FAQs on ETFs & Taxation

• German and Irish ETFs are generally exempt from corporate income tax in Germany and Ireland; taxation takes place at the investor level. Swiss collective investment schemes such as ETFs and traditional investment funds are also generally considered tax transparent in Switzerland. This means that the fund itself is not taxed; instead, taxation occurs at the level of the investor.
• For investors who are tax resident in Switzerland, interest and dividends in particular, as well as other income components accruing to the fund, are taxable at the investor level. For private individuals who are tax resident in Switzerland, this income is subject to income tax.
• Capital gains from the disposal of fund units held as private assets are generally tax-free for investors, provided that no professional securities trading activity is deemed to exist.

• Withholding taxes are generally taxes on dividends and interest payments that are deducted directly at source. This deduction is carried out by the state from which the payment to the fund is made. The level of the withholding tax rate depends, among other things, on whether the fund, as the holder of the securities, benefits from a double taxation treaty or not.
• If the holder is an Irish or German investment fund, the withholding tax may be reduced in certain cases due to the double taxation treaty between Ireland or Germany and the state of the company whose securities are held by the fund.
• The country-specific (reduced) withholding tax rates may differ for German or Irish ETFs. Different withholding tax rates therefore affect the net returns of the fund.

Illustrative example:
A dividend of USD 100 is paid from the United States. US dividends received by Irish ETFs are subject to a withholding tax of 15%, whereas US dividends received by German funds are subject to a withholding tax of 30%.

Result:
The Irish ETF receives a net dividend of USD 85, while the German fund records a net dividend of USD 70.

• In principle, the same rules apply to the taxation of income from ETFs as to the taxation of income from traditional investment funds. Both are considered collective investment schemes and are subject to the same tax principles.
• The stock exchange listing of a fund does not result in different taxation. What matters instead is the type of income generated and the tax classification of the ETF as private or business assets in the hands of the investor.

• The fund domicile does not generally result in different taxation at the investor level.
• However, the fund domicile may lead to different returns at the fund level, as different withholding tax rates may apply to dividends and interest (see section 2, “What are withholding taxes?”).

• Income from both distributing and accumulating funds is subject to income tax.
• For distributing funds, the income actually paid out is recorded as taxable income.
• For accumulating funds, the income earned within the fund but not distributed is also considered taxable income.
• The tax-relevant amounts for certain ETFs are published annually on the website https://www.ictax.admin.ch/extern/de.html#/search and must be declared in the tax return as income from movable assets.
• The difference between distributing and accumulating funds therefore lies primarily in cash flow, not in the amount of taxable income.

• Capital gains from the sale of fund units are generally tax-free for investors who hold their units as private assets.
• This applies provided that the investor’s activity is not classified as professional securities trading.
• In practice, various criteria are used to assess whether a person qualifies as a professional securities trader. These include, among others, the holding period of the investments, transaction volume, use of borrowed capital, and the importance of trading for overall income.
• If one or more of these criteria are met, capital gains may be taxed as income.

• Persons resident in Switzerland are subject to a general obligation to declare income and assets.
• Taxable income from ETFs and investment funds, as well as the corresponding taxable asset values, must be declared in the tax return.
• This applies to both distributing and accumulating ETFs and investment funds.

• Yes. Fund units are subject to cantonal wealth tax.
• The decisive factor is the tax value of the fund unit as at the end of the tax period. This value is published annually and must be included in the tax return as part of taxable assets.

• iShares ETFs domiciled in Switzerland are collective investment schemes under Swiss law. From a tax perspective, there are specific features in connection with Swiss withholding tax and the publication of taxable income.
• Income from funds domiciled in Switzerland may be subject to Swiss withholding tax of 35%, insofar as it constitutes taxable income distributions.
• For persons who are tax resident in Switzerland, this withholding tax can generally be fully refunded or fully credited against the ordinary tax liability as part of the regular tax assessment.
• For accumulating share classes, withholding tax may be levied on the portion of income designated as taxable, even if no actual distribution is made.
• Otherwise, the same principles apply to iShares ETFs domiciled in Switzerland as to other collective investment schemes: interest and dividend income are taxable, while capital gains from the disposal of units held as private assets generally remain tax-free, provided that no professional securities trading exists.
• Units in ETFs domiciled in Switzerland are considered, for Swiss transfer stamp duty purposes, as securities issued by a domestic issuer. The transfer stamp duty amounts to 15 basis points on such domestic securities and 30 basis points on foreign securities.
• Whether a transaction in ETFs is subject to transfer stamp duty, whether the full or half duty applies, or whether an exemption applies must be assessed separately for each individual transaction.