We are all too happy to suppress it, but at the beginning of each year it catches up with us mercilessly: the Swiss tax return. With this detailed ETF taxes Switzerland report we want to examine all relevant tax aspects in connection with ETFs. In addition, we give you four useful tax-saving tips that you can use to optimize the taxation of your ETF portfolio – completely legally, of course.
Errors and omissions excepted: We have researched this ETF Taxes Switzerland report to the best of our knowledge and belief and incorporated our own experiences. However, if we have made mistakes and/or important aspects have been forgotten, you are more than welcome to let us know about any improvements. Our goal is to provide you, the private investor, with as objective and meaningful a basis as possible on the subject of ETF taxes in Switzerland.
Transparency note: At the time of publication, the Schweizer Finanzblog team is invested in the following five investments mentioned in the article: “UBS ETF (CH) SLI”, “UBS ETF (CH) SPI Mid”, “Vanguard FTSE All-World”, “Vanguard FTSE North America” and “Vanguard Global ex-US Real Estate ETF”
Disclaimer: Investing involves risk. You have to decide for yourself whether you want to take these risks or not.
1 Swiss Tax ETF: Overview
As a private investor subject to tax in Switzerland, your ETF portfolio the following types of taxes:
The following list in Table 1 shows which tax type is affected and which authority levies the tax for three tax objects relevant in connection with the ETF investment.
|control object||tax type
|wealth tax||stamp duty||withholding tax|
Table 1: Depending on the tax object, different types of tax are relevant, which are levied by the municipality, canton and/or federal government
1.1 Capital Gains Tax Waiver
Unlike most other countries, Switzerland does not levy any capital gains tax on capital gains. Conversely, exchange rate losses are not deductible from taxable income.
1.2 Swiss tax system characterized by the “cantonal spirit”
Although Table 1 above suggests a clear and consistent regime of ETF taxation, the actual tax burden varies greatly from person to person, even if income and wealth were at comparable levels.
The main reason for this is that all 26 Swiss cantons apply their own tax laws. The amount of deductions and tax rates varies from one canton to another, and consequently the tax burden.
In the following chapters, we take a closer look at the tax types relevant to ETF taxation: income tax, wealth tax, stamp duty, withholding tax and foreign withholding tax.
2 ETF taxes Switzerland: detailed consideration of the relevant tax types
2.1 Income Tax
ETF income in the form of dividends (stocks) and interest (bonds) is subject to income tax. In the case of dividends, it does not matter whether they are distributed or reinvested (accumulating ETF). Income tax is levied by the Confederation, canton and municipality.
Because with the income tax one progressive tax rate is applied, the tax increases disproportionately with increasing income.
Tax saving tip #1: Saving income taxes by forgoing a dividend strategy
Tax Free Exception
If one or more Swiss companies in an ETF have capital contribution reserves (KER) and distribute from this pot, this amount does not have to be taxed as income. This type of distribution is sometimes misleadingly referred to as “capital gain” in bank statements (see Figure 1).
2.2 Wealth Tax
Switzerland is one of the few countries that has a wealth tax for private individuals. The assets invested in ETFs are therefore subject to wealth tax. It is only collected at the level of the cantons and communes – but not at the federal level.
As with income tax, wealth tax also comes in progressive tax rate to use, which is significantly lower. Depending on the canton, different allowances can be deducted from the net assets. In the canton of Zurich, for example, only net assets of CHF 154,000 or more for married couples and CHF 77,000 for single people will be taxed for the 2021 tax period.
2.3 Stamp Duty
Stamp duty is a transaction tax (sales tax). The federal government collects them when you buy or sell an ETF. she amounts to 0.075 percent for funds domiciled in Switzerland (recognizable by the domestic ISIN “CH…”) and 0.15 percent for funds domiciled abroad (recognizable by the foreign ISIN such as “IE…” for Ireland).
The Swiss stamp duty is by the way only payable at Swiss banks and brokers. These collect the stamp duty directly, which means that a special declaration in your tax return is not required (see Figure 2).
If you want to save on stamp duty, then you should choose a foreign broker like Interactive Brokers or DEGIRO (see Figure 3).
Tax saving tip #2: Avoid stamp duty by choosing a foreign broker like Interactive Brokers (see also Review) or DEGIRO
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2.4 Withholding Tax
The withholding tax (VST) is levied by the federal government Swiss capital gains such as dividends and interest. The tax is high 35 percent and is paid directly to the federal government by the bank or broker (see Figure 4).
