Dividends are tax free in Singapore? Yes they are, but there are still bad surprises waiting for investors who want to buy some foreign dividend stocks and funds listed on stock exchanges abroad. Let me explain my silly mistakes and hopefully prevent some of you to fall into the same traps.
Mistake 1: Buying a US listed dividend paying ETF
When restructuring my portfolio from picked stocks to a proper portfolio mix I thought it was a good idea to buy the Vanguard Emerging Markets Government Bonds ETF (VWOB) and at first it seemed like a great idea as this fund offers:
- Low expense ratio of only 0.35%
- Highly diversified with 634 (as of today) government bond holding from all over the emerging markets
- Dividends paid monthly
Sounds great, doesn’t it?
However when I checked my trading account after the first dividend I saw this:
Sure enough – I had received my promised dividend, but was then deducted 30% US withholding tax directly in my Standard Chartered Account. I was expecting a yield of roughly 3.8% every year, but taxes lower this yield to roughly 2.5% making the investment not worthwhile anymore. As you can see in my portfolio, I have sold the stock and bought the Singapore listed iShares J.P. Morgan USD Asia Credit Bond Index ETF instead, which of course is a totally different bond fund. Read more about ETFs available for Singaporean investors to find some other choices.
Mistake 2: Investing in a Frankfurt (Germany) listed dividend paying stock
As you can read in my monthly update for May, I had to find out that Singaporean investors have to pay 26.375% withholding tax on dividends paid by Frankfurt listed companies. Ouch! While investing in individual stocks is a mistake in its own (read more about this in my getting started guide to investing in Singapore) the dividend yield in this investment makes it really unattractive. I am still holding on to that stock, but should I ever break even I will divest it and put it into some Singapore-listed ETFs instead.
Which countries tax dividends for Singaporean investors?
This is a very anecdotal list and I am not a professional investment adviser, so do you own research and read the disclaimer.
What I found out so far:
|Country stocks are listed in||Withholding tax rate on dividends|
|United Kingdom (all other companies)||0%|
|United Kingdom (property companies)||20%|
As this table clearly shows us: Investing in dividend paying stocks and funds outside Singapore is very often a terrible idea as you will get charged withholding tax making your investments a lot less attractive. If you own stocks in these countries you will be taxed on dividends at the rates above, even if you are in Singapore.
Don’t make the mistakes I made! My recommendation would be to limit your investments to ETFs traded in countries without withholding tax for Singaporean investors, e.g. Hong Kong or Singapore.