Buy US-domiciled ETFs by Swiss residents

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babcock
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Buy US-domiciled ETFs by Swiss residents

Post by babcock » Thu Apr 05, 2018 3:15 pm

Hello everyone,

I wonder if anyone on this forum may know whether Swiss residents are allowed to buy US-domiciled ETFs? And if yes, are Swiss residents allowed to buy leveraged US-domiciled long/short index ETFs, such as TQQQ or SQQQ?

I will be grateful for any pointer in the right direction for further research.

Thanks so much in advance!

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David Jay
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Re: Buy US-domiciled ETFs by Swiss residents

Post by David Jay » Fri Apr 06, 2018 11:53 am

I would look on the Interactive Brokers website. IB is very international (Hongkong(?) based).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

imperia
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Re: Buy US-domiciled ETFs by Swiss residents

Post by imperia » Fri Apr 06, 2018 11:50 pm

Yes it is.

travltoo
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Re: Buy US-domiciled ETFs by Swiss residents

Post by travltoo » Sun Apr 08, 2018 1:28 pm

Most Swiss banks will allow the purchase of US-domiciled ETF's by Swiss residents. For Swiss residents, owning US-domiciled ETF's however has certain disadvantages when compared to owning non-US domiciled ETF's:

1. Additional paperwork when filing Swiss Income tax returns
On behalf of the IRS, the financial institution will deduct 30% from all dividends and interest paid by the US-domiciled ETF and send it to the IRS. In order to avoid double taxation, Swiss residents will need to submit an additional tax form (DA-1) when filing their Swiss income tax return. This will allow Swiss residents to reclaim 15% of the tax withheld 'at source'.

2. US Federal Estate Tax
US-domiciled ETF's from Swiss residents may also be subject to US Federal estate tax. Federal estate tax may apply to all US assets (i.e. US domiciled ETF's, shares of US companies and US real estate) which in total exceed a certain amount (for Switzerland I think it is USD 60,000). There may be exceptions depending on the double taxation treaty between US and the country of residence of the investor.

TedSwippet
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Re: Buy US-domiciled ETFs by Swiss residents

Post by TedSwippet » Sun Apr 08, 2018 1:50 pm

travltoo wrote:
Sun Apr 08, 2018 1:28 pm
US-domiciled ETF's from Swiss residents may also be subject to US Federal estate tax. Federal estate tax may apply to all US assets (i.e. US domiciled ETF's, shares of US companies and US real estate) which in total exceed a certain amount (for Switzerland I think it is USD 60,000). There may be exceptions depending on the double taxation treaty between US and the country of residence of the investor.
Switzerland has an estate tax treaty with the US. This treaty is rather old and has a few holes in it, but a solely Swiss investor holding US domiciled ETFs should be safe from US estate taxes up to $11MM or so of worldwide holdings.

babcock
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Re: Buy US-domiciled ETFs by Swiss residents

Post by babcock » Sun Apr 15, 2018 8:07 pm

First of all, I want to thank everyone for taking your time to answer my question, it is immensely helpful.

I have been researching this topic and come across this recently published guide (2017) by a US firm.

http://www.kplaw.com/pub/docs/2017%20Un ... e%20US.pdf

I have read it several times, but being a layperson, I am struggling to understand it. In the case of Switzerland, it looks like real (immovable) estate as well as movable estate (e.g. US equities, cash in US$ - for example cash balance held with a US-domiciled broker, but not bank deposits with US banks) will be subject to US estate tax. But the tax will be reduced by $2,141,800 x % of US situs assets/WW assets.

However, in the case of UK or Austria for example, only real (immovable) estate, business property, and assets pertaining to a fixed base for performance of professional services rendered in the US will be subject to US estate tax.

Would this be a correct interpretation? Thanks so much in advance to everyone.

TedSwippet
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Re: Buy US-domiciled ETFs by Swiss residents

