Simple Explanation of Swiss/US Tax Treaty and Its Impact on Your Investment

In the past days, I have been struggling to understand the differences between many similar ETFs from Ireland and the US. Even though they are all tracking the same indices, and have excellent tracking deviation, I wonder why there are so many of them, there must be some differences. This question leads me to understand the tax implications on investment, as it depends on your residency, and the treaties between the country with US.

Let me explain this to you in simple words, as I am not a tax expert nor financial advisor, I summarized the findings I got through my own research because this will definitely impact on my investments.

Dividend Tax and Implication on Investment Returns

The US sourced dividend tax for non-US residents is 30%. It means that your investment in the US-domiciled financial products will distribute you dividends after deducting 30% tax. If you get $2 dividend from your shares of a US company, you will eventually only receive $1.4. Imagine you have invested $200,000 over the years, and a 2% dividend per year is $4000 per year. But 30% is taken away as tax, and you only get $2800! It is a huge difference! However, for most of the countries that have a tax treaty with US, for example, Switzerland, Ireland and many others, the tax rate is reduced…