Tax with ETF from US, Ireland or Swiss

[Minimalistefrugaliste]

Hi everyone.

I tried with my tax program. From my canton in Vaud. Do a simulation if I have a ETF from US, Ireland and Swiss.

I calculate how much I will pay with tax if a have a ETF from US, Ireland or Swiss.

I will write that my conclusions. And Don't worry for to write me if I'm wrong.

With ETF from Switzerland. I did tax 35% anticiped tax.

With etf form Ireland. I didn't tax

With ETF from US. I did tax 15% US tax + 15% anticiped tax = 30% total.

But...

I'm surprised with the taxe. Because I understood that I Paid. It's the same with the 3 ETF.

Actually, even the tax are different with the 3 ETF. I paid the same money in dividend tax.

Do you know if I'm right? I always think that US dividend it's the cheapest in tax.

thank you

 

[Baptiste Wicht]

Hi

Excellent question and test!

Your findings are correct, but your conclusion is not

WIthholding is the same on the Swiss level:

1. 35% for Swiss ETF
2. 0% for Ireland ETF
3. 30% with a US ETF

However, you are missing two points:

First, you can reduce the withholding to 15% on US ETFs by filling a W8BEN form (IB does it well). And you reclaim this 15% on your DA-1 form.

Second and more important, the tax efficiency of US ETFs comes from withholding abroad. And it only matters for US dividends. If you use an Ireland fund with US stocks (like S&P500), the US will tax 15% at source (at the fund level), so you will not see these 15%, they are gone and you cannot reclaim them. With a US ETF, this withholding is done at your level, so you can reclaim it.

So, by using US ETF over an IE ETF, you are savings 15% of US dividends.

 

[AGZH86]

Hi

Excellent question and test!

Your findings are correct, but your conclusion is not

WIthholding is the same on the Swiss level:

1. 35% for Swiss ETF
2. 0% for Ireland ETF
3. 30% with a US ETF

However, you are missing two points:

First, you can reduce the withholding to 15% on US ETFs by filling a W8BEN form (IB does it well). And you reclaim this 15% on your DA-1 form.

Second and more important, the tax efficiency of US ETFs comes from withholding abroad. And it only matters for US dividends. If you use an Ireland fund with US stocks (like S&P500), the US will tax 15% at source (at the fund level), so you will not see these 15%, they are gone and you cannot reclaim them. With a US ETF, this withholding is done at your level, so you can reclaim it.

So, by using US ETF over an IE ETF, you are savings 15% of US dividends.

are you sure you need a W8? in kt AG if i reach 100 chf of withholding tax on US with-tax, they give it back to me, but i just need to declare the dividends. first time i see i need to do a w8?
if i don't reach 100 chf, they reduce the dividends by 15%, so i don't get anything back, but income is reduced too

 

[Baptiste Wicht]

You should always do a W8BEN, but you only need to do it once. Without it, you will get 30% withholding. The W8BEN is with your broker.

Below the 100 CHF in reductions, it's still better to pay 15% withholding than 30%, no?

 

[AGZH86]

You should always do a W8BEN, but you only need to do it once. Without it, you will get 30% withholding. The W8BEN is with your broker.

Below the 100 CHF in reductions, it's still better to pay 15% withholding than 30%, no?

I'm looking at my IB statement from 2023.
dividend: 37.08
w tax: 5.56

seems 15% to me?
what am i missing?

 

[Baptiste Wicht]

If you are already getting 15% withholding, you already filled the W8BEN! It's often filled as part of onboarding if you do it correctly

 

[AGZH86]

If you are already getting 15% withholding, you already filled the W8BEN! It's often filled as part of onboarding if you do it correctly

thanks! actually i think that if you get 30%, you still could enter in easy tax that the 30% deduction, at least i have this option, but i've not verified in detail

 

[FrankieS]

You should always do a W8BEN, but you only need to do it once. Without it, you will get 30% withholding. The W8BEN is with your broker.

Below the 100 CHF in reductions, it's still better to pay 15% withholding than 30%, no?

I think the W8BEN must be renewed every 3 years (at least with my former U.S. TD Ameritrade account)

 

[Baptiste Wicht]

I think the W8BEN must be renewed every 3 years (at least with my former U.S. TD Ameritrade account)

Oh, you are right. I looked on their documentation and it's indeed clearly stated that each W8 form is valid for 3 years only. Thanks!

