Why are US accumulating ETFs (e.g. CSPX) still subjected to dividend withholding tax even though no dividends are paid to the shareholder?

Hi Anon,

This is because when you invest in ETFs, you don't receive dividends directly from the ETF. The dividends will first be paid from the stocks to the ETF, and then from the ETF to investors.

For accumulating ETFs, it simply means that when ETFs receive the dividends from its holdings, it does not pay it out to its investors, but instead reinvests it back into their holdings.

This means that dividends are still being paid - it just never reaches the investor. So there will still be withholding tax depending on the countries where the stocks and ETF are listed respectively.

In the case of CSPX, there is a 15% withholding tax on the dividends from US - Ireland, which are then fully reinvested into the fund. If you compare this with VUSD, which is a distributing Ireland-domiciled S&P 500 ETF, you will receive the dividends after the 15% tax, because there is no tax from Ireland - SG.

However, if you compare against VOO which is US-domiciled, there is no tax on dividends from US - US, but 30% tax from US - SG.

In this sense, Ireland-domiciled ETFs are more efficient. But don't forget to factor in other investing costs like commission fees and custodian fees which may differ for NYSE/LSE.

Hope this helps!

Regards,

thefrugalstudent

The underlying US stocks still pay out dividends to the ETF. As a foreign owner of the ETF units, any US sourced dividends due to your units are still subject to WHT.