UCITS – Solution to the $60,000 Problem Every Indian Investor Needs to Know About
UCITS – Solution to the $60,000 Problem Every Indian Investor Needs to Know About
Here are three very real investor profiles which I recently experienced while serving clients that capture what this problem is ..
Rahul Rao, 38 - Senior Engineer, Google India
Holds $180,000 in vested Google RSUs on a US brokerage account. Files Indian taxes but has never cleared his US brokerage account since returning. Assumes RSUs are safe because he is a resident Indian now.
Priya Menon, 52 - Entrepreneur, HNI — Bengaluru
Built a diversified portfolio over 20 years. Has $95,000 in US-listed ETFs and a few US tech stocks via a Vested or INDmoney account. Net US-held corpus sits well above $60,000.
Sanjay Kumar, 45 - NRI Returning from California
Heading back to Hyderabad after 12 years in the US. Has a $820,000 condo in Fremont (not yet sold), a $400,000 in 401k, and $375,000 in FAANG stocks. Still figuring out what to liquidate and when.
Why can decades of wealth built by an Indian NRI in US stocks or employee with high on RSU’s face estate tax exposure once the portfolio crosses just $60,000
US citizens and permanent residents enjoy a generous federal estate tax exemption of over $15 with new change. But non-resident aliens (NRAs) — which includes most Indian investors and returning NRIs once they surrender their green card or H-1B status — get a dramatically different deal. Their exemption is just $60,000.
The estate tax exposure fluctuates with portfolio value and USD/INR exchange rates, while insurance cover is fixed and adds ongoing premium costs.
A better long-term solution is restructuring ownership of US assets — such as through Ireland-domiciled UCITS ETFs — rather than merely funding the future tax bill.
An example of holding of $300000 under this US estate tax
Enter UCITS — the instrument most Indian advisors haven't told you about
UCITS stands for Undertakings for Collective Investment in Transferable Securities. In plain English, these are investment funds and ETFs regulated under European Union law — specifically domiciled in countries like Ireland and Luxembourg. They are the European equivalent of US-registered mutual funds or ETFs, but with one extraordinary advantage for Indian investors: they are not US-situs assets.
If Priya holds $95,000 in a UCITS ETF that tracks the S&P 500 — listed on the London Stock Exchange — she effectively has the same economic exposure to American equities as she would through a US-listed ETF like VOO or SPY. The underlying stocks are American. The returns follow the same index. But the legal wrapper — the fund itself — is Irish. It is a European asset. And because it is not a US-situs asset, it sits entirely outside the reach of IRS estate tax
Step-by-step process for a resident Indian buying UCITS via IBKR
1. Open an Interactive Brokers /Paasa/Vested account and remit funds under annual LRS $250,000 ceiling by instructing your Indian bank to wire USD (or GBP/EUR) to your IBKR account.
2. Search for the UCITS ETF by ticker - Search CSPX (iShares S&P 500 UCITS ETF) on the LSE exchange within IBKR's platform. Always verify the domicile is Ireland or Luxembourg before buying.
3. UCITS ETF — accumulating class to be selected by an Indian investor , is the version that does not pay out dividends at all. Instead, dividends received by the fund from its underlying stocks are automatically reinvested back into the fund, growing the net asset value
4. Declare foreign assets in your Indian tax return - Any foreign account or investment must be disclosed in Schedule FA of your ITR. This is a mandatory annual compliance requirement — not optional.
One drawback of UCITS ETFs is that they often have higher expense ratios compared to equivalent US-listed ETFs. Over long investment periods, even a small difference in annual costs can slightly reduce overall returns due to compounding. Investors are effectively paying a premium for better international structuring and lower US estate tax exposure.
How UCITS ETF gains are taxed in India
UCITS ETFs are taxed as foreign equity. Gains held under 24 months attract your income tax slab rate (up to 30%). Beyond 24 months it is 12.5% LTCG — no indexation post Budget 2024. Currency gains from rupee depreciation are also taxable, which cuts both ways.
Many investors simply do not know the difference between:
- investing in US companies,
and - holding US-domiciled assets.
That distinction becomes important only during estate transfer situations — often when it is already too late.
The 5 UCITS ETFs covered:
- CSPX → S&P 500 (iShares, Ireland)
- EQQQ → NASDAQ 100 (Invesco, Ireland)
- VWRA → Global All-World (Vanguard, Ireland)
- EIMI → Emerging Markets (iShares, Ireland)
- XDWX → Developed ex-USA (Xtrackers, Luxembourg)
Final Thoughts
UCITS ETFs are increasingly emerging as a practical solution for Indian investors who want global diversification without unnecessary exposure to US estate tax rules.
The objective is not to avoid investing in America. The objective is to invest intelligently. For many Indians, the question is slowly shifting from:
“What should I invest in?” to “How should I structure global investments properly?”
That is where UCITS ETFs are becoming an important part of modern international portfolio planning.
MyGuide2Wealth founded by Robins Joseph , SEBI Registered Investment Adviser , Certified Financial Planner. (www.myguide2wealth.com) based in Noida specializing in wealth, investment, retirement services with clear aim of Spreading financial literacy and advocating on India's strong equity story.
