Several times I have read on the blog or forum that US ETFs are the most tax efficient investment strategy. But why?
Thanks to the double tax treaty, 15% instead of 30% withholding tax (Quellensteuer) is levied on US ETF dividends, but you can claim it back in your Swiss tax return via DA-1. However, the same applies to Swiss stocks or ETFs, whose 35% withholding tax (Verrechnungssteuer) can be reclaimed in full. Both US and Swiss dividends are subject to income tax (Einkommenssteuer). The capital gain is not taxed directly, but due to the higher wealth, a higher wealth tax is also due (Vermögenssteuer).
In which respect are US ETFs more tax efficient? And superior to dividend stocks, for example? What have I forgotten?
itâs most efficient for the u.s. part of an etfâs holdings, not most efficient in general. and itâs comparing to other etf domiciles, not direct stock holdings. letâs say 50% of an etfâs holdings are u.s. stocks and these have an avg dividend yield of 2%. if the etf is ireland-based, you âloseâ 15% of 2% of 50%, i.e. 0.15% in total.
I love examples, and the link OP posted actually shows a good example (as well as a solid explanation) - see under âDas beste alternative Fondsdomizil fĂŒr US-Aktienâ, comparison of returns of US and IE domicile ETF on S&P500, for a Swiss investor.
Bearing in mind that the substantial advantages only applieds to dividends from U.S. stocks (@oslasho beat me to it)âŠ
Itâs not about Swiss âVerrechnungssteuerâ tax - itâs about U.S. tax.
U.S.-domiciled funds holding U.S. stocks will effectively receive dividends from them in full. 15% U.S. withholding tax (with W8-BEN) will be withheld when the fund distributes to you - and that can usually be offset against your Swiss income tax.
Europe funds holding U.S. stocks will receive dividends from these companies less 30% (or 15% U.S. for Irish funds) U.S. withholding tax. If itâs a Swiss fund 35% Swiss withholding tax will also be withheld when the funds distribute to you. You can reclaim the latter, but not the U.S. withholding tax paid by the fund.
In short: With the U.S. fund, U.S. withholding tax will only be charged when it pays out (distributes) to you. And you can offset that against your Swiss tax.
With the Irish fund, U.S. withholding tax will be charged when the fund receives dividends - and you canât claim back or offset taxes paid by the fund n your Swiss tax return.
This. Same applies to Japan or Canada, in case you invest in those.
You mix up different topics. Withholding tax is one. Another is that dividends are taxed, capital gains are not. So one might decide to go for growth stocks with low dividend payments.
But thatâs another risk profile and I wouldnât make investment decisions like that based on taxation.
I didnât check the numbers but guess the SMI has a higher dividend yield compare to the US market. But thatâs due to of the mix of companies, not the location.
Hey @Dr.PI , are these pure dividends from profit? In Switzerland more and more companies share half of the dividend from capital reserves. âDividenden aus den KapitalÂeinlageÂreserven (KER)â. These are tax free. I wonder if we know from that 2.96% how much is from KER and thus tax free.
Thanks, havenât thought of ictax. Since I donât have taxable swiss securities, I didnât thought of using it to check the fraction of capital redistribution. Seems low enough not to be a big deal. It can be at maximum 50% of the dividend.
These are index yield, calculated by MSCI, no taxes whatever applied.
I donât think there are many other countries that have non-taxable distribution of capital reserves. So I donât think MSCI cares about it.
From what I remember reading some time ago, this is actually kind of loophole that is getting more and more difficult to use because of the changing regulations. Happy to be corrected.
It is more complicated than that. The general case is that now they have to distribute an other taxable dividend of the same amount from their acumulated earnings if they donât want their shareholders to pay taxes on 50%, so virtually all companies will use their earnings for an other dividend. That means that their reserves from capital contributions will last twice longer, which is probably why it can give the impression than more and more companies do it. The total tax-free amount distributed will be the same as before.
Some companies can still pay a 100% tax-free dividend from their reserves from capital contributions if they have losses on their balance sheet. Other companies will also reduce the nominal value of the share to distribute it tax-free
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