Hi Swiss RIP friends,
You know how ETFs and taxes work together in Switzerland, don’t you? If you don’t, I’ve touched the topic in my ETF 101 post, more than a year and half ago. Go read it. See you later bye bye.
The central point is that Switzerland doesn’t tax capital gain, while profits are taxed as income. Accumulating ETFs look like a way to cheat on the system: profits are reinvested and your shares’ value increases. Profits disguised as capital gain.
Not good, said the Tax Authority.
So they built a (sorry, nerd talking ahead) lookup table for accumulating ETFs, where “virtual dividends” are listed for each recognized ETF. That table is named “Course listings” (Kursliste in German) and every year a new version is published on the ICTax website (Income and Capital Tax) managed by the Federal Tax Administration (FTA or ESTV in German), usually referred to as “The Swiss Tax Authority” on this blog.
So, dear Swiss index investor, the rules of thumb are simple:
- If you hold shares of an accumulating ETF which is listed on ICTax: you need to report how many shares you owned at the time of each “virtual dividend” distribution when filing your taxes, pay your taxes on the dividends and you’re cool.
- If you hold shares of a distributing ETF which is listed on ICTax: you just report dividends as income, pay your taxes and you’re ok. It’s the easiest scenario.
- If you hold shares of a distributing ETF which is NOT listed on ICTax: that should be similar to the previous case, except that the Swiss Tax Authority doesn’t know how to handle your ETF. Maybe your ETF doesn’t have distributing rights for Switzerland. Or maybe your distributing ETF is tracking a growth index thus yielding very little and maybe (in lucky years) growing a lot. I’m looking at you, 2017 small caps US. in this case the Swiss Tax Authority may decide to tax your capital gain, who knows. In general, not having a security listed on ICTax represents a huge risk: it means you don’t know if the security ever received a “good to go for Switzerland” green flag.
- If you hold shares of an accumulating ETF which is NOT listed on ICTax: that’s the worse situation. The Swiss Tax Authority hasn’t modeled the virtual dividend, so all your capital gain is taxed as profit (income). Well, maybe this is good during bear markets.
So far, among friends and Hooli financial savvy colleagues, we tried to avoid touching ETFs not listed on ICTax. Avoiding both accumulating (of course) and distributing.
Anyway, several US domiciled ETFs listed on my Portfolios spreadsheet are not available on ICTax, and more are coming (like VYM, Vanguard US High Dividend Yield stocks, US domiciled, distributing).
That’s a pity. Why can’t we invest in those ETFs with some peace of mind?
I’ve started investing in VOO, Vanguard S&P500, distributing, US Domiciled, which is available on ICTax. But I also want to invest on VYM and VIOO, and replace currently owned non-US domiciled alternatives like VHYD and CSUSS.
So I took initiative, and contacted the Swiss Tax Authority (DVS division) via mail at dvs (at) estv.admin.ch. Here’s what I’ve written to them:
It was a shot in the dark, I didn’t expect to receive a reply less than a hour later!
Then they attached a screenshot:
So now the fund is visible on ICTax!
Morale: if you’re not sure if your desired ETF is accessible from Switzerland, or how it is taxed by the Tax Authority… just ask them, they are friendlier than you’d expect 🙂
Have a nice investing day!