Home Asset Allocation Guide to Dividend Withholding Tax for Singapore Investors (Updated 2020)

Guide to Dividend Withholding Tax for Singapore Investors (Updated 2020)

By
Financial Horse
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128
Source: 123rf.com

When I first started investing in US stocks, withholding tax was one of the concepts that befuddled me. It didn’t help that there are very few sources of information out there dealing with withholding tax from a Singapore perspective. It took me many hours of digging to begin to grasp the extent of my tax obligations

I’ve recently received a number of queries from readers about the full implications of withholding tax.

With that in mind, I felt that it was an opportune time to take a closer look at withholding tax. It’s quite a taxing topic (get it?), but nevertheless it’s a crucial one that all investors should understand. Many times we obsess over the expense ratio of an ETF or the minimum commission of a brokerage, but then we just blindly accept a 30% tax on all dividends from our US stocks.

Please note that tax is a notoriously convoluted subject. Tax codes can change frequently, and at times an updated ruling from a tax authority can have profound impacts for tax structuring. If you are in doubt as to the action you should take, please consult with a tax adviser.

Basics: What is Withholding Tax?

Withholding tax is not to be confused with Capital gains tax, or Inheritance tax:

  1. Withholding tax is a tax on interest or dividends paid to foreign persons.
  2. Capital gains tax is a tax on the profit from the sale of an investment.
  3. Inheritance tax (or estate tax), is a tax on assets acquired by gift or inheritance.

To illustrate, imagine that you buy US$1 million worth of US stock, which pays a 3% dividend yearly. The US$30,000 annual dividend is subject to a 30% withholding tax, so US$9,000 is deducted from your dividend to be paid to the US government.

Eventually the US$1 million worth of US stock goes up to US$1.5 million, and you are liable for capital gains tax on the US$500,000 profit. Capital Gains Tax is pegged to your income tax bracket (goes up to 20%). Fortunately, as you are a Singapore investor (non-US tax resident), you are exempt from capital gains tax.

Eventually when you pass away, you leave all your shares to your children. Inheritance tax is payable on the transfer of shares. Inheritance tax goes up to 40%, and there is an exemption of US$60,000 only. There are many ways to get around inheritance tax, but that’s a completely separate discussion that we shall save for another day.

Accordingly, the main tax that we as young retail investors need to be concerned with is withholding tax.

I’ve set out the withholding tax for most major jurisdictions below (the more common ones are bolded):

Country stocks are listed in Withholding tax rate on dividends
Australia 15% (after tax treaty)
Canada 15%
China 10%
Hong Kong 0%
India 15%
Japan 15%
Netherlands 15%
Singapore 0%
United Kingdom 0% (after tax treaty)
United States 30%

As you can see, the biggest problem for us as Singapore investors is the US withholding tax of 30%. Given how much we love US stocks, let’s focus more specifically on the US (the principles are generally applicable for most jurisdictions).
What is taxed?

PwC has a good summary:

Under US domestic tax laws, a foreign person generally is subject to 30% US tax on its US-source income. US persons making payments (‘withholding agents’) to foreign persons generally must withhold 30% of the payment amount as tax withheld at source on payments, such as dividends and royalties, made to foreign persons. In other situations, withholding agents may apply reduced rates or be exempted from withholding tax (WHT) at source when there is a tax treaty between the foreign person’s country of residence and the United States.

Basically, you pay withholding tax on all dividends, be it from shares, ETFs, REITs etc. If you buy a 6% yielding US REIT, after withholding tax it’s going to be a 4% yielding REIT, which is a lot less attractive.

Any exemptions to withholding tax?

The only exemption to US withholding tax that I am aware of, is Qualified Interest Income. JP Morgan has a good summary of this:

The U.S. tax law permits a regulated investment company (“RIC”) to designate the portion of distributions paid that represent interest-related dividends (commonly referred to as qualified interest income) and short-term gain dividends as exempt, if any, from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. Generally, QII percentages are reported on a monthly basis and qualified short-term capital gains are reported on an annual basis.

Basically, you can get exemption from withholding tax from bond payments. The most common one will be coupon payments on US treasuries, or corporate bonds.

From what I understand, most brokers will do the necessary for you, so no further action is required if you’re buying a bond fund like the TLT.

However, best to check your coupon payments when you get them, to ensure that nothing is going wrong on their end.

This exemption doesn’t apply to dividends from stocks, ETFs, or REITs though.

How to get around Withholding Tax

At this point, it’s useful to note the difference between “Tax Evasion” and “Tax avoidance”.

To illustrate, when we open a brokerage account as retail investors, we need to fill up an annoying Form W-8Ben. This form basically declares that you are non US Tax Resident, so that the IRS can deduct 30% withholding tax on your dividends.

If you falsely declare that you are US Tax Resident to evade withholding tax when you are not one, that’s tax evasion and it’s a crime.

If you decide to route your shareholding through an Irish domiciled fund to reduce your tax liability through a clever use of US tax treaties, that’s called tax avoidance and its perfectly legal (in fact it’s what most of the big MNCs do, only that they have an army of tax advisers to structure it for them).

