Economico Marketplace 3a & Vested Benefits Securities Solutions: Tax Comparison

Economico Marketplace 3a & Vested Benefits Securities Solutions: Tax Comparison

The tax aspect should not be overlooked when investing—this applies in particular to 3a and vested benefits (FZ) securities solutions. To say it upfront: frankly and finpension are the model students when it comes to tax-efficient implementation of 3a & FZ investments. Let’s take a closer look.

First, stamp duty: when you trade equities and bonds, these are subject to the Swiss federal turnover tax (“stamp duty”). You pay 0.075% on Swiss securities and 0.15% on foreign securities based on the transaction volume. However, if the same transactions are carried out within a fund structure, they are exempt from stamp duty. For this reason, many 3a and FZ pension foundations invest not directly in securities, but via investment funds. The same applies to all providers in Economico’s 3a & FZ universe. Bravo!

Things get more complex when it comes to withholding taxes on dividend income from equities: almost all countries levy withholding taxes on dividends, typically between 15% and 30% depending on the country. Switzerland, by the way, is at the top of this scale with a 35% withholding tax (so-called “withholding tax”). For Swiss equities, Swiss investors can fortunately reclaim this tax through their income tax. This is not the case for withholding taxes on foreign equities—those deductions are generally lost. With a typical dividend yield of 2% and a withholding tax rate of 30%, you lose about 0.66% in annual returns. In some cases, a (small) portion of this tax may be reclaimed.

However, for pension assets in the 2nd and 3rd pillar, the Swiss Confederation has negotiated withholding tax relief—or even exemptions—with many countries through double taxation agreements (DTAs). This includes agreements with the United States (76%; 30%), Japan (6%; 15%), and Canada (3%; 25%). The first percentage refers to the weight of these countries in a global market-cap-weighted equity portfolio; the second indicates the respective withholding tax rate. If you do the math (portfolio weight × 2% dividend yield × withholding tax rate), the difference between having or not having tax relief amounts to roughly 0.5% per year on the equity portion of a globally invested portfolio.

Anyone who understands that investing is about fighting for every basis point will draw two conclusions:

1. The “Global Equities” asset class is best held in a tax-advantaged way within 3a & FZ securities solutions. Keep this in mind if you hold securities across different accounts. Or more concretely: hold global / U.S. equities in 3a, and Swiss equities in your private portfolio.
2. Within 3a & FZ solutions, providers that use tax-efficient fund building blocks have a clear advantage.