Why Indian Investors Should Choose UCITS Over US ETFs

If you are an Indian investor holding $500,000 in US-listed ETFs yielding 2% a year, US dividend tax at 25% takes $2,500 annually before reinvestment. Over a decade, that’s more than $25,000 lost. Ireland-domiciled UCITS ETFs usually face only 15% withholding, and when structured as accumulating funds they reinvest dividends inside the ETF, letting more of each payout compound and grow your capital.

The same $500,000 could also fall under US estate tax rules for non-residents, up to 40% on the value above $60,000. In this case, that’s over $176,000 gone before your family receives the assets, a risk Ireland- or Luxembourg-domiciled UCITS ETFs avoid.

That’s why more Indian HNIs, family offices, and institutions are making accumulating UCITS ETFs a core part of global portfolios.

Table of Contents

• What exactly is UCITS
• How UCITS Provides US Market Exposure
• UCITS vs US ETFs
• Liquidity in UCITS ETFs
• Tax for Indian Investors
• How Dividends Are Taxed in UCITS vs US ETFs
• How do I invest in UCITS from India?
• Popular UCITS ETFs
• FAQs

What exactly is UCITS

UCITS stands for Undertakings for Collective Investment in Transferable Securities. It is not a single product or fund, but a European Union regulatory framework that sets common standards for how investment funds are created, managed, marketed, and protected across EU member states.

Regulatory framework vs investment type

• Regulatory framework: UCITS is a rulebook that defines diversification limits, risk controls, disclosure standards, and custody requirements.
• Investment vehicles: Funds that meet these rules can be mutual funds or ETFs. A UCITS ETF is simply an ETF structured to comply with UCITS rules.

Where they are based?

Most UCITS ETFs used by global investors are domiciled in Ireland or Luxembourg, both offering strong fund ecosystems, favourable tax treaties, and robust regulation.

Who regulates them?

The UCITS framework is set at the EU level, but each fund is supervised by the financial regulator in its home country. 

• In Ireland, that’s the Central Bank of Ireland.
• In Luxembourg, it’s the Commission de Surveillance du Secteur Financier (CSSF).

Once approved in one EU country, the fund can be listed and sold across the EU and to global investors under the same investor-protection standards.

How UCITS Provides US Market Exposure

UCITS rules don’t restrict funds to European investments. A UCITS ETF domiciled in Ireland or Luxembourg can hold US-listed stocks like Apple, Microsoft, and Amazon, or track major US indices such as the S&P 500 and Nasdaq 100.

Many of these funds do so through:

• Physical replication: directly holding the underlying US shares.
• Synthetic replication: using derivatives to match index performance.

Even though the holdings are US companies, the ETF itself is legally domiciled outside the US.

UCITS vs US ETFs

Two big structural advantages for Indian Investors:

Lower Dividend Withholding

• US-listed ETFs: 25% withholding on dividends (under India-US DTAA)
• Ireland-domiciled UCITS ETFs: Typically 15% US withholding at the fund level.
• Impact: That 15% difference may sound small in a single year, but over long investment horizons, the extra tax drag from 25% withholding compounds significantly, especially for high-dividend strategies.

No US Estate Tax Exposure

• US-listed ETFs: Non-resident investors face up to 40% US estate tax on the value of US-situs assets exceeding $60,000 at the time of death. This is not an income tax, it applies to the total asset value, making it a substantial risk for high-net-worth portfolios.
• UCITS ETFs: Domiciled outside the US, so they are not considered US-situs assets. This means there is no US estate tax exposure, removing a significant potential liability for heirs.

Does UCITS have enough liquidity?

Yes. Large UCITS ETFs, especially those tracking major indices like the S&P 500 or MSCI World, are actively traded on global exchanges such as the London Stock Exchange (LSE), Euronext, and SIX Swiss Exchange. Even if their visible trading volume appears smaller than US-listed ETFs, authorized participants and market makers ensure there’s continuous buy and sell activity and that prices stay close to the fund’s net asset value.

For context, most of these ETFs see daily trading worth tens to hundreds of millions of US dollars, far more than what a typical individual investor would ever need. In short, for most investors, UCITS liquidity is more than sufficient.

Taxation in India (Same Rules Apply for Both UCITS and US ETFs)

From an Indian tax perspective, both UCITS ETFs and US-listed ETFs are treated as foreign securities. The tax rules are the same:

• Holding period < 24 months: Gains are considered short-term and taxed at your applicable slab rate.
• Holding period ≥ 24 months: Gains are long-term and taxed at 12.5% with no indexation.

How UCITS are Taxed When You Sell?

When you sell a UCITS ETF, there’s no additional US tax event because the fund itself is domiciled outside the US.

How Dividends Are Taxed in UCITS vs US ETFs?

One common area of confusion when comparing UCITS and US ETFs is how dividends are taxed. Let’s break it down.

• US ETFs: These always distribute dividends. By default, the US applies a 30% withholding tax. With India’s tax treaty (DTAA), this reduces to 25%, but you still report the full dividend in India and pay tax at your income-slab rate. The US withholding gets credited, so the net outcome is that dividends are always taxed at your Indian rate. That means annual cash payouts and yearly taxation, leaving less to compound.
• UCITS ETFs: At the fund level, Ireland has a treaty with the US, so dividends entering the ETF face only 15% withholding. Most UCITS ETFs available to Indian investors are accumulating in nature, which means those dividends are never distributed to you, they’re reinvested automatically inside the fund. The result is no annual Indian dividend tax, and your returns compound quietly until you eventually sell the ETF, at which point you only pay capital gains tax in India.

What this means in practice: For Indian investors, accumulating UCITS ETFs are the more tax-efficient choice. By sidestepping annual dividend taxation, they let your returns build inside the fund with minimal leakage, while also avoiding US estate tax risks.

How do I invest in UCITS from India?

Indian residents can invest in UCITS ETFs under the RBI’s Liberalised Remittance Scheme (LRS), which allows up to $250,000 per financial year to be remitted overseas for permitted investments.

You can access these UCITS-ETFs through an international brokerage like Interactive Brokers or through Paasa.

While Interactive Brokers provides the raw infrastructure for global investing, 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. 

Here’s a detailed breakdown of how Paasa compares to Interactive Brokers for UCITS investing and broader global allocation.

Popular UCITS ETFS

If you’re new to UCITS, it helps to see a few examples that global investors (including many in India) actually use. The most sought-after funds for US equity exposure are typically domiciled in Ireland (for the 15% US dividend withholding) or Luxembourg (for broader Europe and thematic strategies).