What’s the most tax efficient way to invest in stock in Switzerland?

[sonofmatthew]

I see many people like ETFs in this sub, but I am a little concerned about the dividends taxation, that from what I understood is going to get triggered even for accumulating ETFs that just reinvest dividends

My question is whether there is a more efficient way to invest in stock that avoids the dividends tax, and focuses more on tax free capital gains

For example, do any of you focuses on investing in holding companies rather than ETFs? Berkshire Hathaway comes to mind as a great alternative, as it would provide some of the same advantages of ETFs (diversification, and no need for as much work to select individual stock) but it would reduce to 0 your dividend taxes

Does this make sense or am I missing something?

Also, anybody knows why tax law is so weird? Doesn’t feel like it makes a lot of sense to not tax capital gain at all, but tax dividends (even when automatically reinvested) at your income tax level.. there is no fundamental difference between the two, I don’t see why they should be taxed differently

 

[jjmaleyscw]

@sonofmatthew Dividends are usually too low for this to matter. Average of 2% of your investment. Then apply 15% tax on that. Essentially it's 0.3% of your investment...

 

[asdfkasdf]

@jjmaleyscw Your numbers are accurate, but I'd like to add that:

• This effect is compounding. So really you're applying a multiplier of 99.7% to your returns every year. For example after 30 years this turns into 91.3% aka you've lost almost ten percent of your returns to dividend taxation. And most people have a higher marginal tax rate than 15%.
• It's not 0.3% of your gains that you're losing, it's 0.3% of your entire portfolio even in bad years. It was pretty disheartening to pay dividend taxes on top of losing almost -20% in 2022 lmao.

 

[jjmaleyscw]

@asdfkasdf Very fair point. Are there ways to avoid taxes on dividends or dividends altogether?

 

[asdfkasdf]

@jjmaleyscw You could build your own portfolio of only companies that don't pay dividends, but that is IMO too much work, paying a ton in transaction fees and worst of all you lose a huge amount of diversification.

Alternatives would be to invest in non-yielding assets like gold or crypto, but I don't like either of them. Personally I just swallow the bitter pill and hope more companies switch to stock buybacks instead of dividends in the future lol.

 

[jjmaleyscw]

@asdfkasdf yes and paying taxes on dividends is still a very good deal compared to a regular income.

 

[sonofmatthew]

@jjmaleyscw I used 3% (dividend yield of VT) and a 25% tax rate.. isn’t 15% a bit low? Say for a person with a 200k CHF salary in Zurich…

I’m new to Swiss tax law so I might be completely off, by my estimate was 3%*25% = 0.75%, which feels like it’s quite high and worth optimizing

 

[cathya]

@sonofmatthew The current dividend yield of VT is 2.1%, not 3%. However, yes, 15% is a low tax rate, especially if we look at the marginal tax rate to determine how much dividend taxes we pay on top of salary income taxes. In Zurich the marginal tax rate is already at about 26% with a taxable income of CHF 100k. With a gross income of CHF 200k, the marginal income tax rate is likely about 35%. There are cantons/towns with much lower tax rates than Zurich, though.

 

[sonofmatthew]

@cathya Mmm weird… investing.com must be lying to me as it says it has a 3.09% dividend yield..

Anyway 2.1%*35% would still be around 0.74% so close to my estimate

 

[jjmaleyscw]

@sonofmatthew Sorry I was wrong it's not 15% but indeed your income bracket % so let's say 35%. So indeed about 0.7% per year.

 

[tobiahjude99]

@sonofmatthew The dividend yields on sites like this are notoriosuly wrong.

You can look at ictax to see what is the actual rate.

Or go to the etf page add all the dividends together and divide by price. For VT it‘s around 2.1% currently.