English Guide

Withholding tax applicable to the principal residences of ETFs

You should assess US or Irish domiciled ETFs based on your situation and which will return the dividends from the underlying stocks in the most tax efficient manner.

Withholding tax is a convoluted and off-putting topic for 99% of us, but it is very important for any investor, especially the do-it-yourself investor to be aware of it. If the information below is overwhelming, feel free to review only the important material in bold, the table and the summary in the last section.

This article covers the basics of withholding tax for Irish, US, Swiss and Singaporean ETFs as well as the main practicalities. Illustrations for international (non-US) investors, in particular Swiss domiciled, the treatment of Swiss securities and a summary of the most frequent applications will also be covered in the second part.

Optimizing investment taxes

Investment fees and taxes have a decisive impact on your assets and the wise investor should keep a close eye on them. Unlike the unpredictable stock market, you have the opportunity to control a large part of these costs in order to avoid that national and foreign taxes swallow up a significant part of your savings. You should legally optimize your taxation in order to avoid unnecessary taxes by choosing the right domicile for your investments and your platform.

As a reminder, investors domiciled in Switzerland or international investors exposed to Swiss securities or institutions face the following taxes. The first two taxes can be avoided (especially with a Swiss domicile), the last two must be optimized:

  • Swiss capital gains tax: The Swiss people clearly rejected the tax initiative of the Young Socialists on September 26, 2021, which called for a capital gains tax. In contrast to many jurisdictions (e.g. UK or US), people domiciled in Switzerland do not pay capital gains tax;
  • Swiss Stamp Duty: This is applicable to the Swiss securities dealer involved in the transaction, but not to foreign brokers. It is therefore easily avoidable for Swiss and foreign investors if necessary;
  • Tax on bond coupons and stock dividends is an integral part of income tax: This is applicable at different rates in most jurisdictions of the world, with the Gulf countries being a notable exception. It depends on the individual rate and the income generated: High-dividend value stocks will generate higher taxation than growth companies like Amazon for example;
  • Withholding tax often represents a significant cost for investments. Its characteristics are detailed below.

Minimizing withholding taxes

Tax authorities levy withholding tax on dividends (and other returns) received in many countries (US, China, Ireland, Switzerland, England, Singapore, etc). This tax the following characteristics:

  • Withholding tax is a tax deducted at source (before it reaches your brokerage account for your securities or your checking account for cash interest);
  • It applies to returns on securitized capital – interest and dividends -, and also to cash even if the latter is of little relevance in times of low or negative rates;
  • It encourages the taxpayer to declare income subject to withholding tax;
  • It is most often recoverable, but not in all cases and in a more or less tedious way: At the tax domicile, the declaration allows to recover most of the withholding taxes retained by the tax authorities of your domicile (on national securities which are fully recoverable) or by any other tax authority (indirectly recoverable according to the legislation of the other jurisdictions and the agreements in force).

Complexity of different levels of withholding when investing in ETFs depending on their domicile

The less withholding tax you pay, the better off you are as an investor. Indeed, if you suffer a deduction during the first half of the year, it will take time to recover it (up to more than a year) and to have access to it in order to make it grow. In addition, you cannot recover some deductions through the taxing process and they will not be recoverable.

The total deduction at source that you will undergo will thus depend on your tax domicile, the domicile of the security (a share, a bond) and also the domicile of the collective investment (if you invest in ETF), i.e. the country where the security you want or have acquired comes from. So you have three levels to consider (source:

  • L1TW: Percentage of withholding tax by the country of domicile of a security on dividends distributed by that security to the fund (Level 1).
  • L2TW: Percentage of withholding tax by the country of the ETF domicile on dividends distributed by the ETF to the investor (Level 2). Investment funds also have a domicile, which also determines the applicable legislation and its tax treatment.
  • L3T: Percentage of tax that the individual investor must pay in his home country (Level 3) after deductions at source. A person’s domicile is often the determining factor for his taxation and the application of a tax treaty. Therefore, in order to consider your total tax optimization, it is imperative that you evaluate your personal L3 situation.

As mentioned in the introduction, withholding taxes on ETF income and the possibility to reclaim them have a significant impact on investors. However, if you are not interested in the details of this complex and multi-faceted issue, you can quickly review the following sections which deal with the main domiciles for international investors (US and Ireland), as well as the Swiss and Singapore domiciles. You can then concentrate on the summary in the last paragraph.

As the situation depends on the domicile of the securities, you will find below examples of typical situations, included in the four domicile profiles for the main fund types and their common applications.

