An S&P 500 fund listed in New York and an S&P 500 fund listed in London can hold exactly the same 500 companies. For an Indian investor, they are taxed very differently. The difference comes from the fund’s domicile: the country where the fund itself is registered.
The two families
US-domiciled ETFs are registered in the United States and usually trade on NYSE or Nasdaq. They are the largest and cheapest funds in the world.
Irish-domiciled UCITS ETFs are registered in Ireland under European fund rules, and usually trade in London, Amsterdam or Frankfurt, often in US dollars. Many track the same indices as their US counterparts.
Difference 1: US estate tax
Shares of a US-domiciled ETF count as US assets. If an Indian resident dies holding more than $60,000 of US assets, the estate can owe US tax at rates up to 40%. Shares of an Irish fund are not US assets, even if the fund holds only American companies. For a family building a meaningful portfolio, this is usually the deciding factor.
Difference 2: dividends
A US ETF pays you dividends with 25% US tax withheld, which you can generally credit against Indian tax. An Irish fund holding US shares suffers 15% withholding inside the fund, under the US–Ireland treaty, and Ireland withholds nothing further when it pays you.
The 15% inside the fund is not your tax, so you cannot claim it as a credit in India. The net effect depends on your tax rate and the dividend yield, but on an index yielding about 1.5%, the gap is small, around 0.1 to 0.15 percentage points a year.
Difference 3: accumulating classes
Many Irish funds offer accumulating share classes that reinvest dividends instead of paying them out. You receive no dividend, so there is nothing to tax each year in India. You pay capital gains tax when you sell, at 12.5% if held more than 24 months. Over long periods, that deferral compounds.
What it comes down to
| US-domiciled ETF | Irish UCITS ETF | |
|---|---|---|
| US estate tax | Applies above $60,000 | Does not apply |
| Dividend tax lost | 25%, creditable in India | 15% inside the fund, not creditable |
| Accumulating option | Rare | Common |
| Costs and liquidity | Lowest | Slightly higher, still low |
For most of our clients, the estate tax point settles it: core holdings go in Irish-domiciled funds. US-domiciled ETFs and individual US shares still have a place for specific exposures, sized with the $60,000 threshold in mind.