Estimated reading time: 10 minutes
If you’re a non-US resident investing in US ETFs like the S&P 500, the IRS will take 30% of your dividends by default in the form of withholding tax, even before you see the cash.
But what if I told you that, with just a simple shift from the same S&P 500 ETF, to an Ireland‑domiciled ETF, you could legally slash that tax burden from 30% down to just 15%.
If you’re wondering how an Ireland‑domiciled ETF works, then this blog is just for you.
TABLE OF CONTENTS
What is S&P 500 and ETF?
If you’ve never heard of the S&P 500 before, it’s basically an index that represents the top 500 largest US-listed companies such as Apple, Microsoft, Nvidia, and Tesla. It’s similar to how the Malaysian KLCI is used to measure performance of the Malaysian stock market.
Source: macrotrends
Here’s how the S&P 500 performed:
- 23 out of the last 30 years were positive
- Over the last 10 years, it increased by 296.3%
- That works out to roughly a 14.8% annualised return
If you want a simple way to invest in all 500 companies inside the S&P 500 and enjoy its strong, long-term returns, an ETF is one of the easiest options. Even Warren Buffett has famously said that “for most people, the best thing to do is to own an S&P 500 index fund.”
But if you’re already holding a few US stocks or feel like exploring other markets, there are plenty of ETFs that cover different countries, sectors, and regions too. And we’ll dive into it later.
The Basics of Withholding Tax
When you invest in the US stock market, one important thing to be aware of is the 30% withholding tax on dividends for non-US residents.
It’s basically a tax charge when money flows out to foreign investors. Think of it as their way of saying, “You earned money from our companies, so we’ll take a small cut before it leaves the country.”
Source: PWC
For the US, this tax is a flat 30%, and because Malaysia doesn’t have a tax treaty with the US, we don’t get any special reduction. That means we pay the full amount.
For example, if Apple pays you USD 100 in dividends
- You receive: USD 70
- IRS: USD 30
There’s nothing you need to file. Once you submit the W-8BEN form when opening your account, your broker deducts the tax automatically for you.
What is an Ireland-domiciled ETF?
Let’s take a moment to understand what an Ireland-domiciled ETF is. Think of it as the same type of ETF you’d find in the US, with the same companies and the same market exposure. The key difference is the fund’s legal home. It is registered and regulated in Ireland and commonly traded on the London Stock Exchange (LSE).
But why Ireland?
It’s because Ireland has solid tax agreements with many countries, including the US, which makes Ireland-domiciled ETFs highly tax efficient. You get the same global exposure as a US fund, just with lower taxes. And it is fully legal.
The Ireland Legal Loophole
Instead of buying a US-domiciled ETF like VOO, you can choose an Ireland-domiciled ETF like CSPX.
Both VOO and CSPX track the same S&P 500 companies such as Nvidia, Microsoft, Apple, and Amazon. Their performance and holdings are almost identical. The only real difference is where the fund is legally based. And because Ireland has a tax treaty with the US, any dividends paid from US companies to Irish funds are taxed at 15% instead of 30%.
Now let’s break down what these numbers mean. For a US-domiciled ETF, Malaysia has no tax treaty with the US, so you’re taxed 30% as an investor. That means from a USD 100 dividend, you only receive USD 70.
Source: revenue
For an Ireland-domiciled ETF, it’s a different story. Ireland normally charges 25% withholding tax, but thanks to its tax treaties with over 70 countries, including Malaysia, the rate is lowered to 10%. Most ETFs are even fully exempted, so you usually pay 0%. This means you get to keep the full USD 85.
Here’s a quick comparison of how both structures are taxed and what you actually receive as an investor:
| US-domiciled ETF | Ireland-domiciled ETF | |
| Dividend payout | 100 | 100 |
| US Withholding Tax | 30% (US – Malaysia) | 15% (US – Ireland) |
| Irish Withholding Tax | – | 0% (Ireland – Malaysia) |
| Malaysia Tax | 0% (FSI exempt) | 0% (FSI exempt) |
| Final amount | USD 70 | USD 85 |
That 15% difference may not look huge now, but over many years of compounding, it can add up significantly.
Common Question/Things You Need to Know
Do you need to pay tax in Malaysia?
As of now, Malaysia does not tax foreign-sourced income until 31 December 2036, so you keep everything your Irish ETF distributes.
Estate tax
Source: Deloitte
There’s another advantage many investors overlook. If a foreigner passes away holding more than USD 60,000 worth of US-domiciled assets, the estate could be taxed 18% to 40%.
On the other hand, Ireland-domiciled ETFs avoid this entirely because:
- They are not considered US assets
- Ireland’s estate tax does not apply to non-residents
| – | US-domiciled ETF | Ireland-domiciled ETF |
|---|---|---|
| US Estate Tax | Yes (above USD60k) | None |
| Treaty Benefit | No | Yes |
Anyways, if you want a deeper understanding of how estate tax works, it’s always a good idea to speak with a qualified estate planner in Malaysia.
Is Ireland-domiciled ETF safe?
If you’re wondering whether these funds are legit, they absolutely are. Ireland-domiciled ETFs follow the UCITS framework, which is Europe’s trusted standard for fund regulation, and they’re overseen by the Central Bank of Ireland. In fact, around 74% of Europe’s ETFs are based in Ireland and many are managed by big names like BlackRock and Vanguard.
How to check if an ETF is Ireland-domiciled?
Source: iShares Core S&P 500 UCITS ETF
It’s pretty simple. If you’re using IBKR, just look under the Key Profile section and check the domicile field. If it says Ireland, you’re good. Another quick way is to look at the ETF’s ISIN. Ireland-domiciled ETFs always start with “IE”.
Accumulating vs Distributing
Source: google finance
Another thing to pay attention to is whether an ETF is accumulating or distributing. You can usually tell from the name. For example, if you search for CSPX, you’ll see “Acc” at the end, which means the ETF reinvests all dividends back into the fund instead of paying them out. Choosing between accumulating and distributing really depends on what you want. If you prefer regular passive income, go for distributing. If you’d rather let everything compound quietly in the background, accumulating might be the better choice.
Expense ratio
One last thing to note is that Ireland-domiciled ETFs often have a slightly higher expense ratio, which is the annual fee you pay to the fund manager. But when you compare that tiny difference to the 15% tax savings you get, it’s really not a big deal. For example, CSPX has an expense ratio of 0.07% compared to VOO’s 0.03%, and that small gap isn’t enough to outweigh the tax benefits of 15%.
How to buy them from Malaysia?
To buy these ETFs, you need a broker that gives access to the London Stock Exchange (LSE). Among these, IBKR is typically the most cost-effective with low fees, global access, and listed on Nasdaq with a market cap over USD 100B. Personally, I’ve used their platform for years and found it reliable. If you’d like to open an account, you can use my link here.
If you use IBKR:
- Go to Profile
2. Open Settings (other IBKR platform)
3. Select Trading Permissions
4. Edit Stocks
5. Tick United Kingdom (to access LSE)
Final Thoughts
At the end of the day, you’re still investing in the same S&P 500. The only difference is where the fund is based, and that small detail helps you keep more of your hard-earned returns. A simple switch, bigger long-term gains.
If you prefer a video version of this article, I have made a video covering the exact same thing – do check it out here!
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