You will then find in a summary table as an illustration for investors domiciled in Switzerland including the taxations that will take place at the level of the underlying investment (level 1) and at the level of the fund in case of investment in ETFs (level 2).

1. Withholding tax for Irish ETFs

Ireland does not withhold or deduct any tax on capital gains realized or dividends paid by Irish-domiciled ETFs for non-residents of Ireland. However, withholding tax levied by the tax authorities of foreign countries is generally not recoverable. In the case of US equities, the 15% withheld on these dividends are therefore not recoverable (although it could be in the case of a US ETF). This non-recoverable withholding tax depends on the withholding tax legislation of each jurisdiction. These rules are evolving as we will see below with the developments in Switzerland, but be conservative and consider it as lost. Indeed, there is no readily available way for individual investors to reclaim these foreign, particularly US, withholding taxes incurred by Irish-domiciled funds.

By way of comparison, this amount would be 30% for Luxembourg ETFs (versus 15% for Irish ETFs), which is why Luxembourg ETFs are not recommended in this list.

On the positive side, Irish funds offer more accumulation fund options that reinvest dividends and can help investors in some countries reduce Level 3 taxes. In addition, U.S.-domiciled ETFs holding non-U.S. securities may experience double withholding tax in the absence of a treaty, where the U.S.-domiciled ETF pays withholding to foreign taxes and then the U.S. withholds 30% of the remaining distributed dividends, which Irish ETFs can avoid. 

Estimating the Level 1 dividend withholding tax paid by US-domiciled funds versus Irish-domiciled funds, iShares MSCI Emerging Markets ETF (EEM) has a rate of 10.8% and Vanguard FTSE Emerging Markets UCITS ETF (VFEM) has a rate of 9.4% (source. Thus, there is a slightly lower rate for the Irish fund in this example when there are no US securities (emerging markets in this example). In the absence of a treaty, the choice of using US or Irish domiciled ETFs should be made based on which will return the dividends from the underlying stocks in the most tax efficient manner. To compare two different domiciled funds, e.g. US and Irish funds (for simplification and to avoid the complex calculation of the dividend withholding tax ratio [TWR] – see comparison of VWRL and VT ETFS in the next section), one can calculate the withholding tax percentage by dividing “Non-reclaimable withholding tax” by “Dividend income” from the annual report of the ETF.

For investors in Belgium, France or other EU countries that do not have easy access to US ETFs or other countries without an inheritance or double taxation treaty, Irish ETFs would often be the vehicle of choice.

2. Withholding tax for US ETFs

US-domiciled ETFs are generally very advantageous: they often have lower expense ratios, narrower bid/ask spreads, higher daily trading volumes, more ETF options and lower transaction costs. It’s hard to beat that today!

By default, the US government imposes a 30% withholding tax on dividends issued by US companies to foreign investors. Since Switzerland has a tax treaty, this withholding is reduced to 15% for Swiss investors (equivalent withholding for US investors). You can then reclaim the remaining 15% as part of the tax return. US ETFs are therefore tax efficient for Swiss investors.

To benefit from the favorable withholding tax rates, the online broker must be an “authorized intermediary”, as qualified by the US tax authorities: For example, IB and Degiro are, but make sure that the system has filled out the W8-BEN form correctly when opening the account.

Beware, the investor will avoid US funds if there is no estate treaty with the US or a double tax treaty. In this case and including the expense ratios of the funds, the total cost (Tier 1 and Tier 2 – not including Tier 3) of the VT ETF is 0.71% (US domicile) for a non-resident alien without a US tax treaty, while the total cost of VWRL is 0.43% (Source: For this investor, VWRL (domicile Ireland) is the best investment. In addition, it may be difficult to purchase U.S.-domiciled funds due to the 2018 European MiFID and PRIIPs regulations for European investors.

However, U.S. ETFs remain the vehicle of choice for international investors in the presence of an estate treaty with the U.S. or a favorable double tax treaty, especially for ETFs covering the world and the U.S.

3. Withholding tax for ETFs domiciled in Switzerland

In principle, income generated by Swiss ETFs considered as “transparent” is subject to the Swiss withholding tax of 35%, regardless of whether the income is distributed or not. Depending on whether the investor and the ETF are Swiss or foreign, different situations apply.

In order to make Swiss collective investments more attractive to foreign investors, income and distributions of Swiss ETFs that generate at least 80% of their income from foreign sources are not subject to Swiss withholding tax (but may be subject to foreign withholding tax).

