[site-breadcrumb]
When we talk about US or EU ETFs, we refer to the domicile, i.e. the country/region in which the ETF was issued. For example, the S&P 500 Index can have both a US-domiciled and an EU-domiciled ETF (usually in Ireland or Luxembourg). They would track the same index but have a different domicile. This is important from a liquidity, taxation, and regulatory perspective.
Tax differences between US and EU ETFs
Trading ETFs can involve withholding taxes, income taxes, or capital gains taxes. For detailed guidance, consult your accountant or tax advisor. The tax treatment depends on where the ETF is domiciled as well as your country of tax residence.
Liquidity considerations for US and EU ETFs
The more liquid an ETF, the easier it is to buy or sell it with minimal spread costs. Well-known funds such as the Vanguard Total Stock Market ETF or Invesco’s QQQ typically pose no issues. However, a niche product—for example, a South American green energy small-cap ETF—may have very limited liquidity or none at all.
Generally speaking, ETFs domiciled in the European Union tend to be less liquid than their US-based equivalents. As a result, you may encounter wider spreads when trading certain EU ETFs, with the exception of larger, more established ones. This is usually not a concern for buy-and-hold investors, but those engaging in short-term trading should be mindful of it.
Regulation of ETFs and access to US ETFs from the EU
Since January 2018, investors based in Europe have largely been restricted from trading many US-domiciled ETFs. This includes widely held funds such as SPY, IVV, VTI, and QQQ, among numerous others. The reason is that the documentation for most US-domiciled ETFs does not fully align with EU regulatory requirements. For further details, you can refer to our article on the topic.
One way to work around this restriction is to apply for professional client status with your broker. If you meet all the necessary criteria, you may be granted permission to trade US ETFs. Alternatively, you can consider investing in mutual funds that function similarly to ETFs.
What else should you know about ETFs?
If you would like to learn more before deciding which ETF is right for you, the following articles may help:
-
What is an ETF?
-
Mutual funds vs. ETFs: key differences
-
Understanding an ETF portfolio
-
ETF expense ratios explained
-
How to invest in ETFs
-
ETF liquidity: what to know
-
How to buy Vanguard ETFs
-
How to buy iShares ETFs
-
Sector ETFs: an overview
-
What is passive investing?
-
Are US ETFs available only to US residents?
-
A guide to buying ETFs
For additional details, click here to learn about purchasing ETFs online.