UCITS funds: why European funds often suit non-Americans better
The best-known funds are American: VOO, VTI, QQQ. But if you live outside the US they have two unpleasant properties. European funds holding the same stocks often solve both.
- A European fund holding US stocks differs in taxes, not in contents.
- Irish funds receive US dividends at 15% and fall outside the US estate tax.
- While you are saving, accumulating funds (Acc) are handier: they reinvest dividends themselves.
What UCITS is
UCITS is a European standard for investment funds. A fund with this label is registered in Europe (most often Ireland or Luxembourg), follows investor-protection rules and trades on European exchanges.
Inside it can hold the very same US stocks. An S&P 500 fund exists in both a US and a European version — the difference is not the contents but where the fund is registered.
Problem 1. Dividend tax
When a US company pays a dividend to a foreigner, the US withholds tax. The base rate is 30%; if your country has a tax treaty with the US it is lower, usually 15%.
An Irish fund receives dividends from US companies at the reduced 15% rate — regardless of which country you live in. So for a resident of a country without a US treaty, a European fund keeps a meaningful part of the dividends.
Problem 2. Estate tax
The US has an estate tax for non-residents: if US assets exceed $60,000, heirs may owe up to 40% on the excess. US stocks and US funds fall under it.
A fund registered in Ireland is not a US asset — even if it holds US stocks. For large sums this is the main argument for European funds.
Accumulating and distributing
- Accumulating (Acc) funds reinvest dividends themselves. Nothing arrives in your account, but you neither have to buy again nor (in many countries) pay tax on each payout. Handy while you are saving.
- Distributing (Dist) funds pay dividends out in cash. Handy once you live on income from capital.
US funds have practically no accumulating versions — another difference.
Examples
| What is inside | European fund | US counterpart |
|---|---|---|
| World stocks | VWCE | VT |
| S&P 500 | CSPX, VUAA | VOO |
| Developed countries | IWDA | VEA + VTI |
| Emerging markets | EIMI | VWO |
| World bonds | AGGH | BNDX + BND |
| Gold | IGLN, SGLN | GLD, IAU |
These are examples for orientation, not a recommendation. One fund can trade on several exchanges under different tickers and in different currencies.
What to look at when choosing
- The management fee. For large broad-index funds it is tenths or hundredths of a percent a year.
- Fund size. A large fund is safer: small ones are sometimes closed.
- Exchange and trading currency. Pick an exchange with high turnover. The trading currency is only what you pay in: a US stock fund remains a dollar asset even when bought in euros.
- Country of registration. For US stocks Ireland is usually best — because of the 15% rate.
When a US fund is still better
- You live in the US or pay taxes there.
- Your country has a favourable tax treaty with the US and the amount is small.
- You need a fund that does not exist in Europe.
Residents of the European Union usually cannot buy US funds at brokers at all: a separate rule on documents for retail investors applies to them.
See which funds fit your strategy and test the mix on crises.
Funds in the Analyst →This article is educational and is not investment or tax advice. Tax rules change and differ by country.