 

[AGARO74]

Dear All,
Thanks a lot for all and Baptiste in particular for all the articles and analysis.
I still struggle to understand something with the US-listed ETFs.
I'm a Swiss resident and have opened a IB account to start building a long term ETF porfolios. I've filled my W8Ben upon account oppening.
Some ETF will target predominantly US companies, some will be more focused on Asia, Emerging markets, or certain sectors.
You recommendation Baptiste is to go for US listed ETFs to benefit from larger capitalisations and optimise Dividend paiments with the 15% withholding tax that you can get back. BUT, if I'm not mistaken, I will then be taxed on my dividends in Switzerland at my marginal tax rate.
Most US-listed ETFs are with Dist shares only, not Acc.
Would it not be preferable to invest in European-listed ETFs, such as Ireland which offer Acc shares ? I will then not benefit fully from lower withholding taxes on US dividends, BUT my taxation in Switzerland, not receiving any income from my ETFs, should be zero. Then if I need liquidities I can sell some of my ETF and not be taxed as it will qualify as Capital Gain which is generally not taxable in Switzerland for non professionals.
Am I guetting it totally wrong ?
Thanks so much for your views !

 

[Baptiste Wicht]

Welcome the forum @AGARO74

BUT, if I'm not mistaken, I will then be taxed on my dividends in Switzerland at my marginal tax rate.

Correct

Most US-listed ETFs are with Dist shares only, not Acc.

Correct

Would it not be preferable to invest in European-listed ETFs, such as Ireland which offer Acc shares ?

And incorrect In Switzerland, you are taxed the same on accumulating and distributing ETFs. If you have an accumulating ETF, you will be taxed on the dividends that the fund received, even though it did not distribute them to you.

Distributing Funds Vs Accumulating Funds: Which Is Better? - The Poor Swiss

Distributing Funds are sending the dividends to investors while Accumulating Funds are directly reinvesting them: Which is better for you?

thepoorswiss.com

 

[AGARO74]

Welcome the forum @AGARO74


Correct

Correct

And incorrect In Switzerland, you are taxed the same on accumulating and distributing ETFs. If you have an accumulating ETF, you will be taxed on the dividends that the fund received, even though it did not distribute them to you.

Distributing Funds Vs Accumulating Funds: Which Is Better? - The Poor Swiss

Distributing Funds are sending the dividends to investors while Accumulating Funds are directly reinvesting them: Which is better for you?

thepoorswiss.com

Dear Baptiste, thanks so much !
Understood. I hope reporting of all the dividends by transparence on the various ETF held will not be too cumbersome as I hold them via IB but also via other platforms in France and the UK due to my prior life in this countries and not sure getting all the details of what is paid in dividends by Acc ETFs is that easy …

 

[AGARO74]

Welcome the forum @AGARO74


Correct

Correct

And incorrect In Switzerland, you are taxed the same on accumulating and distributing ETFs. If you have an accumulating ETF, you will be taxed on the dividends that the fund received, even though it did not distribute them to you.

Distributing Funds Vs Accumulating Funds: Which Is Better? - The Poor Swiss

Distributing Funds are sending the dividends to investors while Accumulating Funds are directly reinvesting them: Which is better for you?

thepoorswiss.com

Hi again,
And second comment : we then agree that to invest in Asia via ETFs, there is no particular benefit to go with US domiciled ETF and a good ETF with IE Fund Domicile could do the job as well ? Not particular tax considerations there … ?

 

[Baptiste Wicht]

Understood. I hope reporting of all the dividends by transparence on the various ETF held will not be too cumbersome as I hold them via IB but also via other platforms in France and the UK due to my prior life in this countries and not sure getting all the details of what is paid in dividends by Acc ETFs is that easy …

Reporting should be fine with multiple brokers.

The only thing you need to check is that each of the ETF must be reported in ICTax. If not, you will have to request that they add it, otherwise you may have issues since full capital gains may be taxed as dividends (very rare case).

And second comment : we then agree that to invest in Asia via ETFs, there is no particular benefit to go with US domiciled ETF and a good ETF with IE Fund Domicile could do the job as well ? Not particular tax considerations there … ?

There is a special dividend withholding for Japanese stocks, I believe. The US has a treaty with them, so buying through a US ETF is efficient. But since this does not make a huge portion of the stock I did not delve in detail into it.