For a resident of Switzerland looking to invest in an ETF, the ETF's domicile can be crucial. This article explores which American, Irish, or Swiss ETF to choose when investing from Switzerland, and which ETF domicile to select. 🧐
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Consult a legal expert before investing. The information in this article is subject to change.
Introduction
When starting out in the stock market, ETFs are often compared based on their index (S&P 500, MSCI World, Nasdaq, etc.). However, an equally important criterion is often overlooked: the ETF's tax domicile.
Indeed, two ETFs can track exactly the same stock market index, invest in the same companies… but have completely different taxation, fees or accessibility.
For an investor residing in Switzerland, the choice between a American ETF, Irish Or Swiss can have an impact on dividend taxation, management fees and even long-term performance.
In this guide, we will look at the differences between these three types of ETFs and determine which one is most advantageous depending on your situation.
Why is the domicile of an ETF important?
The domicile of an ETF corresponds to the country where the fund is legally registered.
Contrary to what many believe, this does not mean not that the ETF invests in companies in that country.
This residence primarily influences:
- the taxation of dividends
- double taxation agreements
- the operating costs of the fund (TER)
- the regulations to which it is subject
- Its availability depends on the country where you live.
For a Swiss investor, this point can represent a difference of several thousand francs over several decades.
The ETF's tax domicile is not the same as the country in which it invests.
This is probably the most common misconception among novice investors.
Let's take an example.
You want to invest in the 500 largest American companies through an S&P 500 ETF.
You can buy:
- a US domiciled ETF
- an Irish home ETF
- or even a Swiss domiciled ETF.
In all three cases, the portfolio contains the same US stocks. The only difference is the country in which the fund is domiciled.
In other words:
- An ETF domiciled in Ireland can hold 100% of US shares
- a Swiss ETF can hold 100% of shares in the United States; ;
- The fund's domicile therefore does not indicate where your money is invested. Only the country of tax jurisdiction.
How can I find out the domicile of an ETF?
There are two very simple methods.
1. Consult the Factsheet
Each ETF has an official factsheet.
These include:
- the fund's home
- the index tracked
- management fees (TER)
And also the country of jurisdiction
Before making any investment, reading this sheet is essential in order to analyze the ETF.
2. Check the ISIN code
The ISIN code also allows you to quickly find out the country of domicile.
Some examples:
| ISIN prefix | Country |
|---|---|
| IE | Ireland |
| CH | Swiss |
| READ | Luxembourg |
| FR | France |
For example :
- IE00… → Irish ETF
- CH000… → Swiss ETF
- LU… → Luxembourg ETF
US ETFs generally use a different system and do not begin with a European country prefix. Generally, there are no letters before the ISIN number.
Can you buy an American ETF from Switzerland?
Yes.
And compared to European residents, this is one of the advantages for Swiss investors.
Since the entry into force of the European PRIIPs regulation in 2018, residents of the European Union can practically no longer buy US ETFs.
They must therefore use European ETFs (mainly Irish).
Since Switzerland is not a member of the European Union, this restriction does not apply.
Swiss investors can therefore still access US ETFs through certain international brokers, notably Interactive Brokers.
Why are US ETFs often the most attractive?
For an investor domiciled in Switzerland, US ETFs generally offer three advantages.
1. Lower management fees
US ETFs are known for their extremely low fees.
Here are some examples.
| Strategy | American ETF | Irish ETF |
| S&P 500 | 0,03 % | 0,07 % |
| ETF World | 0,06 % | 0.15 to 0.22 % |
A difference of a few hundredths of a percent may seem negligible.
However, over several decades, these savings can amount to several thousand francs thanks to compound interest.
2. Larger funds
US ETFs often have a much higher AUM (assets under management).
A substantial fund offers several advantages:
- better liquidity
- lower spreads
- lower risk of closure
- optimized management costs
This is particularly the case for many Vanguard or BlackRock ETFs.
Why are there so many Irish ETFs?
If you are looking for an ETF in Europe, you will quickly notice that a large proportion of the funds are domiciled in Ireland.
This is not a coincidence. There are several reasons:
Attractive taxation
Ireland has long applied a tax system that is favorable to management companies.