Ireland domiciled Funds (for US Stocks only)

By far the easiest way to get around US withholding tax is to buy Irish domiciled ETFs. The US has various income tax treaties with countries in order to avoid double taxation of the same income and to prevent tax evasion. In particular, there is a US-Ireland tax treaty that reduces withholding tax from the standard 30% to 15%.

Accordingly, an Irish domiciled ETF will pay 15% withholding tax on its US stocks. The ETF is listed on the London Stock Exchange, so when it pays the dividend from Ireland to UK to Singapore, there is no withholding tax. The net effect is that you only pay 15% withholding tax on US stocks. A couple of examples below to illustrate:

US – 30% -> Singapore: If you buy US shares as a Singapore investor, you pay a flat 30% withholding tax

US – 0% -> US ETF (eg. SPY, QQQ) – 30% -> Singapore: If you buy a US domiciled ETF as a Singapore investor, you pay a flat 30% withholding tax.

US – 15% -> Ireland ETF (eg. VUSA, IWDA) – 0% -> UK – 0% -> Singapore: If you an Ireland domiciled ETF listed on a European stock exchange, you pay a 15% withholding tax.

It’s about as simple as that really. The table below shows how Irish-domiciled ETFs can help to reduce withholding tax for US stocks. It also shows that this trick really only works for US stocks. If you did the same thing for UK stocks, you actually end up paying more withholding tax because you lose the tax treaty, so it’s really important to watch what you’re using Irish domiciled ETFs for.

Country stocks are listed in Withholding tax rate on dividends Withholding tax if held via Irish-domiciled ETF
Australia 15% (after tax treaty) 15%
Canada 15% 15%
China 10% 10%
Hong Kong 0% 0%
India 15% 10%
Japan 15% 15%
Netherlands 15% 15%
Singapore 0% 0%
United Kingdom 0% (after tax treaty) 15%
United States 30% 15%

A lot of these ETFs are denominated in USD, so you don’t even take on the forex exposure. Good examples will include the Ireland-domiciled Vanguard S&P 500 UCITS ETF (VUSA) or the iShares Core MSCI World UCITS ETF USD (IWDA). The latter is a global stock fund, which is a bit more complicated, because you enjoy the favourable tax treatment on the US shares, but the analysis has to be done on a case by case basis for the rest of the shares (eg. if the fund holds Australia shares, it depends on how  Australia-Ireland tax works, and how the shareholdings are structured).

The one problem with buying such ETFs is that typically the expense ratios are slightly higher, and the bid ask spreads are not as good as the US ETFs which have superior liquidity. However, it does feel like we’re nitpicking at this point, because practically they really are quite similar.

There’s a good table of Irish Domiciled Funds from the Invest Quest below that you can refer to, split by regional and sector exposure:

There’s also a summary of Ireland domiciled funds here if you are interested to find out more.

Synthetics

Investopedia defines a synthetic ETF as:

Synthetic ETFs use derivatives such as swaps to track the underlying index. The ETF provider enters into a deal with a counterparty (usually a bank) and the counterparty promises that the swap will return the value of the respective benchmark the ETF is tracking.

A traditional S&P500 ETF will buy the 500 constituent US stocks in the  S&P500. A synthetic ETF will enter into a derivative contract with an investment bank, that will pay amounts equivalent to the performance of the S&P500 (including dividends). The derivatives can be structured in such a way that they are not subject to dividend withholding tax.

The most common synthetics are the DB X-trackers (Deutsche Bank ETFs). Unfortunately, there is no blanket rule for these ETFs, because they need to be examined on a a case by case basis, depending on how the underlying contracts were structured. I took a look through their fund documentation but couldn’t reach a clear conclusion on this point. If anyone out there owns one of these synthetic ETF and can confirm this point, I would be most grateful (its tricky because the withholding tax may be applied at source, so it won’t show up on your brokerage statement, only at the fund level).

One point to note with synthetics ETFs: While they typically offer superior tracking against the underlying index, they have higher expense ratios, and you are taking on massive counter-party risk. If the counter-party providing the underlying derivatives (eg. Deutsche Bank) goes under, your ETF is likely going to be worth nothing. There are a lot of uncertainties with a synthetic, so I wouldn’t recommend them for a long term buy and hold investor. They should be used more for trading positions.

Strategic: Avoid dividend stocks, stick to growth stocks

Okay, this last point is sort of like cheating. It recognises that you have to pay withholding tax, so you simply buy stocks with no dividend (or a small dividend), such that the impact of withholding tax is negligible.

In fact, this is probably the only applicable point for retail investors who want to buy an individual stock (you can’t do the Ireland trick for individual stocks without setting up an Ireland domiciled fund, which is not worth the hassle unless you are a really big boy).

Personally, this is the trick that I use for myself. I find that when it comes to yield products, Singapore has a pretty nice range of REITs, dividend stocks and SSBs to choose from without having to go to the US market. Don’t forget that in Singapore, dividend income is tax exempt. Where the SGX is lacking though, is growth stocks. We just don’t have the same kind of FAANG stocks that the US has.

