US ETF VS Irish ETF VS Swiss ETF?

For a Swiss resident who wants to invest in an ETF, the ETF's domicile can be crucial. Which domicile should you choose between a US ETF, an Irish ETF, and a Swiss ETF? Why and how to choose? 🧐

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Please note that some of the information in this article regarding laws and taxes may not be up to date. It is recommended that you consult an expert to confirm the information in this article.

ETF Trading Strategy ≠ ETF Tax Country

When an investor wants to make a passive stock market investment via an ETF, he must select a stock market strategy!

👉 Beginners in the stock market tend to confuse stock market strategy and the origin of the ETF 🤔

For example, a beginner in the stock market tends to believe that if he invests in a Dow Jones ETF (30 best US stocks), it means that the ETF's domicile is American.

🔍 But the truth is that it is possible to invest in a stock market strategy from one country and have the ETF domiciled in another country!

For example, It is possible to invest in the top 500 US stocks via an SP500 ETF. With an ETF of Irish origin!

In this case, although paradoxical, the ETF is of Irish origin, the ETF does not hold any Irish shares, on the other hand, the ETF holds 100% of US shares 😮

➡ Therefore, it is possible that the ETF's domicile has no relation to the country of the ETF's trading strategy !

2 ways to confirm the origin of the ETF?

Actually, there are 2 ways to confirm the origin of the ETF:

ETF Factsheet
ETF ISIN

1 – ETF Factsheet?

👉 It is possible to know the origin of the ETF with the ETF factsheet.

The factsheet is a summary of the ETF. In fact, all ETFs must have a factsheet on the fund's website!

Here is an example, the tax domicile of the UBS World ETF (⚠ just an example, not investment advice).

In this case, although the ETF invests more than 60% in … US stocks. The ETF's tax domicile is … Ireland. Despite the fact that UBS is a … Swiss bank 😁

2 – ETF ISIN

👉 Another way I use to confirm the ETF's origin is to analyze the tax jurisdiction via the ISIN. 😉

The ISIN (International Securities Identification Number) Code is a unique twelve-character identifier used to identify financial securities, including ETFs.

In simpler terms, it's the ETF code to confirm that we're talking about the same ETF! In reality, it's the equivalent of the IBAN in a bank account.

🔍 Therefore, except for ETFs of US origin, the first 2 letters of the ISIN signify the origin of the ETF. For example:

AND F	ISIN	Tax domicile of the ETF
UBS World	IE00B7KQ7B66	Ireland
iShares SMI	CH0008899764	Swiss
Amundi Cac 40	FR0007052782	France
Vanguard SP500 VOO	922908363 (US ISINs do not have letters)	USA

Availability of a US – European Union ETF

👉 In most countries in Europe, following financial regulations by the European Union in 2018. It is almost impossible for EU residents to buy US-origin ETFs.

As for US stocks, this is not a problem, European shareholders can buy or sell US stocks. On the other hand, if an EU resident wants to invest in an ETF of US origin, it is almost impossible to find one!

In reality, Since 2018, politicians in the European Commission have increased the administrative burden regarding ETFs of US origin¹.

In fact, the EU now requires ETFs of US origin to translate official documents into all languages of the European Union 👎

Therefore, trading accounts and ETFs of US origin, in order to avoid additional costs and increasing administrative burden, they simply stopped the ETFs of US origin.

Therefore, for example, if a resident of the European Union wishes to invest in an ETF that follows a US stock market strategy, such as an SP500 ETF or a Nasdaq ETF. In reality, the EU shareholder has no other choice but to go through an ETF of European origin. 🔍

Availability of a US-Swiss ETF

👉 However, in Switzerland, as I write this article, we are lucky enough to be able to choose an ETF of US origin! (At least for now) 😉

In reality, Switzerland is less legally strict regarding ETFs of US origin, compared to the European Union.

This is a real stroke of luck! And we will understand why later in this article.

Availability of a US ETF in a trading account

In the European territory, following previously written political pressure, to my knowledge, there is no trading account that allows investing in an ETF of American origin.

Ironically, this aspect includes Swiss trading accounts 🤔

Indeed, Although Swiss law allows Swiss stock accounts to hold US ETFs, in reality, very few Swiss stock accounts hold US ETFs. 🔍

Note that trading accounts in Switzerland allow, in most cases, cross-border citizens to invest through their platform. And since cross-border citizens belong to the European Union, stock market accounts comply with European restrictions.

