Investors who hold (or are looking to invest in) US stocks or ETFs often overlook one critical risk: the US Estate Tax. US-situated assets are subject to an inheritance tax reaching 40% upon the owner's death once holdings exceed $60,000.
For example, if you have $200,000 in US stocks and ETFs, the IRS will charge a $41,800 tax upon your death.
UCITS ETFs solve this by offering US market exposure through a European domicile (Ireland or Luxembourg), which legally exempts them from US estate taxes.
Beyond asset protection, they offer tax efficiency in two ways. Irish domicile means the fund bears 15% US withholding on dividends rather than the 30% statutory rate, and "Accumulating" share classes reinvest dividends internally rather than distributing them, which avoids immediate taxation in India and lets your capital compound uninterrupted until you decide to sell.
This guide explains how UCITS work and how Indians can invest in UCITS while remaining compliant with tax regulations.
Table of contents
- What are UCITS ETFs?
- Are UCITS ETFs as liquid as US ETFs?
- Why are Indian investors choosing UCITS ETFs?
- Top UCITS ETFs by Category
- Why Indian professionals from MAANG are opting for UCITS
- Invest in UCITS ETFs with Paasa
- Conclusion
- Frequently Asked Questions
What are UCITS ETFs?
UCITS (Undertakings for Collective Investment in Transferable Securities) are investment funds that comply with EU (European Union) regulations.
A UCITS ETF is an Exchange Traded Fund (ETF) that is domiciled in Europe and strictly adheres to these regulations. While these funds are legally based in Europe (typically Ireland or Luxembourg), they are often used to invest in global assets, including US stocks like Apple or Nvidia.
An ETF (Exchange Traded Fund) is a basket of securities (like stocks or bonds) that you can buy and sell on a stock exchange, just like a single share.
Are UCITS ETFs as liquid as US ETFs?
Yes. UCITS ETFs are highly liquid and function almost identically to their US counterparts.
Here is what sits behind that:
- Mandatory Liquidity: Under EU rules, all UCITS funds must be open-ended and deal at least twice a month, though in practice major ETFs deal every trading day. Your right to redeem is built into the structure.
- Institutional Volume: Major funds from managers like BlackRock (iShares) and Vanguard are cross-listed on the London Stock Exchange, Xetra, Euronext, and Borsa Italiana, with substantial daily turnover across venues.
- Continuous Two-Way Pricing: Just like in the US, professional market makers quote bids and offers throughout market hours, so there is a price on screen whenever you want to trade.
Paasa helps you buy and sell UCITS instantly and provides tax compliance support.
Why are Indian investors choosing UCITS ETFs?
Indian investors are shifting to UCITS ETFs not just for access to global markets, but for advantages that directly impact net returns.
1. Safeguarding against the US Estate Tax
This is the primary driver for Indian investors. If you hold US-domiciled assets (like US-listed stocks or ETFs) worth more than $60,000, your estate is subject to US Estate Tax at rates reaching 40% upon your death.
Since UCITS funds are legally domiciled in Europe (typically Ireland), they are not considered US-situated assets. This completely exempts your portfolio from the US estate tax risk, ensuring your wealth is passed on intact.
Use our US Estate Tax Calculator to find the exact tax you will have to pay.
2. Tax deferral via accumulating structures
US-listed ETFs distribute dividends to shareholders. For an Indian investor, this payout triggers a taxable event every quarter, taxed at your income slab rate.
UCITS ETFs offer "Accumulating" classes. These funds automatically reinvest dividends internally without paying them out. This prevents a taxable event in India, allowing your capital to compound until you eventually sell the ETF.
3. Lower withholding tax
US ETFs deduct a 25% withholding tax on dividends before paying you. This is creditable against your Indian tax, but the dividend is still taxed at your slab rate in India every year.
Ireland domiciled ETFs instead bear a 15% withholding tax at the fund level, which is borne inside the fund rather than deducted from a payout to you. Paired with an accumulating share class, there is no annual Indian dividend tax, leading to better compounding and growth.
Example: Consider an Indian investor who wants exposure to the S&P 500. Here is the difference between buying the standard US ETF versus its Irish equivalent.
Option A: The US ETF (e.g., SPY)
- Estate Tax: You are exposed to the US Estate Tax once your US-situs holdings exceed $60,000.
- Distributing class of dividends: Dividends are distributed, leading to taxation in India.
- High Dividends WHT: 25% withheld from you, creditable in India.
Option B: The UCITS ETF (e.g., CSPX)
- Estate Tax: You are exempt from US Estate Tax.
- Accumulating class of dividends: Dividends are reinvested into the fund, no Indian tax liabilities are triggered.
- Low Dividends WHT: 15% at fund level, borne inside the fund.
For a deep dive into the advantages of UCITS, read our guide on Why Indian Investors Should Choose UCITS Over US ETFs.
Top UCITS ETFs by Category
Here is a curated list of the most popular UCITS ETFs available to Indian investors.
These funds are domiciled in Ireland and sit outside US Estate Tax. Most are Accumulating (Acc) share classes that reinvest dividends automatically to defer taxes in India; the gold entries are exchange-traded commodities (ETCs), which hold physical bullion and pay no dividend at all.