So my personal strategy is to stick with blue chip dividend stocks (eg. DBS, CapitaLand etc) and REITs (CMT, CCT, MCT etc) for Singapore, and use the US market for growth stocks. Growth stocks pay almost no dividend so withholding tax is not an issue, and as Singapore investors, we are not subject to capital gains tax on profits from the investment.

It’s a personal preference though, and I know of many investors who continue buying US dividend stocks and US treasuries. That’s perfectly fine as well, because each investment is unique, and you can never find a product that will exactly replicate the risk profile of a US treasury. As long as you understand your tax obligations and reach a measured decision, you are in good hands.

Closing Thoughts

A 30% withholding tax on all dividends is not to be trifled with. Over a long, multi-decade period, it can really destroy your returns. There’s little point in obsessing over expense ratios and commissions only to take a 30% hit on your foreign income. If you are buying ETFs, the simplest way around this is to just pick an Ireland domiciled ETF and you’ve saved yourself about a 15% tax bill on dividends. If you’re into stock picking, it’s a lot harder, and my personal preference would be to stay away from high yield stocks.

The SGX has a great range of dividend stocks and REITs to pick from. Don’t forget that with REITs (and companies), the management team will try to structure their holdings in the most tax efficient way. For example when a REIT buys a US or German property, they will structure the property holding structure to minimise the tax bill (and they get tax advisers to do this for them), so another easy way is to just pop some money on these big boys and go along with them for the ride. If you find a REIT with a strong sponsor such as CapitaLand or Mapletree, and like their long term strategy, it’s may be a good option to just buy them and let the management team handle the tax structuring.

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128 COMMENTS

  1. Hi FH,

    US inheritance tax for non-US residents only has a very low US$60K exemption.

    Of course since things are all done online facelessly behind a computer screen, one can always use a close trusted family member to “take over” the online account if one bites the dust. But this is tax EVASION and illegal. 🙂

    Regarding derivatives-based ETFs I suspect they get around it by using a swap counterparty that is not domiciled in US. Otherwise will be hit by short-term CGT — and then you’ll need the RIC setup to claim back the short-term CGT from uncle sam, which will further raise the expense ratios.

    In recent years, many US companies recognize the drag caused by taxes on dividends in non-retirement accounts. Hence the increased trend of using share buybacks instead of giving bigger dividends (concept of shareholder yield). This is particularly popular with growth & tech stocks.

    • Hi Sinkie,

      Thanks for pointing this out, apologies as I mixed it up with the exemption for US tax residents.

      But yes I agree that to sidestep the issue, a trusted family member can simply sell all the holdings and transfer the cash assets after death, assuming of course they have the presence of mind to do it (not that I’m condoning tax evasion).

      The synthetic ETFs are tricky because much depends on how they structured the underlying derivatives, and such information isn’t readily available sometimes. But I suppose if they are well structured in the manner you mentioned, they can actually be used to get around CGT and WHT. It’s hard to know which are the well structured ones though, and I haven’t come across any myself.

      Cheers.

      • Hi, great article.
        Permit me to add. With synthetics, there isn’t any actual holdings of the underlying stocks being held. Therefore, no dividends are actually received so no withholding tax nor CGT come into play. The swap contract merely obligates the counterparty to pay (say S&P500, if index goes up, or received if index goes down). No different if you and I made a bet now here in Singapore on the performance of any index. And then settle with cash in th outcome.
        In most cases, like with X-trackers, such
        synthetics is cheap funding for DB, the bank (the counterpary to the ETF) by using their balance sheet. Synthetics also is more efficient in that no trading fees when rebalancing or dividend cash drag.
        Another interesting point for etf like X-trackers, if you read the last page of the ETF offering, there is at least 5 separate DB entities involved (the ETF fund/trust, the promoter, the index, the counterparty, the underwriter the market maker, the traders (for fx) etc). A little haircut is made by each party.

        Cheers

    • Unfortunately no, unless you qualify for the QII exemption and are prepared to file the necessary paperwork with IRS.

      • How would one go about the paperwork? As an example, I am using interactive brokers. Will the withholding tax for TLT be claimed back for me?

  5. For the same ETF listed on SGX and the US (eg. SPDR S&P 500 ETF, SPDR Gold Shares), which one should Singaporeans buy? Thanks!

  8. Great article! Indeed your write-up are one of the easiest to understand and act up on. Just a question – I’m looking to invest in US ETFs but I was wondering whether there is a way to do it through regular investments (monthly or something like that) rather than timing the market. Any known platform that allows it?

    • Hi Ravi, welcome to Financial Horse! Unfortunately I’m not aware of any such service. The robo advisers (eg. StashAway) will do it for you, but they charge a pretty hefty fee (0.5% p.a.), and you don’t have full control over your asset allocation. If you’re prepared to log in once a quarter (or month) and spend a minute or two keying in buy orders, you can actually save yourself a lot of fees. 😉

  9. Is there any capital gain tax and/or dividend tax in UK? Not sure this will cause a higher expense even though you save 15% dividend withholding tax (eg vusd and iwda)

    • From what I understand, there is none because the fund is domiciled in Ireland. So you pay 15% withholding tax from US to Ireland, and no withholding tax from Ireland to Singapore. The fund is listed in the UK, but no domiciled or tax resident in the UK for tax purposes.