👉 Therefore, in my opinion, For a Swiss investor who wants to hold a US ETF, there is only one interesting stock market account to buy or sell a US ETF.. This is via the Interactive Brokers trading account.

It is a cheap US stock account available in Switzerland.

The 3 main reasons to prefer a US ETF to another ETF?

👉 In reality, there are three reasons why a US ETF is more interesting compared to an Irish ETF or a Swiss ETF!

Taxes on dividends
A more advantageous TER
Higher AUM with a US ETF

1 – Taxes on dividends

In Switzerland, there are 2 taxes regarding ETFs:

Growth in ETF value = It is a very minimal tax, indifferent depending on the origin of the ETF.

Dividends distributed by the ETF = In this case, the tax varies depending on the origin of the ETF.

🔍 In Switzerland, when we invest in an ETF, as a general rule, the tax resident has different withholding taxes depending on the origin of the ETF dividends. That is to say:

Switzerland = 35%
Ireland = 0%
US = 30%

In this case, at first glance, you might think that an Irish ETF is the best choice from a tax perspective. But that's just the beginning!

It should be noted that there is a significant advantage as a shareholder resident in Switzerland with the Interactive Brokers stock market account, if you invest in an ETF of US origin.

➡ It is the fact of being able complete the W8BEN form 😉

Therefore, once the W8BEMN form is completed by the client in the Interactive Brokers stock account, IB lowers withholding tax on US dividends from 30% to 15%.

👉 Therefore, with the correctly completed W8BEN form, the tax withheld before completing your tax return in Switzerland is:

Switzerland = 35%
Ireland = 0%
US = 15%

⚠️ But in reality, these tax deductions are not final!

➡ Because ultimately, after filing your tax return for each ETF in the investor's canton of residence in Switzerland, the final amount of dividend taxes paid by the Swiss taxpayer is approximately:

Switzerland = 15% (-20% after declaration)
US = 0% (-15% after declaration)
Ireland = 15% (+15% after declaration)

👉 In conclusion, once you have completed the W8BEN form and filed your tax return, a US-origin ETF is not taxed on dividends received 😊

Example with CHF 10,000 in dividends

Here is an example with 10,000 Swiss francs received in dividends:

ETF Origin	Withholding tax	After completing the Form W8BEN	Final tax on dividends after tax return
Swiss	-35% (CHF 3,500 withheld)		-15% (1,500 CHF lost!)
US	-30% (CHF 3,000 withheld)	-15% 1,500 CHF withheld	-0% (DA-1) (0 CHF lost!)
Ireland	0% (0 CHF withheld)		-15% (1,500 CHF lost!)

US ETF VS Irish ETF VS Swiss ETF?

2 – The TER requested by a US ETF

The TER is the management fee that the ETF charges for managing the ETF.

For example, if an ETF requests a TER of 0.10%. If the shareholder has invested 10,000 USD in the ETF. In conclusion, the ETF will withdraw 10 USD per year regarding the TER of the ETF.

Therefore, the higher the TER, the more money the shareholder will lose!

👉 In almost all cases, US ETFs charge lower TER fees compared to Irish or Swiss ETFs.

For example, I compared three stock indices and three comparable stock market strategies. Let's analyze the requested TER together, relative to the ETF's origin.

ETF Strategy	ETF and origin	TER requested by the ETF
Replicate the SP500 stock index	– VOO (USA) – VUSA (Ireland) – SXR8 (Ireland)	– 0.03% – 0.07% – 0.07%
Invest in a global ETF (stocks anywhere in the world)	– VT (USA) – VWRL (Ireland) – FTWD (Ireland)	– 0.06% – 0.22% – 0.15%

🔍 In conclusion, It is more likely to save money with a US-origin ETF compared to an Irish-origin ETF!

3 – Higher AUM with a US ETF

AUM refers to the total value of assets managed by a financial institution.

To summarize AUM in simple words, it is the size of the ETF, to determine the number of purchases and sales of the ETF.

Therefore, the higher the AUM of the ETF, the more the ETF:

Benefits from a better reputation
Make more stock sales and purchases in a day
Has clients

👉 In fact, if we compare the same stock market strategy, US-origin ETFs have higher AUM compared to similar Irish-origin ETFs or Swiss-origin ETFs.

