The $60'000 cap for US investments

I may be a bit late to the party but I’m also very interested in this topic. Especially I’m asking myself, if having any cash or any assets in a U.S. Broker account like IB (although I’m not even sure if it’s not U.K. in this case), is also affected by the US taxes?

In the linked old Swiss-US-taxation treaty from 1952 it sais something like the following “Nachlassteile” are taxed:

[…]
c. Bewegliche körperliche Sachen (mit Einschluss von Banknoten oder Papiergeld
und von anderen am Ausgabeort als gesetzliche Zahlungsmittel geltenden
Geldsorten), die im Zeitpunkt des Todes des Erblassers tatsächlich im
anderen Staate liegen, und
d. Sonstige Vermögenswerte, welche die zuständigen Behörden der beiden
Vertragsstaaten übereinstimmend als in diesem anderen Staate gelegen betrachten.

So if I’m with IB and own an Irish ETF with US Companies (like the S&P 500) - does it really exclude me from the US estate tax?

I’m not a lawyer, so take this with a grain of salt and a waiver of liability. As far I know non-US-domiciled funds generally are not considered US situs assets.

Here’s a private IRS ruling with some analysis: https://www.irs.gov/pub/irs-wd/1003013.pdf. The key moments are these:

  • For corporations only shares of domestic U.S. corporations are considered U.S. situs assets - USC 2104(a).
  • It matters however whether your fund is considerer a corporation for U.S. tax purposes and not a trust - CFR 301.7701-1 to 301.7701-4. But AFAIK this should be normally the case.

Oh, btw note cash held at a U.S. broker is U.S. situs asset (debt obligation, 2104c), but not cash at a U.S. bank!

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Thank you @hedgehog

How can it be that we all need to be wondering about this and there’s noone who can tell how this really is? I asked about 3 tax advisers in the region of Basel about this and all of them didn’t know and couldn’t/wouldn’t tell me who I could ask for a definitive answer.

I’m not really wondering per se. Holding US stocks and ETFs is fine by me, much much cheaper to trade and hold than any european fund. Sold all my irish etfs last year and not looking back. As we discussed in this thread, US estate tax for swiss residents is only really a threat when your net worth approaches $5+M (but keep in mind prorating rules we also discussed).

I gave your the answer, seems clear enough to me. The minor technical detail to confirm that your chosen fund is really not a trust in U.S. tax sense you can clarify with fund’s marketing people directly. Or talk to a U.S. tax consultant or accountant - if you have a million or two already you can easily afford at least a skype consultation. Don’t waste time on swiss - the few that I’ve seen are barely compenent even in swiss taxation except for routine cases and break already on DA-1, and people competent in both tax systems are endangered species. International taxation can get pretty complicated.

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You are probably right. I have the same experience with swiss taxt consultants :unamused:

My net worth is not even close of approaching a $1M - I’m just the type of guy who likes to understand what he does and try to rely on professionals :slight_smile:

Thanks!

(My choice of ETF is VOO btw.)

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Hi, interesting thread. I chose to stick with the European ETFs because of the following reasons:

  • don’t trust USA
  • afraid of complex tax issues, which may change in future
  • afraid of estate tax
  • buying ETFs in CHF by a Swiss broker is easier (no transfers abroad, no fx)
  • don’t need to bother about tax reclamation
  • estate tax treaty works only for a couple of countries
  • I am a Swiss resident now, but who knows about the future
  • keep it simple as a long term solution

However, I cannot stay blind to advantages of investing in US directly:

  • lower fees with IB
  • lower TER and better choice of ETFs
  • ability to offset the withholding tax with my swiss taxes (is this really so easy and doable in every canton?)
  • when I compared annual return of VT and VWRD over the last 5 years, according to Bloomberg the difference is 0.5%, how can it be so big?

So you too went first for the Irish ones? Why did you do it in the first place? May I ask what ETFs did you use to hold and which ones you hold now?

Didnt really think of taxes at first, and then tried to play around with accumulating ETFs and wash selling them before the day X when fictional taxes are due. In the end decided it’s too much hassle, tax uncertainty and don’t bother with them now

VTI, VEA

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VT has more small caps than VWRD. They don’t follow the same index. That’s one of the reason for the difference you see. You can see it here:
http://www.ftse.com/Analytics/FactSheets/Home/DownloadSingleIssue/GAE?issueName=GEISLMS

VT follows global all cap
VWRD follows All-World

and then you need to add the variability caused by:

  • securities lending
  • tracking error
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Could you please cite the sentence asserting that? Legalese is incomprehensible to me and I can not find it. Thank you

It’s only two pages and you’ve been already given the hint that the answer is there. You can do it, believe in yourself!

If not, I believe going rates for a job like this are 200-300 Fr/h

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I guess the relevant part starts here:

Article III: In imposing the tax in the case of a decedent who at the time of death was not a citizen of the United States and was not domiciled therein, but who was at the time of his death a citizen of or domiciled in Switzerland, the United States shall allow a specific exemption which would be allowable under its law if the decedent had been domiciled in the United States in an amount not less than the proportion thereof which the value of the total property (both movable and immovable) subjected to its tax bears to the value of the total property (both movable and immovable) which would have been subjected to its tax if the decedent had been domiciled in the United States.

Legal bla-bla to layman terms translation

If you die and at the moment of death:

  • you are not a citizen of USA
  • and you are not living in USA
  • and you are a citizen of Switzerland
  • or you are living in Switzerland

Then you will pay as much tax, as if you have been domiciled in USA.

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Btw, an update on amounts - with Trump’s new tax law estate tax exemption limits got raised from $5M to $11.2M from 2018 (or even $22.4M for couples under some curcumstances)

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To get the treaty exemption is easy. To get the regular U.S. tax free exemption, your estate needs to file a U.S. tax declaration. All values above a certain very low sum need professional estimates. Then the usual translations / notarizations.

Edit, with more links at the bottom of the site

https://www.irs.gov/individuals/international-taxpayers/some-nonresidents-with-us-assets-must-file-estate-tax-returns

@Bojack: I understand you changed your mind then?

I have seen this 60k issue several times since reading the forum. Have you managed to clarify it since last year. Let’s say you invest 100k on VOO in the US, what would happen from a taxation perspective?

What the f*k was there to clarify? I said quite affirmatively that $60k doesn’t matter and never doubted it. Yes some people are apparently (still) confused, read the whole thread and/or the treaty itself (it’s only 2-3 pages of plain old fashioned English) for more info and make up your own mind about it

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Apologies for the wrong formulation. I did read the thread but was not sure of the exact conclusion since I read different views on the topic. My question was more on whether there was now, a general consensus on the topic. However, it is true that your answer was clear.

When we say that the old treaty applies, what does it mean exactly (what is inside the treaty?)

Bojack posted the most relevant quote from the treaty just a few posts above, if you have no time to read the whole thread read just that excerpt than. Yes, this treaty is still in effect and has been since the 1950s.

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Yeap read the thread and the article. To summarize, it would mean that if you want to avoid the tax you need to make sure that you get rid of the US fund before you die?

Not necessarily. If you were at the time of death a citizen of or domiciled in Switzerland, you’d enjoy same estate tax exemption limit as US citizens rather than the default $60k. I.e. $11.2M at the moment, but pay attention to pro-rata rule in the treaty.

If you manage to sell everything before dying (and get the cash out of US broker account as cash at US brokers is US situs asset), then US estate tax and its exemptions don’t concern you at all.

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