Withholding taxes confusion

[Victor]

Hi everybody,

I do have little experience with withholding taxes in Switzerland, and I’ve just finished reading the article on mustaschian website about withholding taxes, and some points are still not clear to me.

• He said that US ETF is better than the Irish ETF, because with the Irish ETF you lose 15% withholding tax on US shares, which with VWRL are around 60% of the fund. But, if I’m not wrong, with the U.S ETF VT you lose X%(I dont’ know how much, I assume 15%) withholding taxes on not US equities, which are around 40%, still big number. If I’m not missing anything, in practice the Swiss investor lose 15% withholding taxes on 20% of equities of the fund, when compared to US ETF. Not very dramatic.
  Am I missing something?

• So, to understand better the taxation: I receive 100k from VWRL, on that income I suppose I already lose 15% withholding tax on 60% US shares, right? Then come the Swiss withholding tax of 35% on the 100k, and I receive 75k, and 35k will be deducted from my tax bill?

• Since I’m interested in receiving dividends as an income from my investments and I mostly use CHF, I prefer to have an Irish ETF which can be CHF hedged so I don’t need to exchange from USD to CHF. From what I understood, a lot of people consider CHF hedged ETFs being inferior to ETFs in USD, because on equities ETFs the hedging doesn’t have a big purpose. But when you need the dividends as an income, CHF hedging starts having sense, or not?
  Am I missing something?

[Dr.PI]

Start here:

Splitting the world

An N+1st attempt to summarize information helping to optimize taxes arising from investments with ETFs. Some preliminary comments: I am going to mostly refer to MSCI indices. Their definition/composition can be found at msci.com (search for pdf factsheets). MSCI ACWI is all-countries index: 50 countries, 23 Developed Markets, 27 Emerging Markets. An up to date country weights can be found at ACWI | SPYY : SPDR® MSCI ACWI UCITS ETF (see Holdings → Geographical Weights).

The exact numbers have changed, but the qualitative picture is intact.

@Victor

But, if I’m not wrong, with the U.S ETF VT you lose X%(I dont’ know how much, I assume 15%) withholding taxes on not US equities, which are around 40%, still big number.

You lose them with a US ETF, but you also lose them with a IE ETF.

@Victor

Then come the Swiss withholding tax of 35%

No. This exists only for securities domiciled in CH. No withholding tax on dividends distributed by IE domiciled funds.

@Victor

I prefer to have an Irish ETF which can be CHF hedged so I don’t need to exchange from USD to CHF.

That is a poor excuse. There were some examples in the forum. With a very good dividend yield of 2% and a bad exchange fee of 1% you are losing 0.02% of your fund value per year on currency conversion. CHF hedging will hurt you more.

@Victor

But when you need the dividends as an income, CHF hedging starts having sense, or not?

No idea but I would say not. Hedging doesn’t save you from stocks drawdowns.

[nabalzbhf]

@Victor

But, if I’m not wrong, with the U.S ETF VT you lose X%(I dont’ know how much, I assume 15%) withholding taxes on not US equities

That’s where DA-1 allows you to reclaim the US withholding (there’s some caveats though, check one of the many threads).

@Victor

so I don’t need to exchange from USD to CHF

Exchanging currencies is pretty trivial (and really low cost depending on your broker). In any case it’s independent from currency hedging (and tbf I don’t even know how hedging impact dividends since it’s not taken into account when they do the hedge).

Hedging costs are currently 1.5% for USDCHF pairs, even very expensive brokers won’t cost as much to convert (and a cheap one like IB costs like 0.02% or less).