[SINGAPORE] Singaporeans chasing long-term wealth often assume the only way to win is to follow Wall Street’s lead—buy into big-name US-listed ETFs and ride the S&P 500 upward. But that default logic is starting to crack. As US tax policies grow more complex and the global investment landscape evolves, the long-term cost of sticking with US-domiciled ETFs may outweigh their appeal. From punitive dividend withholding taxes to the looming risk of US estate tax exposure, these hidden frictions could quietly erode wealth over time.
It’s time investors outside the US started asking a basic strategic question: Why default to the American stock exchange when European-listed ETFs can offer the same exposure—with less tax baggage?
The Context: Why US ETFs Became the Default
For decades, the dominance of US capital markets has made US-listed ETFs the natural home for global equity investors. The SPDR S&P 500 ETF (SPY), Vanguard’s VOO, and others have become near-synonymous with passive investing. Their liquidity, scale, and familiarity have long been unbeatable.
But structural bias plays a part too. Financial content and fintech platforms often highlight US-listed funds, driven by US-centric algorithms and narratives. As a result, non-US investors—especially in Asia—are routinely funneled into US ETFs without questioning the implications.
This made sense when low fees and index exposure were the key differentiators. But we’re entering an era where taxation, regulatory exposure, and compounding efficiency are just as important. And on that front, US ETFs fall short for investors based in Singapore, Malaysia, or anywhere without a favorable US tax treaty.
A Better Strategic Fit: Why UCITS ETFs Matter More
The tax case for European-domiciled UCITS ETFs is overwhelming for Singapore-based investors. First, dividend withholding tax. US-listed ETFs withhold 30% of dividends from foreign investors. That’s not a glitch—it’s the default rate for countries like Singapore that lack a tax treaty with the US.
In contrast, UCITS ETFs domiciled in Ireland (like those listed on the London Stock Exchange) benefit from Ireland’s tax treaty with the US. The effective dividend withholding rate is just 15%. For accumulating share classes, the impact is even more favorable—dividends are automatically reinvested, taxed once, and left to grow.
Take the iShares CSPX (a UCITS S&P 500 ETF). It posted a five-year return of 108.2%, outpacing its US counterpart VOO, which delivered 93.2% in the same period. The tax drag makes a real difference.
Bond ETFs show an even starker contrast. Irish-domiciled bond ETFs often allow coupon income to pass through without withholding tax—unlike US-listed bond ETFs, which remain subject to that 30% hit.
Then there’s estate tax. Most retail investors outside the US overlook this entirely. But if a non-resident alien dies with over US$60,000 in US assets—including ETFs—they could trigger estate taxes of up to 40%. That’s not theoretical; it's statute. While enforcement may be rare today, future US fiscal strains could turn this into a hunting ground for tax authorities.
UCITS ETFs sidestep that exposure completely.
Contrarian View: Is the US Still the Best Platform for Global Wealth Building?
Some may argue that the scale and innovation of US financial markets still make US-listed ETFs the better bet. Liquidity, product choice, and tighter spreads are real advantages.
But what’s often missing in this argument is time horizon and investor status. For non-US investors with long-term goals, compounding efficiency beats short-term spread advantages.
Consider this: a 15% annual tax drag on dividends compounded over 20 years doesn’t just eat into income—it snowballs into significant lost capital. And if you’re reinvesting dividends manually from a distributing US ETF, you’re not only taxed more, but also exposed to timing risk and platform costs.
Investors need to stop assuming that just because the underlying index is American, the product must be US-listed. That conflation is outdated. Whether it’s CSPX (S&P 500), IWDA (global equities), or AGGH (global bonds), European-domiciled ETFs now offer world-class access—with more investor-friendly structures.
Implication for Investors: Portfolio Construction Should Start With Tax Efficiency
The core mistake many retail investors make is optimizing for return instead of after-tax return. Portfolio decisions should factor in both what you earn and what you get to keep.
For Singapore-based investors, that means rethinking default positions in US ETFs. You’re not missing out on exposure—UCITS ETFs track the exact same indices. But you’re significantly reducing friction: lower dividend tax, no estate risk, and hands-free compounding.
This is not about ditching US equities—it’s about changing the wrapper. And in doing so, giving your portfolio a better shot at long-term, tax-efficient growth.
It’s also about resilience. In a future where governments—especially the US—face mounting fiscal challenges, it’s reasonable to expect more aggressive tax enforcement. Protecting your capital now may require geographical and structural diversification.
Our Viewpoint
The assumption that US ETFs are the gold standard for global investors needs reexamining. For Singaporean and other non-US investors, the hidden tax costs and estate exposure of US-domiciled funds quietly undermine long-term returns.
UCITS ETFs, particularly those domiciled in Ireland, offer a compelling alternative—one that matches index exposure while minimizing tax leakage and regulatory risk.
As global investing becomes more friction-sensitive, product domicile will matter as much as product performance. The strategic choice isn’t whether to invest in the US economy—it’s how to do so smartly. For many, that means looking across the Atlantic.
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