      That’s a great question though, do correct me if my understanding is wrong. Tax matters are tricky.

      • Hi Financial Horse, thanks for your reply!.

        Btw, would like to check this although not sure you heard about it before. Saw that in Vanguard prospectus for Irish-domiciled ETF (similar statement observed in Blackrock as well) regarding the 8th year acquisition tax (refer to page 78 of the prospectus). I understand that this is their Irish tax structure/system (or something like that), but do they relevant to us (aka typical Singapore investors)?

        • Wow that is a really technical point. Unfortunately I dont have any answers on this. Might be best to check with the fund manager or a tax advisor. Or if you’re able to share the paragraph in question, I can take a quick look here. 🙂

    • In the UK, there is a withholding tax on income derived from real estate. From memory, it is about 20%. This includes income from UK-listed REITs, not just rental property. However, my understanding of the current rules is that there’s no capital gains tax or tax on dividends unless you are resident in the UK for tax purposes.

      If you are a UK tax resident, then there are capital gains taxes to be considered, as well as ordinary income tax on dividends. The capital gains tax is subject to a fairly generous tax-free annual allowance of £12,300 (about S$22,700). The tax-free dividends allowance is £2,000. Some of these can be mitigated by things called “tax-wrappers”. However, unless you are a UK tax resident at the moment you don’t need to worry about them.

      Just bear in mind that the UK government can change these rules at any time, especially if a less investor-friendly Labour government ever got elected!

  10. Informative article, thanks for sharing. I have been searching on WHT on ETFs. It will help further if you can go deeper to comparison of cost structure of synthetic vs normal ETF. SGX has a number of DB xt synthetic etfs. Investors often have questions to go for these synthetic or purchase from foreign exchanges and incur custodian fees and withholding taxes. Look forward to your articles . Thanks for sharing

  11. Hi FinancialHorse,

    Would like to clarify some stuff about dividend witholding tax for singaporean investor.
    I filled up only W8-BEN form via stanchart.
    I bought ADR:BUD 30%(belgium company 15% after tax treaty).
    I also bought a switzerland stock 30%(15% after tax treaty).
    Do I automatically pay only 15% dividend witholding tax for these 2 stocks? or is there any other form I need to fill up?

    • Yes you are correct. Withholding tax is deducted at source. So the dividends that you receive will be after the 15% withholding tax. The ETF will have to file and pay the withholding tax on their end.

    • Those are really tricky, because as I understand they’re basically synthetic instruments that replicate the underlying performance through derivatives. Not only are you taking on counterparty risk (on the derivatives), but it’s also hard to know for certain whether the structuring of the derivatives would result in Singapore investors having to pay withholding tax. Short of checking with a tax advisor (or asking the fund manager), I dont see any way to confirm this point. If you know of any total return ETFs that can successfully get around US withholding tax for Singapore investors, please do let me know! 🙂

  13. Hi Financial Horse, thanks and sorry for the long paragraph below (page 78 Vanguard prospectus).

    “If a Shareholder does not dispose of Shares within eight years of acquiring them, the Shareholder will be deemed for Irish tax purposes to have disposed of the Shares on the eighth anniversary of their
    acquisition (and any subsequent eighth anniversary). On such deemed disposal, the Company will account for Irish tax on the increase in value (if any) of those Shares over that eight year period. The Company will pay this tax to the Irish Revenue Commissioners. To fund the Irish tax liability, the Company may appropriate or cancel Shares held by the Shareholder. This may result in further Irish
    tax becoming due which the Company may satisfy by appropriating or cancelling additional Shares of the Shareholder. No tax is payable by the Company in respect of Exempt Investors and Shareholders
    who are not resident or ordinarily resident in Ireland and the required Declarations are in place.”

    1. Any ideas do we (or how to) have the declaration done?

    2. Anyway, you seems to have much more preference in the US-listed ETFs than those in UK from the few posts previously. Any particular reasons if you don’t mind to share (understand than London will have advantage in withholding tax, while US is good for liquidity)?.

    Thanks !

  15. Hi!
    I have a corporate in Singapore. I’m thinking to invest in Irish funds.

    I had this question:
    Are the dividends from the same (as individual) as you describe in the article?:
    US->Ireland 15% , Ireland -> SG 0%?

    Here what I’ve found:
    https://www.iras.gov.sg/irashome/Businesses/Companies/Working-out-Corporate-Income-Taxes/Companies-Receiving-Foreign-Income/Tax-Exemption-of-Foreign-Sourced-Income/#title3
    As I understand, I can avoid if there is already 15% tax payed. But since the tax was paid between US->Ireland , and not from Ireland -> SG, I’m not sure if that’s applied?

    What will result to:
    US->Ireland 15% , Ireland -> SG 15%?

    Thank you if you can clarify things !

    • Hi!

      From what I recall, it should be the same regardless of whether you’re an individual or a corporation, but do check with a tax advisor to confirm. Cheers!

