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?
Having a world ETF brings this kind of complexity. That’s why I prefer to separate by region and handle the withholding tax by region. The US part can be directly recovered with the tax declaration if it is a US ETF as discussed in other threads. So does the Swiss part and so on.
For hedging I also think that hedging equity does not make sense.
But it doesn’t mean you can’t have a hedge strategy for the dividends anticipated to come in the next couple of years. This would probably look like what companies are doing to hedge their cash flows in foreign currencies. It brings a bit more security to see things coming in the next five years for example.
The exact numbers have changed, but the qualitative picture is intact.
You lose them with a US ETF, but you also lose them with a IE ETF.
No. This exists only for securities domiciled in CH. No withholding tax on dividends distributed by IE domiciled funds.
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.
No idea but I would say not. Hedging doesn’t save you from stocks drawdowns.
That’s where DA-1 allows you to reclaim the US withholding (there’s some caveats though, check one of the many threads).
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).