Hi everyone,
I'm reaching out to the community for some guidance as I'm planning to dip my toes into the world of investments, particularly with ETFs. Up until now, I've never owned any investment products, and I want to make sure I'm well-prepared from a tax perspective.
Here's a list of ETFs I'm considering (only the last ETF distributes dividends):
LU1437016972
LU1681045370
IE00B3VWN393
LU0290355717
JE00B588CD74
NL0009690239 (dividends)
My primary concern is navigating the potential tax implications smoothly when it comes time to file my tax return. If any of you could share insights into the general tax considerations for ETF investments, I would greatly appreciate it.
Additionally, I'm looking to use DEGIRO as a broker. Does anyone in the community have experience with DEGIRO and can share whether they provide the necessary documents for tax declarations?
I want to ensure a hassle-free process when it comes to reporting my investment activities.
Thank you in advance for your insights!
Generically speaking, for each ETF or any other asset you need to report two things:
- it’s value at the 31st of December of the tax year, that will be subject to your wealth tax rate
- the total amount of dividends you received through the tax year, that will be subject to your income tax rate
Any documentation that shows these two values is usually enough, and it’s hard to imagine that some broker does not provide it.
On top of that there is the Swiss authoritative database of financial instruments that lists end of year value and the date/amount of all dividends: https://www.ictax.admin.ch/extern/en.html#/search
At least in canton ZH it is well integrated with the tax declaration tool, this means that you have the option, for each ETF, to give: the quantity you had at the beginning of the year and all the trades (when, how much, bought or sold) - and the tool will compute the dividends for you, not sure how it works for Bern
The big caveat here is that a bunch of the funds you listed are accumulating: i.e. they generate dividends, they just don’t distribute them but reinvest them. The Swiss tax office is not happy to just let you get away with not having them taxed, so you need to declare virtual dividends that are ~ what you would’ve received if they were distributing. If your ETF is in ICTax, your life is easy because the virtual dividend will be established there centrally (and to be honest I’ve no idea by which logic), e.g. here you can see that LU1437016972 generated a virtual dividend on the 30/09/2022 of 1.476 euros - and you will be taxed on that. If your ETF is not in the ICTax - you can either ask them to add it (they are surprisingly responsive), but if not - I’ve heard that estimating virtual dividends by yourself can be a huge pain, although I’ve never did it myself.
This virtual dividend system is to watch our for as it can go both ways: sell the ETF the day before, and the gains were tax-free. Buy it the day before, and you just paid a bunch of income tax absolute for nothing.
Overall, if you value the simplicity of tax returns:
- prefer distributing funds over accumulating
- prefer funds that are in ICTax to the ones that are not
- strongly avoid accumulating funds that are not in ICTax
For the BL tax return, most of my holdings are held in their database, so they already know when the payments were made and how much, so they fill in these figures for you.
For those that they don't have, I have to do it manually.
Of course, backed up by the documentation. I just upload the pdf's I download from my broker for each dividend, the end of year statement and any purchases or sales during the year.
Thank you very much. Your answer is so complete that I have no more questions.
An update on this topic: As suggested from rezak, I contacted ICTax asking if they could add the following product to their system JE00B588CD74 and they did so. It took 3/4 days for them to respond.
Now, if I look at the new added product, I do not see the virtual dividends. Does it mean that they could not calculate them for this year? or this is how it is supposed to be?
https://www.ictax.admin.ch/extern/en…8CD74/20221231
Thank you!
That's an ETF that tracks the price of gold.
Commodities don't pay dividends.
As greenmark mentioned, probably it means that there are no dividends.
Normally if the dividends are not yet computed you would see a warning like "The taxable earnings could not yet be identified and will be determined later." like you can see if you try to open some of those funds for the year 2023
If Exchange Traded Commodities (ETC) do not pay dividends, there is no additional income to add up when it is time to calculating the yearly taxable income?
In this case seems like the ETCs are tax free, but just have an impact on the taxation of the wealth (assuming that the ETC had a gain).
Pretty much. Same applies to other capital gains. For example, if a company pays a dividend - you get income taxed, if they do a stock buyback for the same amount - no income tax, although the effect is the same
Keep in mind: ETFs starting with NL or JE might not distribut the full amount of dividends payed by the companies (constituents of the index/etf), due to non-reclaimable withholding taxes.
IE and LU have favorable tax agreements with most countries, especially the US.
Instead of Degiro you might wanna check findependent, an investment app (it's not a broker, it's sort of a robo advisor and provides convenience).
They do the pre-selection of ETFs for you as well as the ongoing portfolio management/monitoring the financial markets for you.
The charge a base fee of 0.44% p.a. (lowering above 50k) while you pay no transaction fee (courtage).
You get your annual tax reporting free of charge, for all your ETFs.