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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Years of Experience in Business & Personal Taxes
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I am interested in buying into a gold ETF (Zurich Kantonalbank

Resolved Question:

I am interested in buying into a gold ETF (Zurich Kantonalbank - ZKB) via my on-line borkarage IRA account. (Actually my question applies to both IRA and regular brokerage accounts.) Note that this is not a tax evasion scheme, as I plan to purchase the ETF via my existing US brokerage accounts, whick is all reported normally.

So, whatare the tax implications of buying a Swiss ETF? Do I pay taxes to Switzerland (even for an IRA)? Do I get taxed twice (in the US and Switzerland)? Do I get taxed in the US only? How does this work?

Thanks! DJ
Submitted: 3 years ago.
Category: Tax
Expert:  DanielleCPA replied 3 years ago.

DMC :

Hi and welcome to Just Answer! I'm happy to help with your tax questions. Feel free to interject at any time if you need clarification.

DMC :

First, as a U.S. person (citizen or permanent resident), you have to pay tax on your worldwide income. So, you will need to pay U.S. income tax on any income derived from the Swiss ETF. Swiss tax will be withheld on your dividends and interest at a rate of 35%. You are then able to receive a foreign tax credit on your U.S. return equal to the amount of Swiss taxes paid.


Also, because the ETF holds gold, it is considered a collectible under IRS rules. When you eventually sell the ETF, you will need to pay tax on it at 28% (the collectibles capital gain rate). This is opposed to the current 15% tax rate on long-term capital gains, though the long-term capital gains rate is slated to increase to 20% in 2013.


Please note that although you are typically not allowed to hold collectibles in an IRA, as this will trigger an additional tax, an exception is made for ETFs based on an IRS private letter ruling from 2007.


If you hold the ETF in an IRA, as you know, the income will be tax-deferred for U.S. purposes. However, Swiss taxes will still be withheld. You do not receive a foreign tax credit for taxes paid on investments held in an IRA.

Customer:

Here is a link to the prospectus - especially pages 14-~17...

Customer:

It says a gold ETF (or at least this one) is purely pased on the price of gold, so there are no dividends on income generated. As suche there would be no witholding? There would be cap. gains upon the sale of shares. What is the swiss cap gains witholding rate?

Customer:

Also, can you elaborate on the comment on "collectables". These are shares in bullion ( a commodity), not coins that may have value driven by their rarity rahter than the gold content. So how does "collectable" come ito it?

Customer:

What are the implications of the "private letter ruling" that you mention?

Customer:

I guess I believe that the ZGLD is safer that ,say, GLD or IAU (in the US) because ZGLD guarantees to hold the actual metal to back their shares. So, my botXXXXX XXXXXne is the difference in terms of a tax hit - if any, between owning ZGLD, vs the US gold ETFs like GLD or IAU?

Customer:

Correction:



...It says a gold ETF (or at least this one) is purely pased on the price of gold, so there are no dividends or interest generated. As such there would be no witholding? There would be cap. gains upon the sale of shares. What is the swiss cap gains witholding rate?


DMC :

First, capital gains on shares are tax-free in Switzerland, so, yes no withholding would be required. In this regard, holding a Swiss vs an American ETF would have no tax implications.

Second, even though the shares of the ETF are tied to a commodity, gold is considered a collectible. I know this is against intuition, but this applies to U.S. ETF's in gold like GLD or IAU. It is the position the IRS has taken.

Third, a private letter ruling is an IRS ruling written in response to a taxpayer request for guidance. While they are binding to only the specific taxpayer requesting guidance, it provides an indication of the IRS' position on a subject. The IRS has issued a couple of private letter rulings on the subject of gold/silver ETFs. Here is a link to the specific one I am referencing: http://www.irs.gov/pub/irs-wd/0732026.pdf

BotXXXXX XXXXXne: With no dividends or interest generated, you only need to be concerned about tax on the capital gains upon sale of your shares.

Customer:

OK, Thanks!

DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 683
Experience: Years of Experience in Business & Personal Taxes
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