  16. Great article.

    An important nuance with respect to Australia, however, is that 30% DWT is only payable on unfranked dividends (i.e. declared by companies out of income which has not already been subject to Australian corporate taxes). If dividends are franked (paid out of corporate income where corporate income taxes have already been paid), not DWT is payable, and the majority of Australian dividends are franked. This means that high-dividend Australian stocks should trade at much higher multiples than US stocks.

  17. PS another good avoidance strategy is to invest in companies that return capital to shareholders through buybacks rather than through dividends. That effectively converts dividends into capital gains over time. A lot of companies in the US take this approach. Cheers

    • That’s the theory, but in your experience does it usually work out in reality? I’ve found that the effectiveness depends a lot on the sentiment around the stock, and the exchange in question. I still prefer cash in hand (dividends) as opposed to capital gains that are not locked in.

    • Hi there, T bills are hit with withholding tax as well. They have coupons though, why do you think they have a zero coupon?

      • T bills <1 year are zero coupon and pure discount. Not sure what the tax treatment on those would be regarding withholding tax

        • Oh I see what you mean. Yes if there is no coupon, technically there would be no withholding tax as well. Only Capital Gains Tax would apply, but as a Singaporean we wouldn’t have capital gains tax.

  19. In Singapore, which platform would you suggest to buy VUSA or IWDA? I tried Fundsupermart – but they dont have these listed. The banks charge 0.82%.. Whats the least cost way to buy into these?

  20. Hi FH,

    I’m quite interested in Keppel KBS US reit. Might be taking a position soon. Are the dividends from this REIT subjected to 30% taxes? Thank you for your time.

  21. Hi Financial Horse,

    It was an marvellous article written!Good Job & thanks alot for writing it!!=D

    ZS shared that paragraph below (page 78 Vanguard prospectus).

    “If a Shareholder does not dispose of Shares within eight years of acquiring them, the Shareholder will be deemed for Irish tax purposes to have disposed of the Shares on the eighth anniversary of their
    acquisition (and any subsequent eighth anniversary). On such deemed disposal, the Company will account for Irish tax on the increase in value (if any) of those Shares over that eight year period. The Company will pay this tax to the Irish Revenue Commissioners. To fund the Irish tax liability, the Company may appropriate or cancel Shares held by the Shareholder. This may result in further Irish
    tax becoming due which the Company may satisfy by appropriating or cancelling additional Shares of the Shareholder. No tax is payable by the Company in respect of Exempt Investors and Shareholders
    who are not resident or ordinarily resident in Ireland and the required Declarations are in place.”

    Do we need to pay this tax? =)

    • Thanks! Glad that it has been helpful!

      That’s a very good question, I’ve not heard of this quirk in Irish law before. A quick google search didn’t turn up anything as well. Perhaps we should check directly with the fund manager / Vanguard to clear up this issue once and for all. 😀

  22. So does this mean if I want to build a lazy three fund portfolio using your DIY FHARA (VTI, VWO, and TLT), I should consider swapping those US listed ETFs with Irish domiciled ETFs? And the downsides are higher fees and lower rate of liquidity?

    • Actually, the Irish domiciled version of those ETFs (listed on the LSE) have pretty decent liquidity and low fees as well. So yes, if you’re starting from scratch, do take a look a serious look at those! From what I remember, they dont have Irish domiciled equivalents for all of the US ETFs, so you’ll need to tailor it slightly to your investment objectives.

  23. Thanks for putting this together 🙂 You have a table showing dividend withholding taxes for a number of countries. Can you please give me the withholding rate for Canadian dividends?

  24. Hi FH ,

    IWDA does not give out dividends, instead it auto reinvests them back to the fund .
    So I assume we would not be taxed at all ?
    Thanks.

      • Hi Financial Horse,
        Just a quick question. If the IWDA fund is based in Ireland, wouldn’t the distribution cash flows from the individual equities be taxed 15% between US and Ireland before they are auto-reinvested by the fund?

        Correct me if I’m wrong because I’m not entirely clear, but would the only way to do an ETF investment that does not yield withholding tax at all be to invest in a US domiciled non-distributing ETF? So there would be no income flows from US to any foreign persons since the dividends are reinvested automatically.

        • That’s correct, 15% withholding tax for IWDA. And yes again, US domiciled non-distributing ETF is technically the best from a withholding tax perspective.

  25. Hi FH, loved the article and its long form style! You mentioned in this article that “there are many ways to get around inheritance tax”. I understand this is £325k for the UK. How specific ways might an SG investor circumvent this tax?

    • Not saying that you should do this, but if the person who passed away is a loved one, his/her next of kin can simply login to his account, sell the shares, and transfer the money out before the relevant estate proceedings are formally filed. Of course, this would be tax evasion, which is illegal… 😉

  26. Hi!

    The VT (Vanguard Total World Stock ETF) is a US domiciled accumulating ETF. Does that mean investing in this form Singapore means I will avoid withholding tax and don’t need to switch to an Ireland domiciled ETF to reduce withholding tax?

    Thanks in advanced!

    • Yep, that’s my understanding as well. I’m not a tax guy though, so I can’t rule out the possibility that I may have missed out an obscure arrangement that affects how this works.

