ETFs, Dividends, Taxation, is it still worth buying VT?

[shell369]

So I am down the butthole, regarding dividend taxation, ETFs Fund domicile and VT.

There are quite a few good resources on the net e.g. [1] [2] [3] and [4] [5] [6]

https://preview.redd.it/bjdtc8259la...bp&s=c2dc53f3611b1cb2b3c2e923158a70ecb5b62893

Suppose I'll plan to invest 100k in VT with an annual dividend of 2% and TER 0.07. Following the above calculation, I should be better off ~0.3% short with the IE copy VWRL with a TER of 0.22% TER? And I am unable to reclaim the 15% via DA-1

As a VT owner, do you fill out DA-1, is it just a formality?

Why is then IE/LU recommended vs. US?

---

Updated my question.

 

[tobiahjude99]

@shell369 Your sources are certainly from an ucits perspective and dont take into account that we have da-1 in switzerland to claim back the other 15%.

VT is without the shred of doubt the better investment than VWRL.

 

[jjmaleyscw]

@tobiahjude99 We should sticky this. It's a common question but also not super easy to understand at first.

 

[tobiahjude99]

@jjmaleyscw Definitely. It‘s not intuitevly.

You have to know about the specific withhding tax treaties and different levels of withholding taxes on fund and indivdual level.

Also it‘s not actually the straight 15% effectively you get back it‘s more like 10-11% effective. As Irleand domiciled funds have netter withholding tax treaties for european stocks for example, bit the US portion is so dominant, that you still gain way more by going with a US domiciled fund.

I got deep into the rabbit hole to find that out.

There‘s also some relatively popular finance influencers in the swiss space that dont even know about that.

 

[morganalice298]

@tobiahjude99 If that's true why is the YTD dividend yield on VT 2.06% and on VWRL 1.56%, i.e. a difference of 0.5% which is more than the 0.2% implied by you (approx 2% yield x approx 10% effective overall VWRL WHT leakage compared to VT)?

 

[tobiahjude99]

@morganalice298 Where did you look up the values? In which currency?
Dividend yields are notoriously prone to error, as they are often calculated from one distribution and the assumed average for the year.
Also ytd means year-to-date, and we only had a single distribution this year -> no clear indication.

Let’s look up the yield for 2023 ictax and compare:

Bottom right gives the yearly values in CHF:

VT: https://www.ictax.admin.ch/extern/de.html#/security/US9220427424/20231231

1.897/86.59= 2.19%

VWRL: https://www.ictax.admin.ch/extern/de.html#/security/IE00B3RBWM25/20231231

1.946/99.97= 1.95%

Overall Difference = 0.24% -> 11% less

 

[morganalice298]

@tobiahjude99 Thank you for the quick response! Right, I meant last 12 month period instead of YTD. Found those figures on justetf for VWRL and googling for VT.

I just wonder why we have such a big discrepancy right now. Could be FX fluctuations etc I guess.

 

[morganalice298]

@tobiahjude99 I have one more comment, if you cannot claim back the 15% L2TW WHT from US ETFs at all e.g. because you have large enough debt / high mortgage, but you will still be taxed on those 15% for CH income tax purposes, it seems that VT is worse / equal from a pure net dividend after taxes perspective (2.19% - 2.19% x 85% actually received) - (2.19% x 15% x 30% taxes) = 1.76%, only leaving you with the better tracking difference after TER as a benefit (for VWRL 0.15%, for 90/10 VEVE/VFEM 0.06%).

 

[tobiahjude99]

@morganalice298 Yes in that case it‘s slightly worse from a tax perspective. Overall it‘s pretty much a wash then.

 

[morganalice298]

@tobiahjude99 I clarified in the meantime that if you cannot credit the US WHT against Swiss income tax you will also not be taxed on it.

So this only makes it worse if non reclaimable US WHT (e.g. due to debit interest) on the dividends is >60% (part of US in VWRL).

 

[morganalice298]

@tobiahjude99 I checked also 2022 to 2020 and while for 2022 it's far less for 2021 and 2020 the approx 0.24% hold true. However, doesn't this contradict your information that Ireland has the better double tax treaties as otherwise I would have expexted a difference in performance of less than approx 0.18% (2% x 60% x 15%).

In your case the 11% relate to the difference between the dividend yields of the two products and not the overall loss in return (that's 0.24%).

 

[tobiahjude99]

@morganalice298 It does, when I originally wrote the comment, I did not have all the info I have now. There are some treaties that are better and some that are worse.
Also some differences stem from VT having small caps, while VWRL not.

And yes the 11% related to the dividend difference.

https://forum.mustachianpost.com/t/splitting-the-world/7001

Is a good thread on the topic, the screenshot in the first post shows individual tax rates, with base assumption of reclaiming with da-1.

 

[morganalice298]

@tobiahjude99 That's indeed a very good thread. I should compare the total returns of the indexes and check if they're approximately the same but VT gets more returns in form of dividend distributions instead of capital gains due to small caps. Then for Swiss investors VWRL may be a bit more interesting again as capital gains are tax free.

 

[that_christian_guy]

@tobiahjude99 Is this true also for ETF of Bonds? (Specifically is there a better choice than VAGX from a tax perspective )

 

[tobiahjude99]

@that_christian_guy A quick look at this: https://www.mackenzieinvestments.co...-foreign-withholding-tax-etf-sept-2020-en.pdf

Gives me the impression that there is also a withholdinh tax applied and the same rules basically.

As aggx is also global multiple such withholding taxes and treaties apply for the respective bonds.

 

[tobiahjude99]

@that_christian_guy That‘s a question I have no answer for currently, as I dont hold any bonds. In any case there are probably no chf bond etfs that are US domiciled anyway. So if you lose out on 15% (of US bonds) or not, you cant change that.

I just googled a bit. Interest payments have 0% withholding tax, but I dont know if bond payments count as interest payment in that context.

 

[flda_grl]

@shell369 Why would you want to invest in a IE domiciled fund when there’s zero advantage? What „above logic“?

 

[shell369]

@flda_grl sorry, I corrected my question and assumption

 

[xefere]

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This post was mass deleted and anonymized with Redact

 

[ryn]

@shell369 Does someone know if and how you can get back the withholding tax from canadian shares?