Collective investment schemes established in Switzerland play only a secondary role in the global fund market, one reason being the Swiss withholding tax. For foreign investors, the Swiss withholding tax is therefore often a cost factor, as foreign investors cannot reclaim them in all cases. Because of these problems, the bond market is not very active in Switzerland, the bid-ask spread is huge in the Swiss franc corporate bond market, but as we will see, this could change.

4. Withholding tax for Singaporean ETFs

If you consider Singapore ETFs as a gateway to China, this section may be of interest to you, otherwise, go directly to the summary table in the next section.

A typical setup would be a Chinese stock and a Singapore domicile ETF. Let’s take the example of a foreign (China) bond and Singapore ETF withholding tax based on documentation from the Singaporean exchange SGX which claims, probably correctly, to operate in one of the best corporate governance jurisdictions in Asia.

Legally, Singapore ETFs are excluded investment products (EIPs), as defined in the notice on the sale of investment products issued by the authority. Singapore share fees apply: 0.08% of the transaction value (min. $2.50 per order). However, a Singapore tax domicile or Singapore law investment seems to have some positive features in the balance:

  • There is no capital gains tax or inheritance tax. Individuals suffer only taxes on income earned in Singapore. Income earned by individuals while working abroad is not subject to tax, with some exceptions;
  • There is no capital gains tax in Singapore and there is no tax on dividend distributions by the fund to non-resident investors. If interest or royalties are paid by an investment fund to non-resident investors (but ETF distributions are considered dividends), a withholding tax at the rate of 15% is applicable. Otherwise, the treaty is largely similar to that of the US. 
  • There is an interest treaty with China regarding withholding tax on interest with a 10% rate applying to Chinese dividends and interest for Singaporean ETFs (similar situation for institutional investors and funds from Ireland, US and Switzerland).

We have not yet tested any Singaporean ETFs, especially given the lack of development to date, but we will keep an eye on them for future Asian investments. The current problem for Singapore is the low volume, which creates bid-ask and market effects. The development of capital markets in Asia should solve this problem in the medium term.

Summary of withholding taxes for the different ETF domiciles

Illustration for a Swiss investor

Domicile of the collective investment schemeExample of withholding at security level (I)Withholding tax at fund / ETF level (II)Examples of markets to be covered
1. Ireland15% for US shares 15% for German equities (VGER) with some exceptions
35% for Swiss equities  
0% for non-residentsEmerging markets (Swiss or US stocks to be avoided)
2. United States  0% for US shares15% refunded at the time of the tax return , therefore 0% thanks to the double tax treatyUS
World (large proportion US)  
3. Switzerland35% reimbursed at fund level35% reimbursed at tax timeSwiss equities
4. Singapore10% on Chinese dividends and interest (same for Ireland, US and Swiss domiciles)0 withholding tax on dividendsChina assets (not tested)
Withholding taxes for the ETF domiciles

After reviewing four ETF domiciles, the last section considers withholding tax constellations in case of Swiss stocks. If you do not invest in Switzerland or do not intend to do so, you can skip to the summary of the main ETF domicile applications.

Withholding tax for investments in Switzerland

a) Foreign ETFs investing in Swiss securities

Foreign ETFs are subject to Swiss withholding tax on their investment income (mainly dividends from Swiss companies and interest from Swiss bonds), in accordance with Swiss law. Foreign investors can generally reclaim it based on the respective double tax treaty (DTA) between Switzerland and the state of residence of the recipient of the income subject to Swiss withholding.

On the other hand, according to the practice of the Swiss Federal Tax Authorities (FTA), the request for a refund of the Swiss withholding tax for Swiss resident investors invested in an “open” foreign ETF that has been subject to Swiss withholding tax on its investment income is currently denied, although a case is pending before the Federal Supreme Court. A Swiss investor should therefore avoid investing in a foreign ETF investing in Switzerland (the few percent of Swiss weight in global indices should however be tolerable).

b) Investments in Switzerland: Swiss Investor Perspective

We have seen that the withholding tax reduces the dividend or coupon of a foreign or domestic investor in Switzerland by 35%. This is very unattractive if you add this withholding tax to the already meager income from bonds.