Pro Tip: Look for "(Acc)" in the name. This stands for "Accumulating," meaning the fund recycles your dividends to buy more shares for you, keeping your Indian tax bill at zero until you sell.
All UCITS ETFs holding US shares bear a 15% US withholding tax on dividends at the fund level. The difference is that accumulating UCITS ETFs do not pay dividends out to you, so they create no Indian tax liability along the way. This leads to the following advantages:
- No Tax Event: Since you receive no cash, you pay zero tax in India annually.
- Compounding: The money that would have gone to the taxman stays in the fund and grows.
- Lower Final Rate: When you eventually sell (after 24 months), the profit is taxed as Long Term Capital Gains (12.5%).
For a deeper dive into accumulating vs. distributing UCITS ETFs, visit UCITS ETFs: Accumulating vs Distributing.
Common Questions
Which provides a lower dividend withholding tax: US ETFs or UCITS ETFs?
Irish-domiciled UCITS ETFs are more efficient, incurring only a 15% withholding tax at the fund level due to the US-Ireland treaty, compared to the 25% deducted from your payout by US ETFs. The 25% is creditable against your Indian tax, but the dividend is still taxed at your slab rate each year. Accumulating UCITS reinvest dividends instead, avoiding Indian income tax and allowing the capital to compound until you sell.
Do I need to convert INR to Euro to buy UCITS ETFs?
No. Even though these funds are domiciled in Ireland, they trade on the London Stock Exchange (LSE) in US Dollars (USD). When you use Paasa, you remit funds in USD just like you would for a standard US brokerage account. There is no double currency conversion.
Are UCITS ETFs more expensive than US ETFs?
Slightly, but the tax savings far outweigh the cost. For example, a standard US S&P 500 ETF might charge 0.03% per year, while a UCITS equivalent might charge 0.07%. However, by avoiding the annual Indian dividend tax and eliminating the estate tax risk, the slight difference in expense ratio is negligible compared to the value in tax efficiency.
Why Indian professionals from MAANG are opting for UCITS
For many tech professionals in India (working at companies like Google, Microsoft, or Amazon), a significant portion of their net worth is tied up in Restricted Stock Units (RSUs).
While RSUs are a great wealth generator, keeping them held in your US brokerage account creates two major risks:
- Concentration Risk: Your salary and your savings are tied to the performance of a single company. If the company struggles, you risk losing both your income growth and your asset value.
- Estate Tax Risk: Since RSUs are US-situs assets, holdings that exceed $60,000 bring your estate within US Estate Tax, at rates reaching 40%.
That is why many Indian tech professionals are reinvesting their RSU wealth into UCITS ETFs.
For in-depth information, visit our guides on How Indian professionals can protect RSUs from estate tax and UCITS ETFs vs US ETFs for RSUs.
Common Questions
Can I directly convert my US RSUs into UCITS ETFs?
No. You cannot "swap" a US stock (like Google or Amazon) for a UCITS ETF unit directly. You must first sell your vested RSUs to generate cash, and then use that cash to buy the UCITS ETF.
Pro Tip: You can transfer your existing RSUs from your employer’s broker (e.g., Fidelity, E*TRADE, Schwab) to Paasa via ACATS (a free, digital transfer process) and then execute the sell/buy strategy all within one platform.
Do I need to bring the money back to India before reinvesting?
No. Under RBI regulations (Overseas Portfolio Investment), if you sell a foreign asset (like RSUs), you are allowed to reinvest the proceeds into another foreign asset (like UCITS ETFs) without repatriating the funds to India, provided the reinvestment happens within 180 days of the sale. This saves you significant money on Forex conversion fees and transfer charges.
Invest in UCITS ETFs with Paasa
Indian residents can invest in UCITS ETFs under the RBI’s Liberalised Remittance Scheme (LRS), which allows you to remit up to $250,000 per financial year overseas for permitted investments.
Paasa is currently the only India-facing platform that offers UCITS access with end-to-end handling of FEMA compliance, INR remittance tracking, and tax-ready reporting, removing the operational burden from the investor.
Paasa also offers you the best FX rates, ensuring that your returns are not eaten up by platform fees.
Use our UCITS Screener to discover and compare UCITS-compliant investment instruments.
Conclusion
For Indian investors, UCITS ETFs are the optimal structure for US market exposure. By choosing Irish-domiciled accumulating funds, you effectively immunize your portfolio against the US Estate Tax while deferring dividend taxes to maximize compounding.
About Paasa
Paasa is an Indian investor’s gateway to global investing, trusted by HNIs, family offices, and institutions to diversify into markets across the US, Europe, China, Japan, and beyond.
What sets Paasa apart is its India-facing compliance layer:
- FEMA and LRS compliance embedded into every transaction.
- Tax reporting and analytics built for Indian investors (LTCG, STCG, dividend tax, TCS tracking).
- End-to-end support for remittance structuring, reconciliation, and compliance queries.
Whether it’s equities, ETFs, UCITS funds, managed strategies, or even helping you protect your RSUs from estate tax, Paasa provides a single transparent platform for global portfolios with the confidence that India-specific compliance is taken care of.
