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I'm considering to buy index ETFs from US through TD Ameritrade, but as a non-resident alien (foreigner), my main concern is the 30% withholding tax on:

  1. all dividend (especially the bond ETFs)
  2. capital gains redistribution

Q1: Do I miss out anything other those 2 mentioned above?

Q2: Is the brokerage firm able to exclude the dividends derived from non-US sources for tax purpose?

From tax perspective, would it be a bad idea to buy US mutual fund/ETF as a foreigner?

My country is Malaysia. There's no tax treaty between US and Malaysia. Our local brokers don't offer overseas ETF (US in particular), and the general trading commission fee is prohibitively high.

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Here're some findings upon researches:

  1. Two main things to watch out for: Estate tax and the 30% tax withholding. These 2 could be get around by investing in Luxembourg or Ireland domiciled ETF. For instance there's no tax withholding on Ireland domiciled ETF dividend, and the estate tax is not as high. (source: BogleHead forums)

  2. Some Vanguard ETF offered in UK stock market: https://www.vanguard.co.uk/uk/mvc/investments/etf#docstab. Do note that the returns of S&P 500 ETF (VUSA) are adjusted after the 30% tax withholding! Due to VUSA's higher TER (0.09%), VOO should remain a superior choice. The FTSE Emerging Markets and All-World ETFs though, are better than their US-counterparts, for non-US residents.

  3. Non-US residents are able to claim back partials of the withhold tax, by filing the US tax form 1040NR. In 2013, non-US resident can claim back at least $3,900.

Kindly correct me if anything is inaccurate.

  • I am also Malaysian looking to invest in us etf. Did you ever find a solution to this. I heard if you file w8 Ben you're not subject to capital gains tax no? – user25849 Jan 9 '18 at 1:11
  • Yeah foreign investors are not subject to capital gain tax – ASF Jan 18 '18 at 0:11
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A quick update for people finding this thread through Google. With the help of a few awesome Bogleheads, I compiled all the relevant research done into two Wiki articles:

This includes comparing US to Irish domiciled ETFs, how to calculate tax withholding leakage and estate tax concerns.

Hope you find this useful.

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