  27. With accumulating shares, you don’t have any taxable events until you sell.

    can you advise on this argument related to IWDA as seen in a forum :

    That’s not universally true. Many countries tax ‘accumulated’ dividends in the same way as any that have been paid out. This leaves investors with a considerable headache. They have to find the cash to pay the tax from elsewhere annually. And they face a set of complex calculations to strip already-taxed dividends out of the sales proceeds when capital gains tax becomes payable.

    If you are lucky enough to live somewhere that does not tax dividends or capital gains, or that allows dividends to become capital gains via reinvesment, all well and good. But if you don’t, using accumulating ETFs can be an awfully painful route to take, and not KISS at all.

    Is Singapore among such lucky countries to live ?

    • Singapore does not tax dividends or capital gains. There are some exemptions to that rule though, so if you’re investing in more exotic products, best to check with your tax advisor. 🙂

  28. Hi!

    Thanks for the informative post. I was wondering, what if the ETF is a HK domiciled ETF (such as 9140 by Vanguard)? Does that actually mean that we are not taxable for the dividends earned?

    Thanks in advance!

    • It depends on how the fund holdings are structured. If they do it via something like a US SPV > HK SPV, they’ll probably be subject to withholding tax. 🙂

  29. to add to the complex story..US listed preferred shares issued by US entities such as JPM or Citibank that yield about 6% fall under the 30% WHT, HOWEVER non domiciled entities such as HSBC (again US listed pref shares yielding about 6%) there is NO WHT. I assume the entity makes it clear if there is WHT or not but Id give a HUGE thankyou to anyone that can find a way to search for prefs with NO US WHT.

    FYI RE HK listed shares: Chinese listed shares in HK do have a 10% wht, 939/1398/2380 for example.

    • Hi! Stocks with 20% dividend are pretty high-risk high return, so it really depends on your risk appetite. If you have a healthy risk appetite, and believe you’ve spotted an undervalued stock the market may have missed, absolutely go for it! 🙂

      For me though, I spend more time on the Asian markets, so I generally get exposure to the US markets via ETFs. It really depends on your objectives.

      Good luck with your investments!

  31. Wld like to know how to apply for a US withholding tax number. I bought an insurance policy which has matured but I realised that I made a loss after calculating the initial investment & the total amt of premiums paid so I’m trying to ask for a waiver of the 30% withholding tax. Alternatively who can I ask to help me with this problem?

    • The relevant number to fill in should be your Singapore tax identification number, ie your NRIC. Since it’s an insurance policy though, probably best to check with your financial advisor to assist on this.

      Hope this get’s resolved. Cheers!

  32. Hi FH. Despite the 15% dividend withholding tax on Ireland ETFs, I noticed that VUSA has a dividend yield of 1.6% compared to VOO at 1.98%. Considering how GBP has been depreciating over the years, do you still think it’s a good idea to invest in VUSA over VOO?

    • GBP depreciation shouldnt have a big impact on the ETF because the underlying assets (US shares) are denominated in USD. 🙂

  33. Hi Financial Horse,

    Have you thought about the following?
    – Sell the ETF before ex-dividend date and repurchase stock afterwards?

    With that wouldn’t you avoid the dividend and its tax altogether? Wouldn’t this be superior to even paying 15% to an Irish fund?

    Of course, only works if there’s no capital gains tax. But that would be the case for us in Singapore, no?

    Cheers,
    Talan

    • Sure that works. It’s a lot of effort though, not to mention transaction fees. And you may lose a small bit along way because market isn’t perfectly efficient.

  34. Hi Financial Horse,

    Have you thought of using long CME futures for S&P500 or Nasdaq and roll the contracts every 3 months. The futures commission are generally quite low relative to the contract size. (e.g. mini S&P futures 4 X buy/sell @USD10 each = USD80 / USD150,000 = 0.053%p.a.) There is no dividend to receive as they are incorporated into the futures price when you buy them. Also, I think there is some funding cost incorporated in to the price as you don’t have to come out with the full nominal sum up front. (Just the initial margin). These 2 contracts are very liquid. Overall, I thought it can replicate the S&P or Nasdaq ETF without having to be concerned with the withholding issue.

    • True, synthetic replication will get around the withholding tax issue. It is a fair bit of work though, for a typical retail investor. I guess it really depends on the size you’re investing and whether you’re prepared to put in some effort to do so.

  35. Hi Financial Horse

    The article talks about dividends arising from US stocks attracting withholding tax. What about non US stocks, but purchased through a US broker like IB?

    For example, I purchase LSE:LGGG (Legal & General Global Equity, domicile in Ireland) through my IB account, will this still attract the 15% withholding tax?

    • Yes, 15% withholding tax because of Irish domicile. The broker you use doesn’t matter, what matters is the domicile of the fund. 🙂

      • Apologies I may have misread your query earlier. Essentially there is no withholding tax from the Irish Fund > Singapore Investor leg. But there may be withholding tax from the underlying securities into the Irish Fund, depending on what the fund invests in.

        So no withholding tax from the Fund to you, but whether there is withholding tax at the fund level depends on what the fund invests in. I couldn’t get much info on LGGG to really comment though. If its US investments, there’s likely withholding tax on the dividends. If its non-US, then it depends on the tax treaty between that country and Ireland.