Post by TedSwippet » Mon Apr 16, 2018 3:07 am

babcock wrote:
Sun Apr 15, 2018 8:07 pm
I have read it several times, but being a layperson, I am struggling to understand it. In the case of Switzerland, it looks like real (immovable) estate as well as movable estate (e.g. US equities, cash in US$ - for example cash balance held with a US-domiciled broker, but not bank deposits with US banks) will be subject to US estate tax. But the tax will be reduced by $2,141,800 x % of US situs assets/WW assets.
It is not just you. Everybody struggles to understand the US estate tax for non-resident aliens, because it follows no visible logic at all. For example, the entirely random distinction between cash in a US bank and cash in a US broker.
babcock wrote:
Sun Apr 15, 2018 8:07 pm
I have been researching this topic and come across this recently published guide (2017) by a US firm.
This article looks pretty accurate. The numbers in it are already out of date, though. The US estate tax exemption for citizens rose to just over $11MM at the start of this year, so unless you own more than that worldwide, as a Swiss investor your potential US estate tax exposure should be zero. The main problem with the current US/Switzerland estate tax treaty appears to be around double-tax where there is a US estate tax liability, something that you probably would not have to tangle with.
babcock wrote:
Sun Apr 15, 2018 8:07 pm
However, in the case of UK or Austria for example, only real (immovable) estate, business property, and assets pertaining to a fixed base for performance of professional services rendered in the US will be subject to US estate tax.
Probably not. These estate tax treaties permit exemptions to the same level as allowed to US citizens, but beyond that there may be US estate tax due on US shares, US domiciled ETFs, cash in brokers(!) and so on based on the ratio of US holdings to worldwide holdings. The difference between these and Switzerland looks to be only in how the US citizen-level exemption is applied.
babcock wrote:
Sun Apr 15, 2018 8:07 pm
Would this be a correct interpretation?
It looks like you are right on the Swiss part, but perhaps not quite on the UK and Austria. In any case though, unless worldwide holding exceed $11MM (2018 figure) all three should be well insulated from rapacious US estate taxes by their respective treaties.

One final note. You ask about ETFs held by "Swiss residents". US tax treaties are usually controlled by domicile, something that includes residence as one component of several. So you may want to be sure that you are also domiciled in Switzerland. If you are a Swiss national the answer is almost certainly yes. Otherwise you might have to do some investigation here first. And more if you contemplate moving to Austria or the UK.

babcock
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Re: Buy US-domiciled ETFs by Swiss residents

Post by babcock » Thu Apr 19, 2018 10:24 am

Hi Ted,

Thank you very much for your latest comments.

What I don't understand is why this article has a figure of $2,141,800 x ratio of US situs/WW assets for Switzerland and a number of other countries, if the exemption for US residents prior to 2018 was $5.5m?

I also notice that according to this article, there are two types of treaties. The first type of treaty is one like a US-Swiss treaty stating "You will be taxed by the U.S. upon transfer by bequest in the same manner as a non-citizen not domiciled in the U.S. (see answer 7)" and then showing a calculation of the US tax credit ($2,141,800 x ratio of US situs/WW assets) which will apply.

The second type of treaty is the one where there is no reference to page 7 and no calculation of the US tax credit is shown, only the list of assets to be taxed by the US, such as a US-UK treaty or a US-Austria treaty. So my take is that only those assets in this list are subject to US estate tax, and in the case of UK or Austria, there is no mentioning of intangible assets such as US stocks. So I take it that it means under this second type of treaty, intangible assets such as US stocks, are not be taxed. Is this a wrong interpretation?

My other question is this: if I am domiciled in Switzerland and will set up a company (for example, family office) and invest in US stocks/ETFs through the company, would this eliminate the issue of US estate tax? The company never dies. Or would my children who inherit the company be still subject to US estate tax?

Thank you so much in advance for any relevant advice or points to consider.

TedSwippet
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Re: Buy US-domiciled ETFs by Swiss residents

Post by TedSwippet » Thu Apr 19, 2018 12:29 pm

babcock wrote:
Thu Apr 19, 2018 10:24 am
What I don't understand is why this article has a figure of $2,141,800 x ratio of US situs/WW assets for Switzerland and a number of other countries, if the exemption for US residents prior to 2018 was $5.5m?
The $2,141,800 is the US estate tax liability that a US citizen would pay on the $5.49MM lifetime exclusion if it were taxed, and it is an exemption. Quite why the US has to create exemptions out of exclusions eludes me to be honest -- perhaps the IRS is just not satisfied until something is expressed as obscurely as is possible -- but there is a description here of how it all works. $2,141,800 is 40% of $4.49MM plus $345.8k.
babcock wrote:
Thu Apr 19, 2018 10:24 am
I also notice that according to this article, there are two types of treaties. ... So my take is that only those assets in this list are subject to US estate tax, and in the case of UK or Austria, there is no mentioning of intangible assets such as US stocks. So I take it that it means under this second type of treaty, intangible assets such as US stocks, are not be taxed. Is this a wrong interpretation?
No, I think you might be right, meaning I am perhaps mistaken upthread. The US/UK estate tax treaty's technical explanation takes a stab at explaining, but to be frank I find it nearly as impenetrable as the treaty text itself. So I will just defer to the good folk at Kohnen & Patten LLP -- after all, they do this for a living, whereas I do not. And thank you for pointing this out a second time.
babcock wrote:
Thu Apr 19, 2018 10:24 am
My other question is this: if I am domiciled in Switzerland and will set up a company (for example, family office) and invest in US stocks/ETFs through the company, would this eliminate the issue of US estate tax? The company never dies. Or would my children who inherit the company be still subject to US estate tax?
Sorry, no idea. Way beyond my expertise I'm afraid.

babcock
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Re: Buy US-domiciled ETFs by Swiss residents

Post by babcock » Thu Apr 19, 2018 1:33 pm

Thanks so much for your comments, really really helpful!

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