Many major international asset managers have therefore domiciled their ETFs there.
A favorable tax treaty with the United States
Ireland benefits from a tax treaty allowing the US withholding tax on dividends to be reduced to 15% at the fund level.
This is much more advantageous than in other European countries.
This is the main reason why the majority of UCITS ETFs are domiciled in Ireland.
Irish ETF or Swiss ETF: which one to choose?
If you don't want to (or can't) invest in a US ETF, you'll generally have to choose between an Irish ETF and a Swiss ETF. Here are the main differences:
Irish ETFs offer more choice
The majority of global ETFs are domiciled in Ireland.
You will therefore easily find ETFs:
- MSCI World
- FTSE All-World
- S&P 500
- Nasdaq 100
- emerging markets
Conversely, the supply of Swiss ETFs remains much more limited.
Swiss ETFs are not necessarily more tax-efficient.
Many investors believe that a Swiss ETF is more attractive because the withholding tax can be reclaimed.
In practice, after tax return, the difference between a Swiss ETF, an Irish ETF or a US ETF is often very small for a Swiss resident.
The main selection criteria therefore remain the quality of the fund, its fees, and its investment strategy. Because the final tax implications are not that different.
Taxation of ETFs in Switzerland: what are the differences between an American, Irish and Swiss ETF?
Taxation is often one of the main criteria used to compare ETFs. Yet, it is also one of the most misunderstood topics.
Each ETF has a country of tax domicile. This country can influence the withholding tax applied to dividends.*.
Taxation of Dividends
For a Swiss resident, the initial withholding tax on dividends may vary depending on the ETF's domicile. Generally speaking:
| ETF Home | Initial withholding tax on dividends |
|---|---|
| American ETF | 30 % |
| Irish ETF | 0 % |
| Swiss ETF | 35 % |
At first glance, an Irish ETF therefore seems more tax-efficient than an American or Swiss ETF.
However, a Swiss investor who holds a US ETF can fill out the form W-8BEN. This form generally allows you to reduce the US withholding tax by 30 % to 15 %.
So, if I update the previous table:
| ETF Home | Initial withholding tax on dividends |
|---|---|
| American ETF | |
| Irish ETF | 0 % |
| Swiss ETF | 35 % |
However, one should not conclude that an American or Irish ETF is automatically more tax-efficient.
Therefore, after completing their tax return in Switzerland and requesting applicable refunds or credits, the final taxation of dividends depends primarily on the investor's personal tax situation. In many cases, the final taxation of dividends is similar, whether the ETF is American, Irish, or Swiss.
In truth, if you are not considered a professional trader by the Swiss tax authorities, You will pay approximately 14% in taxes on your dividends after you have completed your tax return, regardless of where the dividends are domiciled.
| ETF Home | The final tax on dividends (approximate) |
|---|---|
| American ETF | |
| Irish ETF | |
| Swiss ETF |
Note that this table is not an absolute rule, it is an estimate; the final tax will depend on the investor's canton of residence and their tax situation.
Capital gains tax
For a private investor residing in Switzerland, capital gains realized from the sale of an ETF are generally tax-exempt.
This exemption applies provided that the investor is considered a private investor and not a professional trader by the Swiss tax authorities.
The domicile of the ETF (American, Irish or Swiss) generally does not have a significant influence on this rule.
However, the value of your ETFs is part of your taxable wealth. You must therefore declare the value of your portfolio as of December 31st.
However, it is important to understand the difference in taxation:
- The capital gain realized is generally not taxed. for a private investor
- The total value of the portfolio is taken into account for wealth tax purposes.
In other words, for a private investor residing in Switzerland, The capital gain realized on the sale of an ETF is generally tax-exempt.
For example, if you buy an ETF for CHF 10,000 and later sell it for CHF 15,000, the CHF 5,000 gain is normally not taxed.
And what about the taxation of the portfolio?
However, the total value of your portfolio is taken into account when calculating wealth tax. If your ETFs are worth CHF 100,000 on December 31st, this amount must be declared as part of your wealth, even if you haven't sold your ETFs. In reality, the amount of tax then depends primarily on your canton, your municipality, and your net worth.
