The 40% Tax That Many International Investors Never See Coming
Millions of investors around the world own US stocks through brokers such as Interactive Brokers, Charles Schwab, Fidelity, or local banks. They buy shares of companies like Apple, Microsoft, NVIDIA, Coca-Cola, and Amazon, believing that once they have paid capital gains tax and dividend withholding tax, there are no further US tax concerns.
Unfortunately, that assumption can be dangerously wrong.
One of the least understood risks facing international investors is the US estate tax, sometimes mistakenly referred to as an inheritance tax. Unlike income tax, this tax applies when an investor dies—not when they sell their investments. Because death is an event most investors prefer not to think about, this issue is frequently ignored by financial advisers and brokerage firms alike.
For some families, the consequences can be devastating.
The Surprising Difference Between Americans and Foreign Investors
Most Americans know that the United States imposes an estate tax, but many do not realize that the rules are dramatically different for foreign investors.
As of 2026:
- US citizens and many US domiciliaries have an estate tax exemption exceeding $15 million per individual.
- In contrast, non-resident, non-US citizens generally receive an exemption of only $60,000 of US-situated assets.
That difference is astonishing.
Imagine two investors who each own $2 million worth of Apple shares.
The American investor may owe no federal estate tax because the estate falls below the lifetime exemption.
The foreign investor, however, may have almost the entire portfolio exposed to US estate tax simply because the shares are considered US-situated property.
What Assets Are Included?
Many investors incorrectly believe that only US real estate is subject to estate tax.
In reality, US-situated assets generally include:
- Shares of US corporations (Apple, Microsoft, Google, Berkshire Hathaway, etc.)
- US corporate bonds
- US-domiciled ETFs
- US real estate
- Tangible property physically located in the United States
- Certain business interests located in the US
One particularly surprising rule is that shares of US corporations remain US-situated assets regardless of where they are held.
Holding Apple shares through a Singapore broker, a Swiss bank, or Interactive Brokers Singapore does not generally change their status for US estate tax purposes. The determining factor is the corporation’s place of incorporation—not where the brokerage account is located.
Assets That May Not Be Subject to Estate Tax
The rules also contain several important exceptions.
Examples of assets generally not subjected to the US estate tax are:
- Bank deposits and cash balances
- Certain qualifying debt obligations such as US treasuries
- Life insurance proceeds on the life of a non-resident alien
- Some assets specifically excluded by statute
The Tax Can Reach 40%
The federal estate tax is progressive.
Depending on the value of the taxable estate, rates can reach 40%.
For example:
Suppose an investor living outside the United States owns:
- $3 million in US stocks
- no applicable estate tax treaty
- no planning structure
A significant portion of that portfolio could potentially become subject to US estate tax after the investor’s death.
While deductions and calculations vary, many investors are shocked to discover that the tax exposure can amount to hundreds of thousands of dollars—or even more.
Estate Tax Treaties Matter
Fortunately, not every nationality of investors is treated the same.
The United States has estate tax treaties with a limited number of countries, such as Germany, Italy and Japan. These treaties may:
- increase the available exemption from $60,000 to a higher amount,
- reduce double taxation,
- change which assets are taxable,
- or provide other relief.
Unfortunately, many countries—including Singapore, Poland, India, Australia, and numerous others—do not have a US estate tax treaty.
Why This Risk Is So Often Overlooked
Several factors contribute to the lack of awareness:
- Brokerage firms focus on investing, not estate planning.
- Financial advisers may specialize in local taxation but have limited knowledge of cross-border estate taxes.
- Investors tend to focus on annual returns rather than what happens upon death.
- Dividend withholding tax receives much more attention than estate tax.
As a result, investors can unknowingly accumulate millions of dollars in US assets without realizing the potential estate tax implications.
Common Planning Approaches
Investors concerned about US estate tax often explore strategies such as:
- investing through non-US-domiciled funds (for example, certain Ireland-domiciled ETFs),
- restructuring portfolios,
- using companies or trusts where appropriate,
- reducing direct ownership of US-situated assets,
- relying on applicable estate tax treaties when available.
However, there is no universal solution. The effectiveness of any strategy depends on an individual’s country of residence, citizenship, family circumstances, tax treaties, and broader tax consequences. Professional cross-border legal and tax advice is essential before making structural changes.
The Bottom Line
For many international investors, the greatest tax risk associated with US investments is not capital gains tax or dividend withholding—it is a tax that may not arise until death.
A portfolio worth millions of dollars can unexpectedly become subject to US estate tax simply because it contains US shares, even if the investor has never lived in America and holds those investments through a foreign brokerage account.
Understanding these rules early allows investors to evaluate whether restructuring their holdings is appropriate, rather than leaving their heirs to discover the issue during an already difficult time.
In international investing, knowing what happens after death can be just as important as knowing what happens during life.