The primary purpose of this tax is tax evasion to contain As a taxpayer resident in Switzerland, you can have the withholding tax credited back to you. In concrete terms: if you correctly declare your dividend income in your tax return, you won’t pay a penny in withholding tax!
Despite these tax advantages, we consider them to be harmful from a risk/return consideration or from an investor’s point of view home bias to avoid, a globally diversified ETF portfolio as clearly the better choice.
In the case of ETFs that cover several countries or entire regions, the withholding tax could only be reclaimed for the Swiss shares contained in the ETF. In addition, the fund would have to be domiciled in Switzerland. Such a combination does not yet exist on the market.
Of course, our critical attitude towards home bias does not rule out having one or the other ETF based on a Swiss index in the portfolio, especially with larger investment sums.
2.4.1 Tax domicile affects your returns
But be careful: If you choose a Swiss equity ETF with a foreign domicile, the withholding tax will not be reclaimed. This tax effect has a direct impact on performance, as does a long-term comparison of four Swiss equity ETFs based on the Swiss Leader Index (SLI) impressively (see Figure 5).
Table 2 also shows that the tax effect has an even greater impact on performance than the ongoing product costs (TER).
|ETF name||Domicile / ISIN||TER||performance
(01/25/2008 – 02/04/2022)
|iShares SLI||Switzerland / CH0031768937||0.35%||138.56%|
|iShares SLI UCITS ETF||Germany / DE0005933964||0.51%||119.92%|
|UBS ETF SLI A-dis||Switzerland / CH0032912732||0.20%||148.22%|
|Xtrackers SLI UCITS ETF||Luxembourg / LU0322248146||0.25%||115.08%|
Table 2: Significant influence of ETF domicile on returns (source: justetf.ch)
In a 14-year comparison, the more expensive iShares product with a TER of 0.35% and a Swiss fund domicile performed more than 23 percentage points better than the cheaper Xtrackers ETF with a TER of 0.25% and a fund domicile in Luxembourg. The UBS product with a Swiss domicile stands out as the first choice in terms of costs and performance.
From a tax point of view, ETFs without a Swiss domicile that track a Swiss stock index such as the “SLI” should only be suitable for Not Investors subject to tax in Switzerland are suitable.
Tax saving tip #3: Refund of withholding tax for Swiss shares by choosing an ETF domiciled in Switzerland and correct declaration in the tax return
2.5 Foreign Withholding Tax
Thanks to numerous double taxation agreements, it is possible, depending on the ETF domicile, to reclaim at least some of the foreign withholding taxes.
A “hidden” tax amount that should not be underestimated is the US dividend tax on American shares 30 percent. When investing in equity funds with a high US share, such as ETFs that track the MSCI World, you should choose a tax-friendly fund location with a clawback option.
There are fund domiciles like Ireland, where you are only charged half, i.e. 15 percent, of the US withholding tax. The other 15 percent is automatically reclaimed by the fund provider.
This means that there is no additional administrative effort for you when filling out the tax return. In other words: Both the tax reclaim and the tax burden are not explicitly shown to you, but are directly reflected in the ETF price.
If, on the other hand, you choose an ETF US domicileyou can use the Tax Form DA-1 submit a manual reclaim request. You can find the corresponding reclaim amounts in your bank’s dividend statement (see Figure 6).
From my own experience, 15 percent is also reimbursed in this way, albeit with a delay of a few months. At least a partial reclaim is possible for the other 15 percent, based on a rather complex calculation key from the tax authorities.
Tax saving tip #4: (Partly) Reimbursement of foreign withholding tax by choosing a tax-friendly fund location with the possibility of a refund
At this point, we would like to warn you that you can generally assume that the ETF providers select the most tax-friendly fund domicile for their products and their target group. This is very often Ireland, but depending on the regional focus of the ETF, Luxembourg and other domiciles can also be the first choice.
When choosing the fund domicile, you should pay particular attention to ETFs that track an index of Swiss shares (see Chapter 2.4).
As difficult as the topic is, there is a lot of money to be saved on the tax front. Below we have the most important ones four tax saving tips Summarized again for your ETF investment:
- Tax saving tip #1: Saving income taxes by forgoing a dividend strategy
- Tax saving tip #2: Avoid stamp duty by choosing a foreign broker like Interactive Brokers or DEGIRO
- Tax saving tip #3: Refund of withholding tax for Swiss shares by choosing an ETF domiciled in Switzerland and correct declaration in the tax return
- Tax saving tip #4: (Partly) Reimbursement of foreign withholding tax by choosing a tax-friendly fund location with the possibility of a refund