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Why not US listed shares/ etfs if an investor is only in it for dividends ?

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Old 06-02-2020, 08:50 AM   #1
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Why not US listed shares/ etfs if an investor is only in it for dividends ?

i've read a couple of articles where singaporeans are encouraged to buy from irish domiciled etf to reduce on the tax burdens of the dividends.

if i am not in it for the dividends but for capital gains (there is no capital gains tax for foreigners), it would make sense to trade in US listed shares/ etf right?

there was a mentioned that dividends which are reinvested into the etf funds are subjected to tax. Based on logic it should be corporate not personal tax since the dividends werent issued to the shareholders.

if thats the case, should the selection criteria on which market to invest in be which jurisdiction has a lower corporate tax ?
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Old 06-02-2020, 10:14 AM   #2
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Most ETFs that are domiciled in the US have some sort of dividend. You kind of lose out if the etf goes XD simply because you pay more tax.
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Old 06-02-2020, 10:25 AM   #3
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Most ETFs that are domiciled in the US have some sort of dividend. You kind of lose out if the etf goes XD simply because you pay more tax.
People should not be so hard up for dividends...
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Old 06-02-2020, 10:50 AM   #4
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if i am not in it for the dividends but for capital gains (there is no capital gains tax for foreigners), it would make sense to trade in US listed shares/ etf right?
There are some stocks and thus some funds that don't pay any dividends, and the dividend tax on zero dividends is definitely zero. Amazon (AMZN), for example, has never paid a dividend. There are also some U.S. assets that are U.S. federal income tax free for everyone, notably legitimately tax free U.S. municipal bonds. For those particular bonds, interest payments are U.S. federal income tax free for U.S. persons and non-U.S. persons alike.

However, many (not all) U.S. domiciled assets are U.S. estate taxable. Assuming you are a non-U.S. person and are not a tax resident of a country that has a relevant tax treaty with the United States -- Singapore is one of many countries that don't have a relevant tax treaty with the U.S. -- then when you die your estate will owe and must pay U.S. estate tax on your estate's total U.S. estate taxable assets less a single US$60,000 exemption. The U.S. estate tax (above the exemption) is a progressive tax with marginal rates starting at 18% and extending up to 40%, and all asset valuations are based on your date of death. The U.S. estate tax must be paid within 9 months of your demise.(*) Refer to IRS Form 706-NA and its instructions for details.

You personally won't pay any U.S. estate tax on your assets, because you'll be dead. Only your estate pays those taxes. Thus you're certainly not required to be concerned about the U.S. estate tax because, to reiterate, you'll be dead and won't have any worries about spending or not spending any money. Some people care about estate taxes because they have beneficiaries that they care about, and their beneficiaries will receive the after-tax proceeds. If you are concerned about estate tax, then you have two choices:

1. Keep your total U.S. estate taxable assets at or below US$60,000.

2. Buy more life insurance.

(*) With one narrow exception, if you leave your estate to a U.S. citizen spouse (opposite or same sex), or to your legal spouse who becomes a U.S. citizen within 9 months of your death, then the unlimited spousal exemption applies, i.e. there is no U.S. estate tax. The one narrow exception is for "covered expatriates," who are former U.S. citizens and former long-term U.S. permanent residents who had at least reasonably substantial wealth when they renounced or relinquished their U.S. citizenship or U.S. permanent residence.

Last edited by BBCWatcher; 06-02-2020 at 10:57 AM..
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Old 06-02-2020, 11:42 AM   #5
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Most ETFs that are domiciled in the US have some sort of dividend. You kind of lose out if the etf goes XD simply because you pay more tax.
i havent check if there any accumulating etfs but im definitely going for that if there are.


People should not be so hard up for dividends...
thats what i thought too.
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Old 06-02-2020, 11:46 AM   #6
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There are some stocks and thus some funds that don't pay any dividends, and the dividend tax on zero dividends is definitely zero. Amazon (AMZN), for example, has never paid a dividend. There are also some U.S. assets that are U.S. federal income tax free for everyone, notably legitimately tax free U.S. municipal bonds. For those particular bonds, interest payments are U.S. federal income tax free for U.S. persons and non-U.S. persons alike.

However, many (not all) U.S. domiciled assets are U.S. estate taxable. Assuming you are a non-U.S. person and are not a tax resident of a country that has a relevant tax treaty with the United States -- Singapore is one of many countries that don't have a relevant tax treaty with the U.S. -- then when you die your estate will owe and must pay U.S. estate tax on your estate's total U.S. estate taxable assets less a single US$60,000 exemption. The U.S. estate tax (above the exemption) is a progressive tax with marginal rates starting at 18% and extending up to 40%, and all asset valuations are based on your date of death. The U.S. estate tax must be paid within 9 months of your demise.(*) Refer to IRS Form 706-NA and its instructions for details.

You personally won't pay any U.S. estate tax on your assets, because you'll be dead. Only your estate pays those taxes. Thus you're certainly not required to be concerned about the U.S. estate tax because, to reiterate, you'll be dead and won't have any worries about spending or not spending any money. Some people care about estate taxes because they have beneficiaries that they care about, and their beneficiaries will receive the after-tax proceeds. If you are concerned about estate tax, then you have two choices:

1. Keep your total U.S. estate taxable assets at or below US$60,000.

2. Buy more life insurance.

(*) With one narrow exception, if you leave your estate to a U.S. citizen spouse (opposite or same sex), or to your legal spouse who becomes a U.S. citizen within 9 months of your death, then the unlimited spousal exemption applies, i.e. there is no U.S. estate tax. The one narrow exception is for "covered expatriates," who are former U.S. citizens and former long-term U.S. permanent residents who had at least reasonably substantial wealth when they renounced or relinquished their U.S. citizenship or U.S. permanent residence.

im not concerned about estate tax. after i die i do not care how my assets are being treated.
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Old 06-02-2020, 01:15 PM   #7
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Sorry to sidetrack slightly, if a China stock like Alibaba is dual listed in US and HK, which exchange would you buy from? Alibaba doesn't give dividend, so no withholding tax to consider.