The amount of wealth tax depends primarily on the canton, the municipality, your net worth, and any applicable tax exemptions. It is generally expressed per thousand, not as a percentage.
If you would like an approximate figure, It is important to note that this tax is very low, approximately 1-2% per year for a private investor. However, this taxation varies depending on the investor's tax situation.
Comparative table
| Criteria | American ETF | Irish ETF | Swiss ETF |
| Initial taxation of dividends (Swiss resident) | ⭐⭐⭐⭐ (with completed W8-BEN form) | ⭐⭐⭐⭐⭐ | ⭐⭐ |
| Final taxation of dividends (Swiss resident) | ⭐⭐⭐ | ⭐⭐⭐ | ⭐⭐⭐ |
| Capital gains taxation (Swiss resident) | ⭐⭐⭐⭐ | ⭐⭐⭐⭐ | ⭐⭐⭐⭐ |
| Management fees (TER) | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐ | ⭐⭐⭐⭐ |
| Average fund size | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐ | ⭐⭐ |
| Choice available | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐⭐ | ⭐⭐ |
| Accessible in Switzerland | Yes | Yes | Yes |
| Accessible from the European Union | No | Yes | Yes |
Should you choose an American, Irish, or Swiss ETF?
For an investor residing in Switzerland, the answer is often quite simple.
Choose a US ETF if you:
- You have access to US ETFs through your broker.
- search for the lowest fees
- search for ETFs with high liquidity
- do you want your US ETF to be based on US jurisdiction?
Choose an Irish ETF if you:
- cannot buy US ETFs
- do you want your ETF to be based on European jurisdiction?
Only choose a Swiss ETF if you :
- cannot invest in a US or Irish ETF
In my opinion, here is the purchase order according to the ETF's domicile:
- US ETF (thanks to very low TER fees)
- Irish ETF (good choice but higher TER than US ETFs)
- Swiss ETF
Conclusion
The domicile of an ETF is an often underestimated criterion; however, it can have a real impact on the profitability of a portfolio.
For an investor residing in Switzerland, US ETFs generally offer the best conditions :
- very low management fees
- excellent liquidity
If you cannot access US ETFs, Irish ETFs are an excellent alternative thanks to their wide selection and sometimes competitive taxation.
Finally, Swiss ETFs remain attractive in certain specific cases, but their offering is more limited and they do not provide significant tax advantages compared to Irish ETFs. Consequently, Swiss ETFs are often ranked third after American and Irish ETFs.
Whatever your choice, always prioritize a well-diversified ETF with low costs that is suited to your long-term investment strategy.
American, Irish or Swiss ETF: which one to choose when investing from Switzerland?
FAQ: American, Irish or Swiss ETFs
Which is the best ETF for a Swiss resident?
There is no single ETF that is ideal for all investors. For a Swiss resident, a US ETF can be attractive due to its often very low management fees, high liquidity, and the large size of some funds. However, an Irish ETF remains an excellent alternative, particularly for accessing a wide selection of UCITS ETFs.
Can you buy an American ETF from Switzerland?
Yes. Unlike residents of the European Union, investors residing in Switzerland can generally still buy US ETFs. However, access depends on the broker used and the products they offer.
Why are US ETFs banned in Europe?
US ETFs are not completely banned in Europe. However, since the implementation of PRIIPs regulations, most retail investors residing in the European Union can no longer purchase certain US ETFs. This is because the managers of these funds generally do not provide the regulatory documents required by European authorities. Consequently, European brokers restrict or prevent access to many US ETFs.
Why are Irish ETFs so popular?
Many major fund managers choose Ireland as the domicile for their UCITS ETFs. Ireland boasts a well-regarded regulatory framework, a strong fund industry, and a favorable tax treaty with the United States. This is why a large proportion of European ETFs are domiciled in Ireland.
Does an Irish ETF necessarily invest in Ireland?
No, and that's why many people are mistaken. In reality, the tax domicile of an ETF does not necessarily correspond to the countries in which it invests. For example, an ETF domiciled in Ireland can invest 100% in American companies and hold no Irish shares.
How can you tell if an ETF is American, Irish, or Swiss?
The most reliable way is to consult the ETF's official Factsheet. The fund's domicile is usually indicated there. The ISIN code can also provide an indication: Irish ETFs often begin with "IE" and Swiss ETFs with "CH".
