The U.S. stock markets are attractive to Singapore investors for greater growth and its access to popular listed companies like Apple, Tesla and Alphabet. It also offers some of the most popular ETFs like the S&P 500 ETF (SPY) and the Vanguard’s Total World ETF (VT).
However, as a foreign investor, there are costs to investing in the U.S. stock markets which will eat into your overall profits and slow down the growth of your wealth.
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Here, we discuss the U.S. Dividend Withholding Tax and share what you have to note, if you’re thinking of diversifying into the U.S. stock markets.
What’s the Dividend Withholding Tax that everyone seems to talk about?
Singapore investors are subjected to a 30% U.S. dividend withholding tax on all dividends received from U.S. listed equities (i.e. stocks, ETFs, bonds, mutual funds, etc) because Singapore doesn’t currently have a tax treaty with the U.S.
This means for every $100 dividend you get from stocks or investments in the US markets, only $70 reaches you.
These dividends are usually deducted before your dividends reach your account, hence you don’t have to do anything else nor pay any extra taxes.
Do note that withholding tax differs from other taxes like “Capital Gain Tax” or “Estate Tax” which investors might be familiar with. Withholding tax specifically applies to interest or dividends paid out to investors and usually applies to foreign investors.
Wait…my dividends get taxed!?
Yes.
There is no dividend withholding tax in the Singapore markets. Hence, you get 100% of your dividend payouts from stocks or ETFs listed on the SGX. That’s why many Singapore dividend investors like to invest in local stocks!
But once you diversify overseas, you may be subject to dividend withholding taxes. Here’s a table of withholding taxes across different stock exchanges:
Dividend Withholding Tax in different countries
| Country | Dividend Tax for Non Residents |
|---|---|
| Australia | 0% / 30% |
| China | 10% |
| France | 30% |
| Germany | 25% |
| Hong Kong | 0% |
| India | 0% |
| Indonesia | 20% |
| Japan | 20.42% |
| Malaysia | 0% |
| Singapore | 0% |
| United Kingdom | 0% |
| United States | 30% |
How to Pay Less Dividend Withholding Tax
There are four ways you can reduce the amount of withholding tax on your dividends:
1) Avoid dividend stocks listed in the U.S.
If a stock doesn’t pay out dividends, you are not subjected to the Dividend Withholding Tax. Hence, if you wish to invest in U.S. stocks, you may want to avoid dividend paying stocks.
That said, the U.S. stock market is home to many growth stocks like Apple and Tesla that have been delivering good returns for investors. You can also find many young but fast growing stocks on the NASDAQ and New York Stock Exchange (NYSE) like Cheng does. These companies do not pay dividends, hence you will not be affected by the U.S. dividend withholding taxes.
2) Invest in dividend stocks listed in other markets
If you’re looking to build a dividend portfolio but don’t want to have your income eaten up by the 30% US dividend withholding tax, then invest elsewhere. Refer to the table above for countries that do not charge a dividend withholding tax.
There are many other stock markets that could provide good growth and dividends, if you know where to look.
For example, China Bank Stocks like ICBC and BOC have been paying out high dividends consistently although they have mostly remained under the radar, although you’ll be subjected to a 10% dividend withholding tax.
The Hong Kong Stock Exchange is also home to some of the fastest growing listed China companies (before the recent regulatory clamp down).
Or, you could invest in Singapore dividend stocks. In fact, Chris Ng (our Early Retirement Masterclass trainer) argues that the Singapore stock market is the best place for dividend investors. You can hear more from him here.
If you’re an ETF investor then:
3) Invest in Ireland domiciled ETFs instead
An interesting category of ETFs is the Ireland domiciled ETFs. These are ETFs listed in Ireland and they are liable to a 15% dividend withholding tax due to the tax treaty between US and Ireland.
As Singaporeans, we do not have to pay additional dividend withholding tax for investments on Ireland domiciled ETFs, which means that we get to enjoy a lower dividend withholding tax on these ETFs of 15% instead of 30%!
However, do note that Ireland domiciled ETFs usually have a higher expense ratio (more on this below).
4) Invest in Qualified Interest Income (QII) ETFs
ETFs under the Qualified Interest Income (QII) scheme allow you to claim back some of the dividend withholding taxes.
Under the QII rule, regulated investment companies are allowed to exempt a portion of their distribution to non-U.S. shareholders. However, the ETFs under the QII rule are usually bond ETFs and their dividend exemption rates also vary across funds and investment companies.
You’ll need to check with your broker if they’ll help you with the process of claiming your withheld dividend taxes, most of them should be able to.
So…should I worry about Dividend Withholding Tax?
Yes, if you’re a dividend investor, because it’ll directly impact your dividend income.
However, if you’re a growth investor or a value investor, you will not have to worry about it as you’re not likely to receive a significant amount of dividend from your portfolio.
What about ETF Investors?
If you’re investing in ETFs for long term growth, the dividend pay out from your ETF portfolio may be insignificant. That said, as your portfolio grows, the actual dividend withholding tax would grow to a significant amount as well.
For example, the Vanguard Total World (VT) ETF yields about 1-2% dividends for an expense ratio of 0.08% annually. 30% of the 1-2% dividends may not be significant for you to fret about.
Comparatively, the Vanguard FTSE All-Word UCITS (VWRA) ETF, a popular Ireland domiciled equivalent of VT charges 0.22% expense ratio and is subjected to a 15% dividend withholding tax.
