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Old 24.04.2017, 14:05
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Investment Advise

Hi
I was wondering where can I invest funds in CH.
Keeping money in the bank is quite useless because you dont earn any interest. I have invested in Emerging Market funds.
I was thinking whether it would make sense to invest in the US and what it would mean from a Tax perspective.
In terms of CH, what would be the best investment option?
Any advise is helpful. Did check a few threads in the forum ahead of posting this query.
Many Thanks.
R
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Old 24.04.2017, 15:08
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Re: Investment Advise

my back pocket.....
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Old 24.04.2017, 15:58
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Re: Investment Advise

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Emerging Market funds.
Personally, I don't like that index, there's too much financials and china who've been caught red handed too often cooking books and what not. I have much more confidence in highly policed US market

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what would be the best investment option?
A crystal ball?

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I was thinking whether it would make sense to invest in the US
It is expensive by many metrics, but if interest rates keep falling and people with printing presses keep buying, everyone probably would still have a good time!



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and what it would mean from a Tax perspective.
Dividends: fully taxed as ordinary income in Switzerland. Withholding tax on dividends: as long as you use a Qualified Intermediary non-swiss broker, US stocks/ETFs will withhold just 15%, which you can recover with DA-1 form on your swiss tax declaration.

Capital gains: 0% for swiss residents on securities in their private wealth, as long as tax authorities don't find you guilty of trading like a professional. Gains due to dividend reinvestment in accumulating funds however are taxable, and it's your burden to prove what's tax-free pure capital gains and what's income, so to avoid surprises better avoid them or use a fund that ESTV knows in its Kursliste.

US estate tax: normally most people could be in trouble w.r.t this tax if carrying more than $60k of US assets, but US-Swiss estate tax treaty stipulates same estate tax exemption for swiss residents as for US, so there you go, enjoy about a $5M exemption and then you can afford to ask your lawyer about it.

Last edited by ivank; 24.04.2017 at 16:59. Reason: Note on accumulating funds
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Old 24.04.2017, 16:07
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Re: Investment Advise

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Dividends: fully taxed as ordinary income.
Except if the OP is in BL, for some companies. See here: https://www.englishforum.ch/finance-...ble-value.html
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Old 24.04.2017, 16:11
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Re: Investment Advise

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Except if the OP is in BL, for some companies. See here: https://www.englishforum.ch/finance-...ble-value.html
That was about the stock's value for the wealth tax purposes, not income tax on dividends
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Old 24.04.2017, 16:35
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Re: Investment Advise

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That was about the stock's value for the wealth tax purposes, not income tax on dividends
Oh yeah - thanks for the correction! Still - good to know if you happen to pay wealth tax.
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Old 24.04.2017, 16:44
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Re: Investment Advise

Up to a certain limit, wealth tax is actually compensated by 0.3% pauschal deduction allowed for portfolio management.
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Old 26.04.2017, 01:04
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Re: Investment Advise

What if I have an accumulative irish ETF fund? I don't know a lot about taxes in Switzerland. I have a B visa and all my taxes are done automatically. Can I also aks for refunds like C visa holders can do? And second question, is it worth to use this type of ETF considering that they want to tax accumulative dividens?

I also think it's a bit amoral to push people to equity market with this low interest rates on bank deposits. The bullish market continues as P/E ratio rises above comfortable levels.
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Old 26.04.2017, 05:53
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Re: Investment Advise

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Can I also aks for refunds like C visa holders can do?
What refund? Distributing IE funds should have 0% withholding tax, and accumulating funds don't pay out at all. Non reclaimable withholding taxes at the fund level you can't get refunded even with a C, it's just lost

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is it worth to use this type of ETF considering that they want to tax accumulative dividens?
If you buy and hold long term, you shouldn't be worse off than with an equivalent distributing fund from same jurisdiction. But do check ESTV's Kursliste for the dates on which they're going to tax dividend reinvestment and buy only after such a date to avoid nasty surprises later.

I'd avoid Irish funds for a different reason though - they are losing at least 15% of US dividends in non-reclaimable withholding taxes. It's better to own US-domiciled ETF on US market which don't lose dividends in this way, US withholding is then done at the time when fund pays out to you and you can reclaim it if you file tax declaration here. If you don't have to and only taxed at source, even better, withholding rate for swiss residents is also just 15%, which is probably less than what you'd otherwise pay in ordinary taxes on them.

Last edited by ivank; 26.04.2017 at 06:15.
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Old 26.04.2017, 10:30
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Re: Investment Advise

Tnx for the info Ivan.

