Dividends or withdrawing stock market capital?

We all love dividends or occasionally withdrawing stock capital. But from a tax point of view, is it better to receive dividends or withdraw stock capital? 🤔

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Stock Market Fees = As Important as Stock Market Gains

First, I have always written that stock market costs are as important as stock market gains.

In this article, I wanted to understand which one is more tax advantageous. Receive dividends or withdraw stock capital occasionally? 🤔

Therefore, I started with the Vaudtax tax declaration¹. This is the official website of the canton of Vaud for filing tax returns. And I did some simulations.

Stock market taxation in Switzerland

In Switzerland, receiving dividends or withdrawing stock market capital is not taxable in the same way.

Dividends received = income tax
Capital withdrawal = wealth tax

With the few examples that I am going to write, we will understand that withdrawals are more fiscally interesting than dividends.

🔺An example with 1,000,000 CHF of stock market assets (Paul)

I simulated a single person. Born in 1990. Her only income is 10,000 shares of 100 CHF. That is, 1,000,000 CHF of stock market assets. In a single ETF of Swiss origin.

In this case, I simulated that the taxpayer receives no dividends.

Note that I did not make any tax deductions for this situation! I focused only on stock market taxes.

So, first example (Paul), 1'000'000 CHF in a Swiss ETF without dividends and without withdrawal. That's 5'954.80 CHF in tax.

Total = 1,000,000 CHF – 5,954 CHF = 994,046 CHF in your pocket!

🔺An example with 970,000 CHF of stock market assets + 30,000 CHF of dividends (Lara)

Then I imagined a taxpayer, shareholder with 970,000 CHF of stock market assets and 30,000 CHF of distributed dividends. Still with a single Swiss ETF.

Note that in total, it is 1,000,000 CHF of assets. The same amount as Paul.

However, in order for you to understand this statement, you need to understand how taxes work regarding dividends.

Understanding Dividend Tax

In order to understand the taxation concerning the distribution of dividends to the shareholder. Note that there are 2 tax steps:

Withholding tax on dividends

This tax is deducted from the moment the shareholder receives the dividends! The percentage deducted depends on the country of the stock or ETF. But it is generally between 15 and 35 %.

Tax return

When filing your tax return, it is possible to recover a percentage of the withholding tax on dividends. Again, the percentage recovered depends on the country of the stock or ETF. It is usually between 15 % to 20 % of withholding tax!

⚠ Note that if you do not declare the dividends you received, you lose the percentage to which you are entitled! Therefore, declare all your dividends in order to recover the money that the State owes you!

To give an example😉

Dividend received	+100 CHF
Withholding tax	-35 CHF (35%)
Money recovery when filing taxes	+20 CHF (20%)
Total	+85 CHF (15% total tax)

However, it should not be forgotten that the withholding tax and the recovery of money when declaring vary depending on the country of origin of the share or ETF.

🔺Lara's Imposition

In Lara's case, the tax result is:

– CHF 10,500 in withholding taxes on dividends
+ 2,890 CHF in taxes

Therefore, here is a simplified table of income and taxes.

Dividends received	+30,000 CHF
Advance taxes on dividends	-10,500 CHF
Taxes receivable (tax return)	+2'890 CHF
Total	22'390 CHF

In this example we conclude that:

Dividends received net	22'390 CHF
stock market capital	970'000CHF
Total	992,390 CHF

-> That means = 7,610 CHF in taxes in the end! <-

Paul (without dividends) VS Lara (30,000 CHF dividends)

Stock market heritage	Total tax
Paul – 1,000,000 CHF without dividends	5,894 CHF
Lara – 970,000 CHF of market capital + 30,000 CHF of dividends	7,610 CHF

➡️ First conclusion, it is less taxable by 1,716 CHF to own 1,000,000 CHF in a Swiss ETF. Rather than owning CHF 970,000 in an ETF + CHF 30,000 in dividends ❕❗

🔺An example with 1,030,000 CHF of stock market assets + 30,000 CHF in stock market capital withdrawal (Joe)

Now I simulated an initial stock market capital of CHF 1,030,000 at the beginning of the year. And a sale of CHF 30,000 of shares during the year. Always with the same Swiss ETF.

But this time the taxpayer does not receive any dividends.

Note that in this case, the stock market capital at the end of the year is the same as that of Paul and Lara. That is to say, 1,000,000 CHF.

To sum up:

1.01 = 10,300 shares at 100 CHF
Sale of 300 shares during the year
31.12 = 10,000 shares at 100 CHF

Let's analyze how taxes will be deducted in this situation?

Here is the result 😉

With this strategy, taxes are limited to CHF 5,954.

That is, 1,000,000 CHF – 5,954 CHF = 994,046 CHF in your pocket!

Conclusion

👉 In conclusion, here is the final imposition for each stock market strategy!

Stock market heritage	Total taxation	Stock market wealth after taxes
1,030,000 stock market assets – withdrawal of 30,000 CHF (Joe)	5'954 CHF	994'046 CHF ✔
1,000,000 CHF without dividends (Paul)	5,894 CHF	994'046 CHF ✔
970,000 CHF of market capital + 30,000 CHF of dividends (Lara)	7,610 CHF	992,390 CHF

👉 To conclude, in Switzerland, depending on the origin of the action (or ETF), Withdrawing stock market capital is approximately 25% more advantageous than receiving dividends. From a tax point of view.

▶️ Therefore, it is better to sell stock funds than to receive dividends. 💪

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