Therefore, some investors believe that a European ETF may have too low an AUM to invest in. Therefore, they prefer to opt for a US ETF.

Why are there so many Irish ETFs?

If you cannot invest in a US ETF and you wish to invest in a European ETF, Most ETFs offered in Europe will be of Irish origin.

According to artificial intelligence, 72% of ETFs of European origin are Irish. Why?

Mainly for 2 reasons:

Irish Business Taxation
15% taxation for US stocks

1 – Irish business taxation

👉 In Ireland, the corporate tax rate is approximately 12.5%.

This Irish tax system, which is advantageous compared to the majority of European Union countries, attracts investment funds to domicile themselves in Ireland.

2 – Taxation of 15% for American shares

👉 Ireland has concluded an agreement with the USA to eliminate double taxation on US shares.

For example, a Luxembourg ETF that invests in a US stock market strategy will pay 30% in tax, while an Irish ETF will pay “only” 15%.

This “discount” of 15 %, attracts European investors to favor an ETF of Irish origin.

Irish ETF VS Swiss ETF

For a tax resident in Switzerland, if he does not wish to invest in an ETF of US origin. The 2 options in most cases are ETFs of Irish origin or ETFs of Swiss origin.

👉 There are two main reasons why Swiss investors prefer Irish-origin ETFs over Swiss-origin ETFs.

The wide choice of an Irish ETF
The (false belief) of better taxation of an Irish ETF compared to a Swiss ETF

1 – The wide choice of an Irish ETF

👉 In reality, in most stock market strategies, there is no possibility of choosing an ETF of Swiss origin.

In fact, to my knowledge, only UBS and iShares investment funds offer ETFs of Swiss origin.

Moreover, as far as a stock market strategy outside Switzerland is concerned, even with UBS and iShares, the choice of an ETF of Swiss origin is very limited!

➡ Therefore, for a stock market strategy, apart from a financial investment in Switzerland, the choice of an ETF of Swiss origin is very limited.

2 – The (false belief) of better taxation of an Irish ETF compared to a Swiss ETF

In Switzerland, Many investors believe that an ETF of Irish origin is less taxed compared to an ETF of Swiss origin.

Because when a shareholder receives a dividend, the withholding tax is:

35% for an ETF of Swiss origin
0% for an ETF of Irish origin

Looking at this initial tax, many investors (wrongly) conclude that they pay less tax with an Irish ETF compared to a Swiss ETF.

On the other hand, as we concluded in the chapter “taxes on dividends”. After the taxpayer's tax return. In reality, theThe final taxation of dividends with a Swiss-origin ETF or an Irish-origin ETF is very similar. That is, around 15%!

👉 Therefore, despite the initial favorable taxation of an ETF of Irish origin, in reality, from a tax perspective in Switzerland, there is no difference between owning a Swiss ETF or an Irish ETF.

US ETF VS Irish ETF VS Swiss ETF?

Conclusion

First, it is important to understand that two ETFs can follow the same stock market strategy, but have different tax origins.

For example, it is possible to hold an ETF:

Of Irish origin
The ETF does not hold any Irish stocks
The ETF holds 100% of US stocks

For a European resident, if they want to invest through an ETF, they won't find a US-based ETF. Therefore, in most cases, they will choose a European-based ETF.

👉 Note that Switzerland is one of the few countries in Europe where it is possible to find an ETF of US origin. Via Interactive Brokers 👍

➡ For a shareholder resident in Switzerland, in the majority of cases. A US-origin ETF is more advantageous compared to a European-origin ETF. Mainly thanks to:

Better taxation of dividends from a US ETF compared to dividends from a European ETF

US ETFs require, in the majority of cases, lower TER fees compared to the TER fees of a European ETF.

👉 For investors who want (or are required) to invest in a European ETF, the best choice, in most cases, is an Irish ETF.

In addition, the majority of ETFs offered to Europeans are ETFs of Irish origin.

On the other hand, for a Swiss shareholder who is hesitating between an ETF of Swiss origin and an ETF of Irish origin, there is no tax advantage in choosing between an Irish or Swiss ETF. However, the initial withholding tax is better with an Irish-origin ETF.

US ETF VS Irish ETF VS Swiss ETF?

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