What is the tax domicile of an ETF?
The tax domicile is the country in which the ETF is legally registered and subject to its regulations. Therefore, it can influence the taxation of dividends, the applicable tax treaties, and the rules the fund must comply with.
Is an American ETF always cheaper than an Irish ETF?
Very often, yes, but not always. US ETFs often offer very low management fees (TER), but you have to compare ETFs individually. Two funds tracking the same index can have different fees depending on their manager, size, and replication strategy.
Do US ETFs still have the lowest management fees?
US ETFs are often very competitive in terms of fees, largely due to the size of the US market. However, some Irish ETFs also offer very low TERs (Total Expense Ratios). Therefore, it's best to compare the fees of each ETF rather than choosing solely based on its country of domicile.
Is a Swiss ETF safer for a Swiss investor?
Not necessarily. It's important to note that the security of an ETF depends primarily on the assets held, diversification, the quality of the manager, and the fund's structure. The fact that an ETF is domiciled in Switzerland does not automatically mean that it is less risky or safer.
Are Swiss ETFs more tax-efficient?
Not necessarily. Swiss withholding tax may apply to distributions, but it can usually be reclaimed or credited on the tax return when certain conditions are met. After filing the tax return, the actual advantage of a Swiss ETF compared to an Irish or US ETF may be limited.
Are ETF dividends taxed in Switzerland?
Yes. For a Swiss tax resident, income generated by an ETF is generally taxable as income. The final amount depends in particular on the canton, the municipality, the investor's total income, and their tax situation.
Are accumulating ETFs taxed in Switzerland?
Yes, in many cases. Even if an accumulating ETF doesn't pay dividends directly into the investor's account, the reinvested income may be taxable in Switzerland. Therefore, choosing an accumulating ETF doesn't automatically eliminate income tax.
Are capital gains realized with an ETF taxed in Switzerland?
For a private investor residing in Switzerland, capital gains realized from the sale of an ETF are generally tax-exempt. However, this rule may not apply if the investor is considered a professional trader by the tax authorities.
Are ETFs subject to wealth tax in Switzerland?
Yes. The total value of ETFs held as of December 31st is generally declared as taxable wealth. Therefore, wealth tax depends primarily on the canton, the municipality, net worth, and any applicable tax exemptions.
Does the ETF's domicile influence capital gains?
Generally, no. For a private investor residing in Switzerland, the US, Irish, or Swiss domicile of an ETF typically does not have a significant impact on capital gains exemption. However, each tax case is different.
Can you invest in the S&P 500 with an Irish ETF?
Yes. There are several Irish ETFs that track the S&P 500 index. In reality, these ETFs invest primarily in large American companies, even though they are legally domiciled in Ireland.
American ETF or Irish ETF: which one to choose?
For an investor residing in Switzerland, a US ETF can be attractive due to its often lower fees and high liquidity. An Irish ETF might be preferable if you are looking for a UCITS ETF or if a US ETF is not available through your broker. The choice should also take into account the index tracked, the TER (Total Return), the fund size, and the investment strategy.
Irish ETF or Swiss ETF: which one to choose?
Irish ETFs generally offer a wider selection, particularly for global and US indices. Swiss ETFs can be attractive for certain strategies, but their offering is often more limited. Ultimately, taxation should not be the sole deciding factor.
Does the domicile of an ETF influence its performance?
Yes, but usually indirectly. The domicile can influence fees, dividend taxation, and certain fund operating costs. These differences can affect long-term performance, but the tracked index, fees, and replication quality also remain essential criteria.
Should an ETF be chosen solely based on its tax advantages?
No. Taxation is important, but it shouldn't be the only criterion. Before investing, it's also recommended to analyze diversification, the index tracked, management fees, fund size, replication method, and its suitability to your investment strategy.
What is the most important criterion for choosing an ETF?
The main criterion is to choose an ETF that suits your strategy and investment horizon. Indeed, a well-diversified ETF with low fees and sufficient assets under management is often more important than simply choosing between an American, Irish, or Swiss domicile.
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US ETF vs. Irish ETF vs. Swiss EF ETF?
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