Dividend taxation

[Jerome]

It should be noted that this is valid for Switzerland. The French tax authorities are more vicious, so it is possible that they proceed differently... Even if it makes no sense to me.

[HowBy]

The question that really bothers me is: is it possible for a Swiss to multiply his gains by using the margin credit offered by IB (rate < 1%), without incurring the disadvantages of the securities trader, taxed on his capital gain, including AVS. With IB and the least bit solid securities, one could multiply his investments by 4. Regular returns of 30% would become easy to achieve, on the US market.

The tax authorities have a rule (AFC Circular 36 of 2012) regarding foreign financing, which appears to allow financing as long as the income generated is greater than the passive interest, which would obviously be the case.

Is there any feedback here from real-life experiences?

Note that on IB, we borrow without even realizing it. The words "loan" or "debt" are absent. We simply see a negative sign appear on the total of cash, and a very small interest bill.

[Jerome]

Indeed you are right, you have to be careful in IB to avoid borrowing, as the rates are so low and the “maneuver” is so easy.
Personally, I always make sure not to exceed my cash assets when I buy. It's a rule of conduct that I have imposed on myself... I have always been very careful and it is certainly due to my stock market experiences during the decade 2000-2010. Sometimes I happen to exceed my assets very slightly, by a few hundred francs, but it is mainly because I know roughly the amount of the order that I want to place and I do not rack my brains too much to do apothecary calculations, given the simplicity and almost free of charge of the process at IB.
As for your question, I cannot answer from experience, but in my opinion there is no reason for it to be taxed by the tax authorities or the AHV, since it is a capital gain, not taxable in Switzerland.

[NathanC]

Good evening,

I wanted to start a strategy based on US stock dividends (I am a Swiss resident) and was wondering if it would be worth it in Switzerland, since dividends are taxed there (unlike capital gains). I wanted to make sure I understood the Swiss tax system before starting and would appreciate any discussion on this.

From what I understand, if I receive a dividend of USD 100, I will be automatically taxed at 30% – 15% by the US and 15% by Switzerland, and therefore I will receive USD 70 in dividends and I will have USD 30 in taxes.

When I file my tax return, the gross dividends received during the year will be added to my other income and I will be taxed at a rate that will depend on my tax bracket. If, for example, this rate is 12%, I will have to pay CHF 12 (assuming that the exchange rate USDCHF = 1).

On the other hand, the 15% of Swiss taxes that were initially taken from me can be recovered, provided that they reach the minimum amount of CHF50 per title.

Do you have the same understanding as me?

THANKS.

[Jerome]

Hello Nathan
Yes, that's correct. I would like to point out, however, that even if the tax impact is real, it should not be overestimated, especially when compared to the potential long-term gains of such a strategy. With increasing dividends, we benefit from a less risky approach than investments in stocks that do not pay dividends and that beat the market in total performance, i.e. in capital and income.
Let's not forget that the strategy based on growing dividends does not seek high dividends, but rather moderate dividends that increase each year. Their companies only pay a prudent part of their profits. So the tax impact is moderate and we also benefit from a certain capital gain, which is interesting in Switzerland.
If you want to further reduce the tax impact, there is also the possibility of resorting to the Trading Auto Signal.

[NathanC]

Hello Jerome,

I think that taxes should not be neglected, especially for a dividend strategy which generally extends over the long term.

What about the FR and All markets? Do you know if the taxes work the same way?

For a Swiss share, it seems to me that dividends are taxed 35% initially, but this can be recovered later.

THANKS.

[Jerome]

you have to go through the topic there is already several information on this subject, but the rule is always more or less the same 15% non-recoverable and between 10-15% recoverable via annual taxation
for Swiss dividends, the 35% are actually recoverable during taxation (will be taxed as income)

[HowBy]

Hello everyone,

The perception of taxation depends a lot on the level of one's income and more precisely on one's marginal tax rate.

If you earn income that is considered ordinary in Switzerland, the tax on a few additional dividends will be relatively low and you may be able to recover a little if you were deducted 35% at source. Note that a foreign broker like IB deducts 15% at source on US dividends but nothing for the Swiss tax authorities (unless perhaps you received dividends of Swiss origin – this would need to be checked).

A Swiss resident may have a marginal tax rate of 45% (try it on the Vaud canton simulator). In this case, a dividend of $1000 on an American stock at IB will be taxed 15% at source, then an additional 30% when declaring income.

