Asked by Anonymous
I am interested in the Vanguard ETF. I read in some of the answers that there are some taxes involved (30%) if we were to invest in the US stock exhange. And hence it it preferred to find something similar in the London stock exchange? Also which broker to go to to open an account?
Hey there! I was also curious on this matter, for me personally, I’ve always done the global ETF investing via Robo-Advisors but recently have been looking into investing in the S&P500 and the US stock market as whole. Here’s my own research so far.
TL;DR: For Singaporeans, if you are keen to invest in the US (global) market, it’s potentially a good long term investment:
To break it down, there are a few parts which we’ll explain.
What is the S&P500:
What is an ETF:
What is the Vanguard ETF
Source: VANGUARD. Yields from Ameritrade and Motley Fool.
The two most popular Vanguard flagship funds are:
It’s expense ratios are merely at 0.04% and it’s dividend yield sitting between 1.69% to 1.88%
If you look at the returns for the MGC (S&P500 tracker) since the start, this is what it looks like:
Similarly if you look at the VTI (Total stock market tracker) since the start, this is what it looks like:
BOTH look pretty amazing when it comes to capital gains. (Rise in price of the ETF)
Therefore if you are looking for a long term (more than 10 year timeframe) investment, this is actually a pretty solid investment that appreciates over time.
Some downsides include:
Where can you buy the Vanguard ETF?
I'm personally using FSM and Vickers.
In this next portion, I will go deeper into the tax portion and how to overcome the additional tax deductions. If you are not interested, it's more of a further reading for more advanced investors!
What is the Withholding tax for Singapore Investors?
Withholding tax is a tax on interest or dividends paid to foreign persons.
To illustrate, imagine that you buy US$1 million worth of US stock, which pays a 4% dividend yearly. The US$40,000 annual dividend is subject to a 30% withholding tax, so US$12,000 is deducted from your dividend to be paid to the US government.
How to get around this Withholding tax for Singapore Investors?
US and Ireland actually have tax treaties which retail investors like you and I will be able to benefit from. It’s a form of tax avoidance and perfectly legal as well, which most big companies with Tax advisers from PwC, KPMG actually do on a daily basis.
In particular, there is a US-Ireland tax treaty that reduces withholding tax from the standard 30% to 15%.
If you buy an Ireland domiciled ETF listed on a European stock exchange, you pay a 15% withholding tax. (Instead of the normal 30% if you were to directly buy from the US stock exchange)
These include the Ireland-domiciled Vanguard S&P 500 UCITS ETF (VUSA) or the iShares Core MSCI World UCITS ETF USD (IWDA). Both of which you can actually buy via your normal online brokerages.
Some problems with buying such ETFs:
Here’s a good summary of Ireland domiciled funds here if you are keen to get the full list
Are there capital gains tax?
As a non-US tax resident, you are exempt from capital gains tax.
You are right that there are similar Vanguard ETFs listed in london stock exchange.
To invest in London Stock exchange is similar to US stock exchanges. You need a brokerage platform with access to London Stock Exchange. Most brokers who have access to US will also have UK access since these 2 are very big exchanges.
I am personally using Standard Chartered Online Trading. However, you can try Interactive Brokers too.
In the US, there is 30% dividend tax witholding. That is for every $1 dollar of dividend / share announced by the company, you will only received 70cents/share. Uncle Sam collect the 30cents
Go with Interactive Broker. Commission is one of the lowest.
But there is a minimum of US$10 minimum account maintaince per month if your account size is less than 100K USD.
I Would like to buy Ireland domiciled ETF with regular saving plan. Which brokerage would you recommend ?