W-8BEN on your own & 30% withhold

Hi,

I’m all in IB, but I’d like to move some positions to PostFinance to diversify on the broker side. I only own US ETFs. I have some questions:

  1. Is PostFinance a qualified intermediary?
  2. If not, can I fill a W-8BEN on my own to avoid a 30% withhold?

Thanks a lot :slight_smile:
Frank

i think no and no. Swissquote might though.
What are you afraid of with IB?

  1. IB is rated BBB+; PostFinance is AA+
  2. Country differentiation
  3. Random compliancy checks may block funds for months/years

I agree with points 1 and 2.

Could you please develop a bit the 3rd? Do you have some examples? Some information about that?
Is a bit scaring what you described :frowning:

US government may want to investigate you for some reason (tax, compliance, crime, etc.). Even bullshit reason. In that case, your funds may be blocked until settled. Do you want to take that risk with ALL of your savings? Me not

My original question would also extend to TradeDirect (backed by BCV, AA rated). Are they Qualified Intermediaries?

I agree. In a perfect world i would not deal with the us gov…but overall IB is the best solution. Let me know if you find something else!

Is that risk zero or considerably lower with a swiss broker?

If you’re going to buy US ETFs, they are held in the US regardless of the broker. Both PostFinance and IB will keep them at american DTCC.

These ratings are about broker’s own creditworthiness. IB as a low cost broker doesn’t generate a whole lot income hence I suppose why it’s seen more risky to loan money to. But as a customer your assets are normally segregated and firm’s credit problems don’t concern you.

4 Likes

Thanks all for the comments. I think that credit rating is super relevant: creditworthiness is lower if likelihood of bankruptcy is higher, and we all do not want bankruptcy of our broker (yes, even if assets are segregated, I’d prefer it not to happen).

Regarding the 30% whithhold with a Swiss Broker (PostFinance): it seems that I’ll be able to reclaim the whole 30% back, by filling two forms: DA-1 (for 15%) and R-US 164 (for the other 15%). So, investing in a Swiss Broker which is not a qualified investor would not be a real issue, as at the end you’d get the whole 30% back. Reference.
Do any of you have a direct experience with getting back the whole 30% withhold?

Are you sure you’re not mixing things up? AFAIK all Swiss brokers would have 30% withholding because of the supplementary USA withholding, in practice you’d get it all back through DA-1 (there’s a special handling for those US extra withholding there).

edit: I see Vaud does it differently, Zurich has it all on the DA-1

Are you sure? R-US 164 seems to be a federal form: https://www.estv.admin.ch/dam/estv/de/dokumente/bundessteuer/formulare/2019/R-US-164-2019.pdf.download.pdf/R-US-164-2019.pdf

15% is withholding (US side, counts as a credit for CH taxes, due to double taxation laws) & 15% is additional withholding (by CH, will be reimbursed by CH)
I believe the problem is, that a not-qualified intermediary in CH will not / cannot give you a paper showing the 15% that has been withheld US side, so you can’t have it credited on your CH taxes.

If broker is not qualified, all 30% would be withheld in favor of the US. You get just 15% back from the swiss by filing DA-1, and have to beg IRS for the remaining 15% - by filing non resident tax return, and beware of tight deadlines, March or so.

“R-US 164” is only for the qualified intermediary case, when the extra 15% are withheld for the swiss (“Zusätzlicher Steuerrückbehalt”), and in many cantons (e.g. ZH) you don’t need it, instead you claim both halves of 30% directly with DA-1.

1 Like

It’s more like ‘likelihood of not paying back should the company ask for outside money for itself’, and IB notably has almost zero debt - https://www.morningstar.com/stocks/xnas/ibkr/quote - much better than any bank which would have rehypothecated your deposit ten times over.

Personally I believe diversifying risk across multiple brokers/custodian banks is always a good idea - and political risk in particular. I believe the risk of audits and subsequent account freezes are very real - particularly for US tax residents. It’s also worth noting that many stocks are held in street name rather than registered in your name, and as such are vulnerable to broker bankruptcy.

I don’t know that I would recommend PostFinance as a Swiss broker though. It only makes sense if you trade enough to use the CHF 90 annual custody fees which are credited towards brokerage fees. I recommend comparing total costs in any case. Also check into what it would cost you to move existing ETF shares to a Swiss broker. It may not be worth moving your existing positions at IB. Opening new positions with a Swiss broker going forward may be a better move.

Re the W-8BEN form, this lets you avoid half (15%) of the 30% US withholding tax as per the bilateral tax treaty. The other 15% is not recoverable as far as I know (someone please correct me if you are better informed). It may be recoverable for US tax residents, but I can’t speak to that.

1 Like

They are, otherwise swiss would have refunded them too. The thing is that it involves a lot of hassle - filing non resident US tax return, physically mailing it by deadline (March-April AFAIK) and cashing a cheque from them, this is not worth it for low 2-3 figure sums.

2 Likes

It doesn’t have to be recoverable. It counts towards your swiss taxes (due to double taxation), so if you pay 15% or more income tax you’re ok.

This seems to be right!

So, I called both Postfinance and TradeDirect.

TradeDirect is a QI and will do a W-8BEN. So I’ll have 15% withheld by US and 15% withheld by CH. It seems (but not sure) I should be able to recover both with tax return.

PostFinance is NOT a QI. So I’ll get 30% deducted by US. I’ll be able to get back only 15% from Swiss authorities, and need to go to IRS to get the remaining 15%.

I think that TradeDirect may be a good option for diversification: a bit expensive with 108CHF annual custody fee, but it’s “AA” rated and Swiss based, which is very good for diversification with respect to a US broker.

Also, I think that IRS tax return (for non-QI case) would be a lot of paperwork. Any experience on this?

Good thread!
Thanks!

And did you check Swissquote?

I know I should pay attention to this but it is both complicated and extra boring… I think I would need a step by step explanation for dummies… Or get some motivation.

Let’s say I have CHF 100’000 invested with Postfinance and CHF 100’000 invested with IB…

What do I lose every year by not doing the paperwork? Any ballpark estimation?

By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, vous confirmez avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/