Without further ado, I will showcase which are the 3 UCITS ETFs that comprise my tax efficient ETF portfolio with global, US and emerging market exposure. The third stock of each category is US-domiciled Vanguard ETFs (VT, VOO, and VWO) which are shown to illustrate their respective cumulative performances. I only selected issued ETFs from Vanguard and iShares for comparison basis as they are the largest players in the domain of Exchange Traded Funds. The table below illustrates the 3 major market categories and their respective ETFs, detailing key information such as TER and cumulative performances. So what are the various UCITS ETF options that allow an investor to partake in the World market? Can one still invest in the S&P500 which has been by far the best performing market index in the past decade? Best UCITS ETFs to invest for Global, US and Emerging Market exposure Will have to face the risk of potential estate taxes. To a tax-efficient UCITS ETF after accounting for dividend withholding tax, one Not only is the total expense significantly higher (almost double) compared Hence the conclusion by now should be to avoid US-domiciledĮTFs. NAOF preferred platform for investing in foreign markets is Saxo Capital which does not have the cash issue associated with Interactive Brokers and due to our still low capital base (<$100k) Interim Conclusion Is US-based, one should not hold more than $60,000 in CASH (ok for UCITSĮTFs), otherwise, US estate taxes again become an issue. You will need to find a broker that offers the appropriateĮxchange, for example, Interactive Brokers. Investment in Transferable Securities) ETFs. These are the UCITS (Undertakings for Collective Most popular non-US domiciled ETFs can be purchased on the That you are now entirely protected from US estate tax surprises. ![]() However, when you hold ETFs domiciled in Ireland orĪnother non-US domicile, you do not directly hold any US assets. = $376,000 might be payable as estate taxes when you pass away! If you are a US non-resident alien with no US tax treatyĬoverage (like Singaporeans), when you die while holding US situated assets (US-domiciledĮTFs), the US can apply an estate tax of up to 40% of the balance above a $60,000įor example, if you have US$1m in US stocks, 40% of ($1m-$60k) Is often overlooked and not given the necessary importance. US-domiciled ETF is due to the US estate tax for foreigners. The second reason why it might not be wise to invest in Tax efficient ETF Portfolio Consideration #2: Estate tax This is due to the hefty Dividend Withholding Tax impact. Hence, purely looking at the TER ratio will result in an erroneous conclusion that US-domiciled ETF, VOO, is cheap vs. L2TW = 0%, no Irish tax withholding on UCITS funds L1TW = 15%, as it is Ireland domiciled, holding US Such as the Vanguard S&P500 UCITS ETF (VUSD) will only amount to a totalĮxpense of 0.29%. Total expense = TWR + TER = 0.55% + 0.03% = 0.58%įor quick comparison purpose, a similar tax efficient ETF L2TW = 30%, US non-resident rate for countries without a US L1TW = 0%, as it is US domiciled, holding US securities Not have to pay any Irish withholding tax. Investing in Ireland domiciled ETFs and you do not reside in Ireland, you do Non-resident investing in US-domiciled ETFs, that number is 30%. The Vanguard S&P500 ETF (VOO) has 0% L1TW.ĭividends the individual pays (Level 2). ForĪ US domiciled ETF with ALL US holdings (for example S&P500), L1TW isĮssentially 0%. Report, by dividing “Non-reclaimable withholding tax” by “dividend income”. This can be estimated using each fund’s annual L1TW: percentage of tax withholding paidīy the fund on the dividends distributed by the underlying international.To calculate the dividend Tax Withholding Ratio (TWR), we Let us take a brief look at how the exact math is calculated. Impact for a Singaporean investor, the total cost increases significantly to However, after taking into consideration the withholding tax This ETF has a Total Expense Ratio (TER) of 0.03%. ![]() Tax efficient ETF Portfolio Consideration #1: Dividend Withholding Taxįor example, a popular US-domiciled ETF is VOO, Vanguard S&P500ĮTF. The tax implications when one is vested in US-domiciled ETF.įor those who are unfamiliar, let me just provide a quick rundown as to why US-domiciled ETFs might seem cheap on the surface but when dividend withholding tax is taken into consideration, the conclusion changes dramatically. ![]() This article looks to identify the best tax efficient ETF portfolio to invest in for Global, US and Emerging Market exposure.įor investors who have been engaging a DIY approach toĬonstruct your own ETF-based passive portfolio, you are probably well-aware of
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