While I currently file a DA-1, the more I think about it, the more inclined I feel towards synthetic UCITS, where the fund receives the total return of the index via the swap contract.
The Xtrackers S&P 500 Swap II UCITS ETF (IE000HY30YW6, ticker X500) has a TER of 0.04% and is certainly available at Degiro.
Swap ETFs carry counterparty risk but UCITS regulations cap this exposure at a maximum of 10% of fund assets. In practice, large providers like Xtrackers reset the swap frequently to keep the exposure well below that cap.
the ETF->investors parts we can get back with DA-1, but the shares â ETF we generally canât back. However, if the shares and ETF are from the same country there generally arenât withholding taxes (or the ETF can get them back), and hence it is beneficial to use a US ETF for world ETFs seeing how much of the world market cap is US.
Thanks! I looked at the post. Unfortunately, my simple mind could not get fully around it. So I got stuck with one quote from that post:
This seems to contradict with your statement:
I see that that @Dr.PI is talking about total costs, while you talk about tax efficiency. So maybe thatâs the difference. In any case, happy to listen to an explanation for a simple mind
Check the tables further up in that other thread, the total cost differences for ex-US are practically zero outside of potential TER differences. Dr.PI mentioned that UCITS ETFs donât have a total cost advantage, not that they have a (significant) disadvantage.
Buying US-domiciled ETFs with ex-US stocks effectively takes 15% of the dividends from the Swiss government and gifts it to the IRS for no reason. The total personal tax is the same, if you get the full DA-1 credit, which might not always be the case, especially if youâre planning to retire early. Overall there are only disadvantages with US-domiciled ETFs holding ex-US stocks (assuming equivalent UCITS ETF with similar TER is available), even if the total personal cost may be very similar in many cases.
I can understand using US-domiciled ETFs for US and world funds and for funds where there simply is no good UCITS equivalent, but I definitely prefer and recommend not involving the US on any level for purely ex-US stocks.
Personally I keep life simple and I donât invest in synthetic ETFs. Most likely at some point in time they will attract tax anyways if Swiss authorities decide to deep dive
(Virtual) dividends of synthetic ETFs are already taxed in Switzerland. There is no advantage from a Swiss tax perspective, to my knowledge. The advantage is that you donât lose 15% WHT to the US, which may or may not change.
Some countries have lower L1 withholding when held by US-domiciled ETFs. If you have a particularly high allocation to these countries, a US ETF may be better. However, the difference is very small on average for ex-US.
The tables unfortunately donât contain All-World ex-US (yet).
Look further, where I incorporated level 1 and 2 withholding taxes and TER into calculations. There is also an Excel sheet with some example calculations, which might help you to factorize all these effects.
Why not just point me to the relavant post instead of letting me scroll though 62 posts âŠ
In any case, I think I have found the relevant post:
Maybe Iâm missing something. But in this table, there are only two ETFs that have a lower total yearly investing cost in their IE version (MSCI Europe and MSCI EMU (Eurozone)) Every other ETF is cheaper in its US version. So I still donât understand why I should choose UCITS except for a pure Europe ETF. Of course I ignored the 3a pillar completely.
Only if you get back L2 US withholding tax, typically. And if you have a big debt (mortgage), you donât . But it is expected to change, so the game will go into the next roundâŠ
Yes. If/when you get a DA-1 credit for US WHT, Switzerland (partially or fully) reimburses you for the 15% US WHT that got deducted by the broker due to receiving dividends from a US ETF (or stock). Switzerland is required to do so based on the double taxation agreement with the US, but that money is a loss in tax revenue from the perspective of the Swiss government. The US keeps the 15% WHT no matter what. If you get a full reimbursement from Switzerland, itâs financially neutral from a personal perspective (hence no difference when comparing total costs), but itâs still a loss in Swiss tax revenue. If you only get a partial reimbursement, itâs a partial loss for both, you personally and the Swiss government.
For US stocks / US ETFs holding US stocks, this may be considered reasonable. In any case, itâs unavoidable when investing in US stocks, outside of synthetic ETFs. However, for a US ETF holding ex-US stocks, it seems unreasonable to me for the US taking a big cut, and it is easily avoidable in many cases via IE-domiciled ETFs.
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itâs the best of everything (synthetic + physical mix)
. But it is expected to change, so the game will go into the next roundâŠ