If I understand correcty I need to pay 35% tax on dividends. But I can later reduce it by 15% because that was already paid in the US. I just need to reclaim it through the tax declaration. Summa summarum, I'll be paying 20% tax on the dividends.

If I go with the IE ETF (acc or dis) I still need to pay 35% on dividends, but the US 15% are lost. IE ETF's are also more expensive (TER) so they have basicly no advantages over US ETF, right?
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Old 26.04.2017, 10:54
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Re: Investment Advise

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If I understand correcty I need to pay 35% tax on dividends.
No, tax rate varies and depends on your income.

That is assuming that you go through ordinary taxation in Switzerland, have to file tax declaration, and not solely taxed at source in which case withholding taxes might be all you have to care about.

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But I can later reduce it by 15% because that was already paid in the US.
No. You have to pay full swiss taxes on all your worldwide dividend income. But you can get those 15% which US withhelds credited towards your swiss taxes or outright reimbursed by the swiss government, thanks to double taxation eliminating US-CH income tax treaty.

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I just need to reclaim it through the tax declaration. Summa summarum, I'll be paying 20% tax on the dividends.
You'll be paying your ordinary swiss income tax rate on it. 20% sounds plausible. But keep in mind that swiss taxes are progressive, the more you earn, the higher everything is taxed, and so I personally prefer rather to think about the marginal income tax rate for tax planning - at what rate any additional income on top of your existing income is taxed. This can be easily much higher than 20%. A figure like 30-40% is entirely plausible. At 40% marginal rate, $1 of dividends would only land as $0.60 in your pocket after taxes, whereas same $1 earned as tax free capital gains is still worth $1 to you.

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If I go with the IE ETF (acc or dis) I still need to pay 35% on dividends, but the US 15% are lost. IE ETF's are also more expensive (TER) so they have basicly no advantages over US ETF, right?
Yes, very few advantages that I know of: IE funds can be accumulating unlike US, and IE funds are not considered US situs assets for purposes of US estate tax, even if they consist 100% of US stocks.

Last edited by ivank; 26.04.2017 at 11:28.
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Old 26.04.2017, 13:32
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Re: Investment Advise

That's gold. Just to see if I got it right. Because I have B visa my income is taxed at the source. So I don't have to declare anything, it will be taxed automatically: my salary + dividends (don't have anything else). Depending of the sum, i'll be taxed at a certain tax rate. When the time comes (end of the year, don't know) I should contact swiss tax authorites and they will take the 15% US tax into account.

And all this applies also to IE ETF (acc and non acc), cause the irish loophole doesn't work in CH.
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Old 26.04.2017, 14:31
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Re: Investment Advise

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Because I have B visa my income is taxed at the source. So I don't have to declare anything
If you earn more than 120k gross taxed at source, or more than 2500 Fr non taxed at source income (like dividends) in a year, or have more than 200k wealth, you would have to file tax declaration. In the first case you'll go through ordinary taxation, you'll be taxed on worldwide income and wealth, and tax at source from your job will be treated merely as prepayment of your final tax liability. In the latter two cases, taxes arising from filing the declaration will be in addition to tax at source you already paid. This is how it works in ZH, in other cantons it may vary.

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When the time comes (end of the year, don't know) I should contact swiss tax authorites and they will take the 15% US tax into account.
If you will have to pay swiss income taxes on these dividends, yes, because otherwise you'd be double taxed. Normally you reclaim 15% by filing DA-1 with your tax declaration.

If you bank though a swiss broker, they'll withhold an additional 15% locally on top of US's 15%, making it 30% in total - this is reclaimable with DA-1 as well. Or just avoid swiss brokers.
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Old 26.04.2017, 15:32
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Re: Investment Advise

Thanks Ivan!
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Old 27.04.2017, 20:42
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Re: Investment Advise

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Yes, very few advantages that I know of: IE funds can be accumulating unlike US, and IE funds are not considered US situs assets for purposes of US estate tax, even if they consist 100% of US stocks.

Aren't European ETFs supposed to be less risky than their US counterparts due to the UCITS directives (e.g., risk spreading and concentration rules)?

Also, it is perhaps worth pointing out that the US estate tax treaty applies only to Switzerland and few other countries.
In other words US ETFs may not be the best choice for people who are not planning to stay in Switzerland "for a very long time".
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Old 27.04.2017, 20:58
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Re: Investment Advise

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Aren't European ETFs supposed to be less risky than their US counterparts due to the UCITS directives (e.g., risk spreading and concentration rules)?
How are these rules relevant to plain vanilla passively managed fully replicated index funds, that most folks would ever want to invest in? These funds don't make investment decisions on their own, just follow the index.