        Hope this helps! 🙂

  36. FH, where did you get your information from, it is my understanding that there is NO WHT for Irish domiciled funds. a quote from the Irish fund (association”

    “non-Irish investors are not subject to Irish tax on their investment and do not incur any withholding taxes on payments from the fund” several other sources say the same thing..

    • Hi James!

      Yep no WHT for Irish Domiciled Funds to Singapore Investors. But if the fund invests in US shares, then there will be 15% WHT betwen the US underlying instruments and the Irish Domiciled Funds. So it really depends on what the Irish Domiciled Fund is investing in.

      Hope this clarifies! 🙂

  37. Hi FH, do Singaporean investors need to pay withholding tax for Australia listed REIT stocks such as Scentre Group and Stockland?

    • I think the answer is 15%, but I actually haven’t looked at this one in detail. Really interesting question though, I’ve not explored buying Aussie listed REITs.

  39. You are mistaken, there are no withholding tax payable on US treasuries or corporate bonds coupons that are registered (most are), including those paid via ETFs like TLT, as these are considered as “Portfolio Interest”.
    IB for example automatically applies the right 0% rate on them. No need to file anything with the IRS.

  40. Good that you mentioned it is better to check in all cases, I just noticed IB is sometimes withholding and then later refunding. E*Trade also does that.

  41. Very informative article?
    Can you advice on withholding tax for Singaporean on payout from US lawsuit and Classaction?

  42. Hi FH – Thanks for the really informative article.

    Apologies in advance but will appreciate your clarifcation on a few noob questions:

    1) WHT for the UK is 20% (0% after tax treaty) – Do I need to do anything or the 0% automatically applies? Similarly for Australia, do I need to do anything?

    2) Some stocks, eg BP, has an ADR in the US. All else equal (and ignoring FX for the monent), does that mean I should buy the UK-listed one since the dividend will attract 0% interest. Does your change if it is a dual listing as opposed to an ADR?

    Thanks.

    • No worries – my replies below. Do note I’m not a tax advisor, so don’t take this as tax advice.

      1) None that I am aware of, but best to check with your stock broker or tax advisor.

      2) You will need to check on the holding structure of the ADR. Without taking a look at the legal holding structure, I won’t be able to answer this question.

      Cheers!

  43. No. You would be subject to 30% dividend withholding tax for US ETFs. You would also be subject to the US Estate Tax. Not a good idea unless you are a US person.

  44. Hi Financial Horse

    When choosing between an Irish and US domicile fund, as you point out, the expense ratios differ. For example, assume the fund’s dividend is 1%, choosing the Irish domicile will provide a dividend of 0.85%, whilst the US domicile will provide a dividend of 0.7%. However if the expenses are 0.4% and 0.07% respectively, by my reckoning the US fund is the better choice – the cost of the additional dividend tax is outweighed by the savings on expenses. Is that correct? How should you do a meaningful comparison between different funds that accounts for both costs?

    • Hi Matt,

      Yes, work out the dividend tax impact and factor in expenses. So the way that you calculated is correct. 🙂

  45. Hi Financial Horse, may I ask two question regarding on the tax?

    1) the Estate Tax
    Let’s say if I use Interactive Brokers to build a portfolio containing only non-US listing stocks, ETFs, such as stocks, ETFs listed in London Stock Exchange, SGX, or Hong Kong Exchange. Even those ETFs are tracking US market index. In this case, is my portfolio subject to the Estate Duty as a non-US Non-Resident?

    2) the Withholding Tax
    For this VUSA ETF in LSE, I check the Factsheet from the Vanguard, and I saw this in the footnote:

    “Net cash dividend equals reinvested dividends less 30% withholding tax.”

    Seem the withholding tax of VUSA is till 30%, could you please check on this?
    https://americas.vanguard.com/institutional/mvc/loadImage?country=BS&docId=19654

    Thanks

    • Hi Peter,

      My replies below:

      1) Oh that’s a tricky one. Best to consult a tax advisor for this, it depends on how the ETF is structured I think.

      2) That’s a good point. My suspicion is that it’s due to how VUSA accounts for the withholding tax. Best to check with the fund manager for their actual practices. Given that it’s Irish domiciled, the effective tax paid should only be 15%.

  46. 2) For point 2, Vanguard is only making an assumption that the the dividends in the benchmark are reinvested, net of 30% withholding tax.

    Eg if you look at the 5 year mark, VUSD returns 8.81%, higher than the benchmark’s 8.56%. Besides tracking errors, the difference of 0.25% can be roughly explained by (2% dividend yield x 15% withholding tax difference) = 0.3%.

    This tax difference may not be so obvious immediately, but will be noticeable over a longer time frame, eg 5 years.

  47. Hi FH,

    Great article!

    Are US Master Limited Partnerships (MLPs) worst or better than regular US stocks? From a dividend withholding tax perspective. Most online articles say it’s not suitable for US retirees. So not sure what means for. Singaporean investor.

