[SINGAPORE] For years, the US stock market has been the star performer, drawing global investors with its sheer size, liquidity, and strong historical returns. Many Singaporeans instinctively pile into US stocks and ETFs, assuming they’re taking the best route to long-term wealth. But here’s the overlooked reality: by focusing solely on US-listed ETFs, Singapore investors may be shortchanging themselves. From harsh dividend taxes to estate tax exposure, the US investment landscape presents costly obstacles. Instead, UCITS ETFs—European-domiciled and designed for international investors—offer a compelling alternative. Here’s why it’s time for Singaporeans to reconsider where they park their capital.
Dividend Taxation: The Silent Wealth Eroder
For Singaporeans, dividend income from US-listed ETFs comes with a hefty 30% withholding tax. That’s because the US and Singapore lack a tax treaty covering dividends, meaning almost one-third of your payouts disappear before they even hit your account.
European-listed UCITS ETFs, on the other hand, benefit from Ireland’s double tax treaties, cutting the withholding rate to 15%. Even better, many UCITS ETFs offer “accumulating” share classes—meaning dividends are automatically reinvested after the lighter tax cut. Over time, that small structural difference powers compounding gains.
Market data point: Over the past five years, the iShares Core S&P 500 UCITS ETF (CSPX) returned 108.2%, outperforming the US-listed Vanguard S&P 500 ETF (VOO) at 93.2%. That performance gap reflects the quiet power of reinvested, less-taxed dividends.
Forecast: As dividend yields globally remain moderate (around 1–3%), maximizing after-tax reinvestment will be a key driver of long-term ETF performance for non-US investors.
Bond ETFs: A Tax-Free Coupon Boost
Bond ETFs may sound conservative, but they play a vital role in diversified portfolios—especially as investors age or as interest rates shift. Here, too, the tax advantage leans heavily toward UCITS ETFs.
While US-listed bond ETFs treat coupon income as “dividends” and subject them to a 30% withholding tax for Singapore investors, UCITS bond ETFs often allow coupon income to flow tax-free. That’s right: zero withholding tax.
Practical implication: For income-focused investors or those allocating to bonds for stability, UCITS bond ETFs can deliver higher net yields simply by sidestepping US tax grabs. Over time, this can materially improve portfolio income and preserve capital, especially in rising rate environments.
Forecast: As global investors rebalance toward fixed income in the coming decade, tax efficiency will become a more prominent consideration, giving UCITS bond ETFs a clear edge for non-US holders.
Estate Tax Exposure: A Hidden Threat
Most investors don’t think about estate taxes until it’s too late—but they should. Non-US investors holding US-listed stocks or ETFs face a harsh reality: the US estate tax kicks in on assets exceeding US$60,000, with rates up to 40%.
Imagine spending decades building a portfolio, only for your heirs to face a massive US tax bill simply because your ETFs were domiciled in New York instead of Dublin.
Risk assessment: While no one likes to plan for their passing, sensible wealth planning involves minimizing cross-border tax risks. Holding European-listed UCITS ETFs helps shield Singapore investors from potential US estate tax exposure, preserving wealth across generations.
Policy backdrop: With rising US fiscal pressures and political unpredictability, it’s reasonable to expect the US government to tighten enforcement on foreign-owned assets, making this risk more pronounced over time.
What We Think
For too long, Singaporean investors have been captivated by the US stock market’s glitter, ignoring the silent tax and structural drawbacks that chip away at long-term returns. European-listed UCITS ETFs offer a smarter, tax-efficient path, combining global exposure with better dividend treatment, tax-free bond income, and lower estate tax risks. We believe savvy investors should aim for at least 60% of their portfolio in UCITS ETFs—not just to chase returns, but to structurally protect and grow their wealth over the long haul. In a world where fiscal landscapes can shift fast, smart portfolio construction is no longer just about “what you buy,” but also where you buy it.
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