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Also, it is perhaps worth pointing out that the US estate tax treaty applies only to Switzerland and few other countries.
I never said otherwise

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In other words US ETFs may not be the best choice for people who are not planning to stay in Switzerland "for a very long time".
Stock market is open every business day. You can rotate your investments into more suitable funds prior to the move any time. And in fact you probably should - capital gains are tax free here, but who knows how your new country would treat them and with what cost basis
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Old 27.04.2017, 21:08
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Re: Investment Advise

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How are these rules relevant to plain vanilla passively managed fully replicated index funds, that most folks would ever want to invest in? These funds don't make investment decisions on their own, just follow the index.
I am not an expert, however I think there are some restrictions, e.g., think about ETFs focusing on specific sectors, or about synthetic ETFs. See also http://www.alfi.lu/investor-centre/i...tect-investors

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I never said otherwise
I never said you did


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Stock market is open every business day. You can rotate your investments into more suitable funds prior to the move any time. And in fact you probably should - capital gains are tax free here, but who knows how your new country would treat them and with what cost basis
True
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Old 27.04.2017, 21:22
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Re: Investment Advise

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I'd avoid Irish funds for a different reason though - they are losing at least 15% of US dividends in non-reclaimable withholding taxes. It's better to own US-domiciled ETF on US market which don't lose dividends in this way, US withholding is then done at the time when fund pays out to you and you can reclaim it if you file tax declaration here. If you don't have to and only taxed at source, even better, withholding rate for swiss residents is also just 15%, which is probably less than what you'd otherwise pay in ordinary taxes on them.

This is a good point. As I wanted to better understand what the difference may be, I have made some back-of-the-envelope calculation on 3 similar ETFs, 1 from US and 2 from Europe:
  1. iShares Core MSCI World UCITS ETF (acc), https://www.justetf.com/de-en/etf-pr...n=IE00B4L5Y983
  2. iShares MSCI World UCITS ETF (Dist), https://www.justetf.com/de-en/etf-pr...n=IE00B0M62Q58
  3. Vanguard Total World Stock ETF (VT), https://personal.vanguard.com/us/fun...tExt=INT#tab=0
    Note: there is also an iShares Core MSCI World in US, however I could not find it on the ictax database

According to the ictax database, the US ETF is taxed on a 2.31% yield (I assume you should subtract what paid to the US government though),
the distributing IShares ETF is taxed on a 1.7% yield, while the accumulating IShares ETF is taxed on a 1.84% yield.

For more details, please refer to https://www.ictax.admin.ch/extern/en.html#/search
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Old 27.04.2017, 23:44
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Re: Investment Advise

These are only very roughly similar, but not quite equivalent. For the rather small discrepancies in yields that we're looking for here, you'd really want to ensure they have the same holdings. The best example of equivalent US and non-US ETFs I can find is VOO and VUSD, you can read the lost US withholding tax immediately off the distribution yields. But they are an easy case of ETFs on just US stocks and the popular most index in the world.

I couldn't find similarly equivalent examples for non-US and world indexes. Maybe URTH and IWRD? Both say they track MSCI World, but one has 1167 holdings vs 1603 in the other. Close but no cigar.

Edit; I found this presentation from BlackRock which brags (on p.15) about how they were selling URTH and IWRD to some european central banker concerned with fund level witholding taxes. The sucker ultimately went for IWRD, but they don't really give much details. So I guess there's some point in using an IE domiciled fund for non-US stocks. But for US stocks, it's clearly suboptimal.

Last edited by ivank; 28.04.2017 at 00:25.
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Old 28.04.2017, 10:58
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Re: Investment Advise

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These are only very roughly similar, but not quite equivalent. For the rather small discrepancies in yields that we're looking for here, you'd really want to ensure they have the same holdings.
Right. Unfortunately as I mentioned above the ictax database does not have data about URTH.
I have taken a look at two more indexes and found tax related information for both US and IE ETFs.

S&P 500 ETFs:
  • SPY [US]: tax computed on a 1.92% yield
  • VUSA [IE]: tax computed on a 1.68% yield
  • CSPX [IE]: tax computed on a 1.55% yield

FTSE Developed Europe ETFs
  • VGK [US]: tax computed on a 3.37% yield
  • VEUR [IE]: tax computed on a 3.23% yield
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