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Old 06-02-2020, 01:36 PM   #8
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Sorry to sidetrack slightly, if a China stock like Alibaba is dual listed in US and HK, which exchange would you buy from? Alibaba doesn't give dividend, so no withholding tax to consider.
American Depositary Receipts (ADRs) held by non-U.S. persons are U.S. tax free. There's no U.S. dividend tax, no U.S. estate tax, no U.S. capital gains tax. However, they are U.S. tax "friendly" if you should ever become a U.S. person, or if they pass on to a U.S. person. They're also more conveniently U.S. government reachable if you should have a dispute with the U.S. government, such as a tax dispute, child support issue, international sanctions enforcement, etc. (Please try not to have disputes with any governments.)

Non-U.S. dividend taxes may apply, internal to the ADR and its management, depending on the country of domicile for the asset (Alibaba stock in this example) and the applicable tax rate. Of course taxes in your particular country(ies) of tax residence may apply.

Some ADRs collect a tiny annual management fee from your broker. If so, just keep a little bit of idle U.S. dollar cash in your account to pay the fee. (And it's genuinely tiny if it exists. I've never seen one that's anything other than tiny.) As compensation they are U.S. dollar quoted/denominated, and so your foreign currency exchange cost is lower inbound and outbound. Also, the U.S. exchanges are highly liquid, and U.S. exchange commissions are low and, with some brokers, zero.

I do not generally recommend individual stock investing, and that includes ADRs. Please refer to the ADR's prospectus for further details, and consult a tax expert if you have any particular concerns.

Last edited by BBCWatcher; 06-02-2020 at 01:43 PM..
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Old 06-02-2020, 02:10 PM   #9
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American Depositary Receipts (ADRs) held by non-U.S. persons are U.S. tax free. There's no U.S. dividend tax, no U.S. estate tax, no U.S. capital gains tax. However, they are U.S. tax "friendly" if you should ever become a U.S. person, or if they pass on to a U.S. person. They're also more conveniently U.S. government reachable if you should have a dispute with the U.S. government, such as a tax dispute, child support issue, international sanctions enforcement, etc. (Please try not to have disputes with any governments.)

Non-U.S. dividend taxes may apply, internal to the ADR and its management, depending on the country of domicile for the asset (Alibaba stock in this example) and the applicable tax rate. Of course taxes in your particular country(ies) of tax residence may apply.

Some ADRs collect a tiny annual management fee from your broker. If so, just keep a little bit of idle U.S. dollar cash in your account to pay the fee. (And it's genuinely tiny if it exists. I've never seen one that's anything other than tiny.) As compensation they are U.S. dollar quoted/denominated, and so your foreign currency exchange cost is lower inbound and outbound. Also, the U.S. exchanges are highly liquid, and U.S. exchange commissions are low and, with some brokers, zero.

I do not generally recommend individual stock investing, and that includes ADRs. Please refer to the ADR's prospectus for further details, and consult a tax expert if you have any particular concerns.
Thanks for your insights, didn't realised the China stocks were listed as ADR. Actually I was more concerned about currency fluctuations, and if China stocks may get further US restrictions due to trade war etc.
I am weighing more toward buying from HK.

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Old 06-02-2020, 04:26 PM   #10
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Thanks for your insights, didn't realised the China stocks were listed as ADR. Actually I was more concerned about currency fluctuations....
There are no currency fluctuation differences between the ADR and the Hong Kong listing. They're functionally the same thing, except the ADR is quoted in U.S. dollars and the Hong Kong listing is (usually) quoted in Hong Kong dollars. If the U.S. dollar-Hong Kong dollar exchange rate changes, the price of the ADR relative to its Hong Kong listed counterpart moves in an exactly equally offsetting direction to compensate.

The currency-related factors that apply are related to the fact that Alibaba does almost no business in Singapore dollars in Singapore relative to its overall business activities. Any divergence between the Singapore dollar and the weighted average currency effects that Alibaba experiences in its real business should be reflected into its share price movements, translated back into Singapore dollars. Whether you're invested in the ADR or the Hong Kong listing doesn't matter, except that your currency conversion cost is higher in/out of Hong Kong and Hong Kong dollars compared to U.S. dollars.

....and if China stocks may get further US restrictions due to trade war etc.
If that were to happen, then Alibaba's real business fortunes will be negatively impacted, and presumably its stock price will fall, no matter how you buy their stock. Which is a great argument that you shouldn't invest in individual stocks, or overweight particular sectors, or overweight stocks that happen to be listed on one particular exchange -- not unless there's a "damn good reason" anyway.

....On edit, taking a quick look, BABA (New York Stock Exchange) and 9988 (Hong Kong Stock Exchange) have about the same daily trading volume in terms of number of shares. However, the trading value in New York is about 8 times higher, because each ADR represents 8 shares in Hong Kong. Amazing, isn't it? But it's just another example why New York is the world's financial capital. You can read more about the ADRs at Citigroup's Depositary Receipt Services Web site.

Last edited by BBCWatcher; 06-02-2020 at 04:40 PM..
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