (sorry if it’s off topic): I noticed there is a CHF version of VWRL, is it more efficient to own that rather than doing currency conversion and buying VT or original VWRL? I’m thinking not only at conversion fee but also on CHF being a more solid currency in the long term vs. e.g. the USD .

Thanks a lot in advance for your help

steph

[jay]

@steph

f I understood well I do not need to file any tax form, but I could if I believe that deductions and a refund could be worth it .

If your taxable net worth (e.g. cash, portfolio, real estate) is at least CHF 80’000 or if your untaxed income (e.g. dividends, rental income) is at least CHF 3’000 a year, you’re required to file an ordinary tax declaration even if your income is below CHF 120’000. If/when that’s the case, you need to request ordinary tax assessment by the end of March following the tax year.

@steph

keep on not filing any tax declaration form : this means that all dividends are taxed at Swiss rate by the broker ( I plan IB and PostFinance) but I might be losing some money in over-taxing on the US/EU-domiciled ETFs (correct?)

Swiss withholding tax (35%) is only applied to dividends of Swiss-domiciled investments. E.g. no withholding tax is applied to dividends from Irish ETFs but they count towards the above CHF 3’000 limit at which point you have to file a tax declaration. For other EU-domiciled ETFs it depends on the country.

For US ETFs it depends on the broker. You may get 15% or 30% US WHT deducted and for Swiss brokers with a 15% US WHT deduction you get an additional 15% deduction from Switzerland. These dividends also count towards the CHF 3’000 limit (at least in the case without the additional 15% deduction).

@steph

I’m not too expert on bonds but are the gains taxed by the broker automatically ? Do they pay out income at regular intervals like dividends?

Bond interest payments (and bond ETF dividend payments) work very similarly to stock/ETF dividend payments. Swiss withholding tax (35%) on Swiss-domiciled bonds (this may be eliminated in the future). For foreign bonds and bond ETFs it depends on the domicile of the security. The foreign withholding tax rates may differ between stocks and bonds.

@steph

Should I just load my pillar 3?

You can deduct pillar 3a contributions only if you file a full tax declaration.

@steph

facing the tax declaration forms and filing it : is this something I need to spend a lot of time to be educated on? I speak very elementary German, I wouldn’t want to do mistakes but at the same time I don’t think it is worth to pay an advisor to do it.

The first tax declaration may take some work, however, the following years should be fairly simple if there aren’t fundamental changes (such as buying real estate). If the first tax declaration is too daunting, it’s also an option to pay a tax advisor for that first declaration and file taxes yourself in following years (using the first tax declaration as reference). If your tax situation is not complex, it shouldn’t be expensive.

@steph

I noticed there is a CHF version of VWRL, is it more efficient to own that rather than doing currency conversion and buying VT or original VWRL? I’m thinking not only at conversion fee but also on CHF being a more solid currency in the long term vs. e.g. the USD .

The trading currency of an unhedged ETF such as VWRL does not affect the performance at all. The only differences are trading costs: currency conversion and possible differences in exchange fees/commissions and the bid-ask spread. If you use IB, the differences are unlikely to be significant.

[steph]

@jay

If your taxable net worth (e.g. cash, portfolio, real estate) is at least CHF 80’000 or if your untaxed income (e.g. dividends, rental income) is at least CHF 3’000 a year, you’re required to file an ordinary tax declaration even if your income is below CHF 120’000. If/when that’s the case, you need to request ordinary tax assessment by the end of March following the tax year.

Is the ‘ordinary tax assessment’ the terminology for the tax declaration? Or is it a different step? I couldn’t find much by googling

@jay

Swiss withholding tax (35%) is only applied to dividends of Swiss-domiciled investments. E.g. no withholding tax is applied to dividends from Irish ETFs but they count towards the above CHF 3’000 limit at which point you have to file a tax declaration. For other EU-domiciled ETFs it depends on the country.

For US ETFs it depends on the broker. You may get 15% or 30% US WHT deducted and for Swiss brokers with a 15% US WHT deduction you get an additional 15% deduction from Switzerland. These dividends also count towards the CHF 3’000 limit (at least in the case without the additional 15% deduction).

I see, thanks. So the refund one can receive through the tax declaration is the additional portion withheld by (Swiss) broker : 15% on US-domiciled or 30% on Irish for example. I understood from searching the forum that IB also withholds the dividends as if it was a Swiss broker, correct? So basically there is no way out of this, e.g. no way to receive dividends taxed by a broker at the “correct” rate.

@jay

The first tax declaration may take some work, however, the following years should be fairly simple if there aren’t fundamental changes (such as buying real estate). If the first tax declaration is too daunting, it’s also an option to pay a tax advisor for that first declaration and file taxes yourself in following years (using the first tax declaration as reference). If your tax situation is not complex, it shouldn’t be expensive.

Is there any recommended online guide/tool where I can educate my self? I think I will need to file for 2022

Thank you again! That was very helpful

[jay]

@steph

Is the ‘ordinary tax assessment’ the terminology for the tax declaration? Or is it a different step? I couldn’t find much by googling

It’s the name of the whole process of the tax authorities determining the tax amount based on your tax declaration. “Ordentliche Veranlagung” in German. You just have to file the tax declaration (and pay the bill) after switching to this process. I wasn’t referring to a separate step.

@steph

I see, thanks. So the refund one can receive through the tax declaration is the additional portion withheld by (Swiss) broker : 15% on US-domiciled or 30% on Irish for example. I understood from searching the forum that IB also withholds the dividends as if it was a Swiss broker, correct? So basically there is no way out of this, e.g. no way to receive dividends taxed by a broker at the “correct” rate.

No, the broker will never apply a personal tax rate. The only way to get the correct tax rate is to file a tax declaration.

For US ETFs IB withholds 15% for Swiss tax residents (on behalf of US IRS). Unlike Swiss brokers, IB doesn’t withhold an additional 15% on behalf of Switzerland. That’s the minimum possible withholding for US ETFs. For Swiss stocks or ETFs, 35% Swiss withholding taxes are withheld by all brokers worldwide, as far as I know.

The 35% you get back in full with your final tax bill if and only if you file a tax declaration (but you have to pay your regular income tax on these dividends instead).

For the 15% US WHT you can get a refund when filing a tax declaration and fill out the DA-1 form. There are some limits and caveats depending on your tax rate but you can avoid double taxation (US/CH) unless the amount is considered too small (minimum refund is CHF 100).

I don’t know where you see 30% withholding taxes on Irish securities. No withholding taxes are deducted from dividends of Irish-domiciled ETFs (ignoring withholding taxes internal to the ETF).

@steph

Is there any recommended online guide/tool where I can educate my self? I think I will need to file for 2022

The official guide is here: Steuererklärung natürliche Personen | Kanton Zürich. The “Wegleitung” is only in German, though. There is a “How to Fill in Your Tax Return” in English with translations of important terms. There is also some information here: Tax return: Completing it, declaring your income. There might be better guides.

[Dr.PI]

This I find useful.

Tax declaration - mypersonalfinance.ch