As we have seen, you are likely to face two levels of withholding tax if you are a diversified Swiss investor who invests in Swiss ETFs: At the level of the securities and at the level of the collective investment scheme: For Swiss securities purchased by a Swiss law vehicle, dividends may be clawed back for a Swiss resident. Indeed, a Swiss resident investor can easily recover the Swiss withholding tax deducted from the income received or generated by the ETF if he is the beneficial owner and if he has declared the income from the shares held in the ETF in his annual tax return. Tax authorities consider ETFs as “transparent”, which means that the income generated by the ETF is taxed at the level of the Swiss resident investor, regardless of whether this income is distributed or accrued.

c) Perspective of Swiss investments for the non-resident investor in Switzerland

Current situation

A non-Swiss resident investor can claim a reduction under the applicable double tax treaty between Switzerland and his country of domicile. However, for investors residing abroad, the Swiss withholding tax is today an expense factor, as it often cannot be fully recovered or only with difficulty (depending on the applicable double tax treaty between the country of residence and Switzerland). For foreign investors the situation is not favorable with the risk of not recovering withholding tax on bonds, but this situation will improve (see developments below).

Future developments regarding the withholding tax on interest on Swiss bonds

The Swiss parliament wants to abolish the withholding tax on interest on Swiss bonds while banking secrecy would remain for residents and capital gains would remain untaxed. Thus, Switzerland remains favorable to investors domiciled in Switzerland and will become more attractive to those domiciled abroad.

By virtue of its conservative majority, the National Council decided to abolish the 35% withholding tax on interest on Swiss bonds by 122 to 68 votes. The Swiss withholding tax makes bonds unattractive to international investors who have difficulty recovering this tax.  As a result, companies generally issue their bonds abroad at the expense of the Swiss capital market.

The remedy for this is the abolition of the withholding tax for legal entities and for foreign investors. Such a reform could make bonds issued in Switzerland more attractive abroad. Swiss investors suffer withholding tax at source but, as mentioned above, they can easily reclaim this tax when filing their tax returns. The Federal Council expects the proposed reform to result in short-term revenue losses (about CHF 200 million), which should be offset by revenues from capital market growth within five years according to rough estimates. The conservative majority will probably push through this reform, with the only risk being a referendum by the left. It is therefore likely that Swiss franc-denominated bonds and the capital market will become more attractive to foreign investors.

In summary: Best options for Swiss investors considering withholding taxes

In view of the multitude of situations and treaties, let us try to summarize the situation: The four domiciles that come into consideration are the following:

At Guide Finances, we favor US ETFs for US or global investments (given the preponderance of US securities in the world equity capitalization). To benefit from tax advantages, make sure your bank is an authorized intermediary as qualified by the US tax authorities as IB and Degiro.

For emerging markets or Europe, Irish ETFs are good choices as long as they have a high volume and a low price, and even for a global ETF as long as there is no treaty. If there is no double tax treaty or succession agreement with the US, they are generally superior to US funds.

You should limit Swiss ETFs for investments in Swiss securities under certain conditions, but beware of low fund volume with non-negligible market effects: never insert market orders – but always limit orders – at the risk of materially moving the price of the Swiss ETF by yourself!)

Finally, Singaporean ETFs (not tested yet) could be a very good complement in the future for investments in Asia. To be continued!

- Eine alte Steuer soll verschwinden, Neue Zürcher Zeitung, 29.09.2021
- Un premier pas vers la relocalisation des transactions financières, L'Agefi, 29.09.2021
- Bogleheads: TWR calculation* for reference and
- Singapore exchange,

*Extract from

Four elements in order to calculate the dividend Tax Withholding Ratio (TWR)

  • L1TW: Percentage of tax withholding by a security’s home country on dividends distributed by that security to the fund (Level 1). Estimation by dividing “Non-reclaimable withholding tax” by “Dividend income”. (source: fund’s annual report)
  • L2TW: Percentage of tax withholding by the country where the fund is domiciled on the dividends distributed to the investor by the fund (Level 2). Exemple: 30% for non-treaty in US domiciled ETFs and 0% for treaty / 0% in Ireland domicile  .
  • YIELD: Gross yield of the assets held by fund.Estimate by dividing “Dividend income” (historical gross amount)) by “Total assets under management”. (source: fund’s annual report)
  • TER: The fund’s Total Expense Ratio (source: fund’s factsheet or KIID document.
 TWR = (YIELD × L1TW) + ((YIELD × (1 - L1TW) - TER) × L2TW)

The first term in parentheses calculates the Level 1 leakage. The second term uses the remaining dividend, deducts the fund’s TER] and then applies the individual’s Level 2 tax to the remaining sum.

Total ratio paid = TWR + TER

Total expenses = TWR + TER + Income tax on dividend