To help you visualise the difference, here’s an example of the cost of investing a lump sum of $5,000 into each ETF:
| Vanguard Total World (VT) ETF | Vanguard FTSE All-Word UCITS (VWRA) ETF | |
|---|---|---|
| Domicile | U.S. | Ireland |
| Expense Ratio | $4 (at 0.08%) | $11 (at 0.22%) |
| Dividend Tax | $30 (30% of 2% yield) | $15 (15% of 2% yield) |
| Total Cost | $34 | $25 |
The difference in the total cost is about 26%, however VT ETF might be more easily available if you already have access to the U.S. markets via your broker.
tl;dr Avoid dividend stocks in U.S. markets
Singapore investors are subjected to a 30% U.S. dividend withholding tax on all dividends received from U.S. listed equities.
If you’re looking to invest in the U.S. markets, you might want to avoid dividend stocks as you’ll only receive 70% of your dividend pay out.
If you’re looking to invest in dividend stocks to generate a new source of income, read our dividend investing guide here to get started.
Could it not make sense to invest in *some* US dividend-paying companies specifically for the dividend anyway? If they present a high enough starting yield (e.g. 70% of a 4.5% yield is still 3.15%, which is still quite respectable compared to dividend-paying companies in other countries, including Singapore) as well as a track record of dividend growth, then it still makes sense to me. Am I wrong?
Hey Darryl, yes it could make sense depending on your investment goals.
If you’re looking to optimise for dividend yields, then the given example opens up the next question; “Why not just invest in Singapore REITs ETFs“? Last I checked, they were yielding about 4%, without the need to pick/research individual stocks.
Thanks for the suggestion – will definitely look into it. ETFs might be a good alternative – you may end up paying around the same commissions as you would holding fees with the ETFs – but I guess some people may want to diversify across industries without over-diworsifying across companies, so many industry-focused ETFs may not be a great option for them. I would also think that you can find better value opportunities and higher dividend growth potential from individual companies.
Your comparison on US-domiciled and Ireland-domiciled ETF’s isn’t fully complete: although you’re accounting for the tax withheld on the dividends distributed by the fund (ie US 30%, Ireland 0%), you also need to take into account the tax withheld on dividends paid by the individual stocks to the fund. For example, for US-based stocks a US-domiciled ETF would pay 0% withholding tax whereas a Ireland-domiciled EFT would pay 15% (based on the dividend tax treat Ireland has with the US).
So what you are saying is that a US. ETF gets 100% of the dividends but then as the ETF pays dividends to foreign residents there will be
a 30% US. withholding tax. Where doubletax treaties can reclaim normally 15%.. Irish ETFs get a 15% withholding tax in the US. and that’s all tax paid.
Hi
I have invested in US reits and as the authour said the dividends I receive are less the 30% withholding tax.
But I have also received a tax refund on some of these reits. I wonder why the am getting these tax refunds
I suppose you are referring to the US REITs listed on SGX? For e.g. Manulife US REIT has no dividend taxation. For United Hampshire, need to submit necessary forms to avoid paying the taxes if you are exempted.
The US – Republic of Korea INCOME TAX CONVENTION establishes maximum rates of withholding tax in the source country on income payments flowing between the two countries. The rate of withholding tax on portfolio dividends is limited to 15 percent. Thank god I’m a Korean citizen!
Can a ‘normal’ investor from Singapore claim back the witholding taxes from US?
we are subjected to the 30% us withholding tax. there’s no way to claim it back in my knowledge
Not relevant to the U.S, but very relevant for jurisdictions that have a DTA with Singapore is that in most DTAs the dividend withholding tax is capped at 15% and, in some cases even lower (e.g., 10% for Germany).
Practically speaking the dividend-paying corporate typically withholds tax at the gross rate (e.g., 25% for Germany). It is then up to the recipient of the dividend to claim the excess WHT (e.g., 15% for Germany) from the German tax authorities. It is not a fun process – ask me how I know – but it does provide an avenue to lessen the unequal playing field when investing in dividend-paying stocks in foreign jurisdictions.
How about dividend paying stocks that are paid out in stocks? Would the witholding tax apply?
Hi Tim,
Dividend scrips (stock dividends) are typically subject to the same 30% withholding tax as cash dividends for non-resident aliens investing in US stocks.
Understand 30% tax on dividends… how about interest coupon earned from US corporate bonds? no tax or same 30% on the interest coupon as well?
Hi,
You can refer to the IRS website for more information: https://www.irs.gov/individuals/international-taxpayers/nontaxable-types-of-interest-income-for-nonresident-aliens
The portfolio interest exemption might apply, where it allows nonresident aliens to receive certain interest income from U.S. sources without being subject to the standard 30% U.S. withholding tax. This exemption applies to interest earned on specific debt instruments (such as corporate bonds, U.S. Treasury bonds, and other publicly traded debt instruments), provided certain conditions are met. The debt obligation must be in registered form, and the nonresident alien must provide a Form W-8BEN to the withholding agent, certifying their foreign status.
Suggest you check with a tax advisor for your specific circumstances.
What about Canadian stocks?
Hi Benjamin,
The standard withholding tax rate is 25% on dividends paid to non-residents for Canadian stocks.
For Singapore residents: The Canada-Singapore tax treaty reduces the withholding tax rate to 15%.
To qualify for a reduced rate, investors need to submit the relevant forms to their brokerage, declaring tax residency in a treaty country.
What about US stocks listed in sgd? I am referring to Jardine C&C which is listed on SGX and in SGD but dividends in USD
No tax because it is headquartered in Singapore. It isnt the currency or where it is listed, but rather, where the company is domiciled. But there could be taxes when Jardine C&C’s subsidiaries domiciled in foreign countries pay dividends.