Investors who live and work across borders often keep a smaller portion of their equity portfolio in U.S. stocks. Four practical factors drive that choice: generally lower dividend yields, a heavier tax burden for both citizens and non‑citizens, exposure to U.S. estate tax, and a higher risk of government‑directed confiscation.
1. Dividend yields are comparatively low
- U.S. financials – Large banks such as Wells Fargo, Bank of America and JPMorgan trade at dividend yields of roughly 3 %–3.25 % (Wells Fargo ≈ 3.25 %).
- Singapore banks – OCBC and other major Singaporean banks offer yields around 6 % and are often tax‑free for residents.
- Telecoms – U.S. carriers like AT&T provide modest yields that can be outperformed by Asian mobile operators, which regularly pay higher, more sustainable dividends.
When the goal is income, the U.S. market typically lags behind many Asian and European issuers.
2. Higher tax burden on dividends and capital gains
- U.S. citizens must pay U.S. tax on worldwide income, regardless of residence (e.g., an American living in Dubai still files U.S. taxes).
- Non‑citizens face a 30 % U.S. withholding tax on dividends unless a tax treaty reduces it; many treaties cap the rate at 15 %.
- Tax‑free jurisdictions (e.g., the United Arab Emirates, Singapore) can eliminate local dividend tax, but the U.S. withholding still applies, eroding the yield advantage.
- Capital‑gain tax rates in the U.S. are also higher than in several low‑tax jurisdictions, though the impact is smaller for long‑term investors.
3. U.S. estate tax exposure
- U.S. assets owned directly by non‑residents are subject to estate tax on death.
- The exemption threshold is low—approximately US $60,000—far below the multi‑million‑dollar exemptions available to U.S. citizens.
- Without proper structuring (e.g., trusts, corporate entities, or offshore domiciled funds), heirs could face a substantial estate‑tax bill.
- Many domestic brokers do not advise on these issues; specialized international tax advice is often required.
4. Risk of government confiscation
- Historical precedents (e.g., Russia’s restrictions on foreign investors) illustrate that sovereign actions can seize or restrict foreign‑held securities.
- The U.S. has a reputation for aggressive enforcement of tax and securities regulations, which can increase the perceived risk of asset seizure compared with jurisdictions that explicitly protect foreign capital.
Practical alternatives for non‑U.S. investors
- Offshore‑domiciled index funds – S&P 500 ETFs domiciled in Ireland and listed on the London Stock Exchange allow exposure to U.S. equities while benefiting from more favorable withholding‑tax treatment.
- Local brokerage access – Investors in countries such as Georgia can purchase these funds through domestic banks, gaining U.S. market exposure without holding the shares directly.
- Asian and European equities – High‑yielding banks and telecoms in Singapore, Hong Kong, and other Asian markets often provide better dividend returns and lower tax drag.
- REITs and sector‑specific funds – Real‑estate investment trusts and other sector funds listed outside the U.S. can deliver comparable returns with more advantageous tax treatment for non‑U.S. residents.
By weighing lower yields, higher taxes, estate‑tax liability, and confiscation risk, globally mobile investors can decide whether to keep U.S. equities as a core holding or to allocate more of their portfolio to jurisdictions that align better with their tax residency and asset‑protection goals.