    Regards,
    Boon

  48. Hey Financial Horse and Everyone! I read through all the comments and am getting an analysis paralysis haha (i’ve not bought anything and am just starting out). Can anyone share about capital gains tax? I’m doing dollar-cost-averaging and will hold my stocks and sell them when I intend to retire, so im concerned about capital gains tax (presumably all laws/treaties stay the same till then). To whom do i pay capital gains tax? Is my understanding correct: 1. To the US govt – 0% for foreigners, 2. To Ireland – 0% for foreigners if I do some paperwork and apply for exemption and 3. to Singapore govt – 0% since we dont have capital gains tax for citizens?

    • Haha it’s a lot to take in when you’re first starting out! I had the same issue when I started! No Capital Gains Tax if you invest in US stocks as a Singapore investor. Just need to fill up a bunch of forms like the W8BEN with your broker.

  50. Hi Zs and Peter,

    I have the same question. I attempted to email Vanguard about it but there’s only a US hotline which we could call in to ask. I guess the question is what sort of declarations would be needed, I doubt W8-BEN would suffice since that’s to declare you’re not a US-citizen, and how could we make such declarations on platforms like Saxo (i’m using Saxo). If you’ve signed up for an account with Saxo, you would have already done the W8-BEN declaration. Also, if you’re buying global ETFs…does that mean I have to make declarations for all the countries on that ETF?

    Feeling rather lost and confused now and am not sure if I should reconsider US-based S&P ETFs now (only tax you gotta be concerned with as a Singaporean is the 30% withholding tax, am I right?) as the 8years deemed disposal tax can be rather high at 41%…and you’re deemed to have disposed of your tax every 8years (i.e its recurring every 8years) on the accumulated gains over those 8years (i’ve read somewhere where you can claw back the double / overlapping taxation say if you held your ETFs for 16/24/32years etc..by doing the right paper work. Again, its not clear to me even on Ireland’s Revenue House’s website what paper work is needed to be done and how)

    Lemme know your thoughts and if y’all managed to find out anything about this since y’all last spoke here? Thank you

    Best,
    Bec

  51. Hi Financialhorse,

    Thank you for sharing on the various tax issues. Any ideas how the Estate Duties on such US stocks will be for Singaporeans who are holding such stocks upon their passing on? And how the probate process is like?

    Thank you.

    • There’s an exemption, but I believe it ends at around $300,000. Then inheritance tax will apply to the rest, and the testator will sort them out.

      Of course, your descendant could just liquidate the shares and transfer them out, but that’s tax evasion which is illegal. 😉

  52. I thought for USA stock owned by Singaporean, USA inheritance tax is zero for the first USA 40k, and subsequent tax is 40% on the remaining?

  53. HI, I’m a Singapore citizen holding US listed ETF vis FSM.
    Let’s say if I’m passed away, who is responsible for paying / collecting inheritance tax?
    Is it automatically the 40% inheritance tax will be deducted and the balance will be paid to my beneficiaries?

    Is there any way to avoid inheritance tax for US listed ETF?

    Thank you
    Babu

  56. Hi financial horse, nice comprehensive article you have on withholding tax, it would be even more complete if you can also have a guide on withholding tax when investors passed on. Appreciate your advice.

  58. I noticed in the event of a M&A where the acquisitor buy out the company, there is WHT on the cash payout?

    In the recent event of the M&A of Inphi Corp by Marvell, the buyout is in form of cash + shares. However, I noticed that there is a 30% reduction in the cash payout to my account. Are cash payouts subjected to 30%WHT apart from dividends?

    If that is the case, it will make more sense to sell the shares once the M&A is confirmed.

    • Oh that’s interesting. Perhaps it may depend on whether the dividend is paid out from income or capital.

      But not much point going into the finer details here. Like you said, if the payout is big it may make sense to just cashout to avoid the uncertainty.

  59. Very helpful, for dividends on french equities i see a 25% WHT. Would you know if there is any special treaty there to limit the damage? More generally how do you find out which countries Singapore has a special treaty with? And would IB normally apply it or would there be steps from my end required? Many thanks

    • There’s no easy way to find out unfortunately, google might be your best bet. If you have a tax consultant, they will be able to advise.

      IBKR should apply it automatically to my knowledge.

  60. Hi FH I’m a long time reader and recently I’ve got into the TBIL etf that holds only the latest 3-months US tbill, that pays a juicy 5.3%. However when I got my first dividend it seems to be taxed 30% withholding.. Could you shed some light on this? I’m using DBS treasury..

    • Tax is always tricky, but the way I understand it is that 30% withholding tax is deducted on payment, which is refunded the following year. But best to check with your broker on this, as each broker has slightly different practices on how they handle the tax.

      • Indeed hence dont need to worry about withholding tax issues. DBS treasure sucks and i will move on to IB where Tbills are traded in Alternative Trading Venues. Which is much easier than ping my Dbs RM and only got back in a few days with suboptimal treasury quotes.. Not sure if dbs treasury will refund the 30% next year. Will report back in January other Feb if that ever happens. For now will use IB and by in discount so no dividen involved. Will Also try small portion in TBIL etf on IB and see if it refund the 30%

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