We are far from the naive image of a Swiss tax haven. When will a "flat tax" of 30% including tax (except capital gains) be introduced, as France will do from 2018?

[Jerome]

We are very far from a tax haven in Switzerland. Nevertheless 45% of marginal rate seems enormous to me…

[HowBy]

Hello Jerome,

I would like to be wrong, but by reworking on the site https://www.vd.ch/themes/etat-droit-finances/impots/impots-individus-personnes-physiques/calculer-mes-impots/#h2_vd_calculette_resultats

I think it's even worse than 45%. For large investment income we exceed 60%.

This is assuming that the dividends are 5%, therefore a fortune equal to 20 times the income.

For an employee with a small fortune (500,000) the marginal rate of 45% is reached at 300,000 of income, and the withholding tax of 35% is no longer recoverable from 130,000 of income.

From 100,000 of investment income, it will be worth moving to the French Riviera (not to mention Portugal)

My table:

The rich are to be pitied... LOL

 

 

[Jerome]

Well, here you are taking some high-profile examples. I think that these people would hire a tax expert to optimize their taxation. And on the way to the paradise papers…

[frouzback]

Hello,

I'm bringing this topic back up in the hope of getting some feedback.

I now have a stock portfolio at IB consisting of:

– Swiss stocks that pay dividends. No worries about that: an advance tax of 35% was withheld by IB on my 2020 dividends, which means that I only received 65% of the theoretical dividends. This is not a problem since the amount withheld will be deducted from my ordinary income tax. Everything is fine.

 

– of a French stock that produces oil and is generous on the dividend. My question concerns the dividends (in EUR) paid by this company:

 

I am domiciled in the canton of Bern, and my broker is IB, as already mentioned. I have not yet received any dividends from this company. The next dividend payment will take place at the beginning of 2021.

 

Reading a bit on the internet, I have the impression that I need to contact myself IB so that the advance tax "reserved for France" is 'only' 12.8%. Concretely, I must send them documents stating the actions that I have before payment of dividends and I have to have these documents signed by the tax administration of the canton of Berne… If I don't do all this; a higher withholding tax will be applied to my French dividends, and I will have to discuss with the French tax administration afterwards to recover what I have to recover.

Am I right or am I totally off base?

Feedback from simular experience?

I will find you some links to support my words...

 

See you soon !

 

 

 

 

[Jerome]

Hi

I have no experience with French securities on IB. However I imagine that IB will play the role of financial intermediary as it does with shares of other countries by collecting what you owe as a natural person, therefore 12.8% according to the agreement with France.

If other readers have experiences with French titles they are welcome.

[frouzback]

Hi Jerome,

I am a little reassured by reading this. You tell me that for other countries, IB automatically levies the "correct" tax rate reserved for the country where the dividend-paying company is established.

In your case, if I understand correctly, this means that at no time should you contact the Japanese authorities for your Japanese titles. You manage your taxes with your canton, and that's what we want!

While searching on the France <-> Switzerland agreement I found this:

 

The French administrative instruction of February 25, 2005 (cf. BOI 4 J-1-05) established a simplified procedure for obtaining the conventional rate of withholding tax on dividends (NB: 12.8%, this is what France keeps for itself). This
procedure, open to all residents of States having concluded a convention with France
against double taxation, allows immediate application by paying institutions (NB: for me => Interactive Brokers), of the conventional rate of withholding tax on dividends (NB: 12.8%) , upon simple production by the beneficiary of the distribution of a certificate of residence. To benefit from this procedure, interested parties only have to produce to their account holder (NB: Interactive Brokers), before payment of dividends from French sources, that the certified form 5000 (NB: this is a certificate of residence) without having to file annex form 5001 (NB: atrocious form, so phew!).

 

So to be 100% sure that everything is in order I have an interest in contacting IB to find out if they need a certificate of residence (they normally already have one) and if they can confirm that they will take 'only' 12.8% of the dividend for the frouzes (I have the right to say frouze, I'm French 😉 ); so that I will never have to deal with the French tax authorities to recover an 'overpayment' on their side.

Thanks for the quick response Jerome!

[Jerome]

Yes, to be sure, you can contact them.

Keep us posted.

And I confirm that I do not come into contact with the tax authorities of other countries. It would be funny with Japan....

[Author]

Posts