U.S. Dividend Withholding Tax: What Singapore investors must know (2024)

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 (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.

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

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:

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.