The Tax Most Foreign Investors in US Stocks Overlook: The USD 60,000 Estate Tax Threshold

Suppose you hold USD 500,000 in US stocks and die unexpectedly. Most people assume the portfolio passes straight to their family. The actual sequence is different: the broker freezes the account, your heirs must file a US estate tax return with the IRS (Form 706-NA) and obtain a transfer certificate (Form 5173) before they can touch the assets. If the entire position is in US individual stocks and US-listed ETFs, the tax comes to roughly USD 142,800, nearly 30% of the portfolio.

This is the US estate tax. If you are a nonresident alien (an NRA: not a US citizen and not domiciled in the US), your exemption is USD 60,000. That number is not indexed for inflation and has not moved in decades. A small group of countries has US estate tax treaties that can improve this position; Taiwan is not one of them, and this article assumes no treaty applies. If you live in a treaty jurisdiction, check the treaty before anything else. This article covers what gets taxed, how the tax is actually computed, and the legal planning routes.

The brutal comparison: USD 15M vs USD 60k

A 250x gap. And clear away the key misconception first: this has nothing to do with which broker you use. Whether you buy through a sub-brokerage account in your home country or directly through a US brokerage, the tax turns on whether the asset itself is a US-situs asset. A US stock is a US stock, regardless of which account holds it.

Why Taiwan investors lose out: no tax treaty protection

Among foreign holders of US stocks, Japanese and British investors are actually better positioned than Taiwan investors. The US currently has estate or gift tax treaties with only 15 countries (Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom). Residents of those countries can apply the treaty to raise the exemption available to them (typically by increasing the unified credit in proportion to US-situs assets over the worldwide estate), or to allocate the taxing right by domicile rather than by the situs of the assets. Unfortunately, Taiwan is not on the list.

Many Taiwan investors assume "Taiwan has no diplomatic relations and no treaty with the US, so the US can't tax me." The truth is exactly the opposite: precisely because there is no treaty to invoke, Taiwan investors face the highest US estate tax exposure.

Which assets are US-situs

Taxable (US-situs)

• Shares of US corporations: AAPL, MSFT, NVDA, every US-incorporated company
• US-listed, US-registered ETFs: SPY, QQQ, VTI, VOO, all of them (an ETF share is a share of a US-registered fund)
• US corporate bonds, US REITs
• US-registered mutual funds

Not taxable (non-US-situs or statutorily exempt)

• Directly held US Treasuries (T-Bills, T-Notes, T-Bonds): statutorily exempt, one of the few estate-tax-friendly instruments in asset allocation. Note the words "directly held": wrap them in a US-listed ETF and the exemption is gone. See the companion piece.
• ADRs of foreign companies: the test is the issuer. The issuer of the TSM ADR is TSMC, a Taiwan company, so under the prevailing view it is not US-situs. See the TSM ADR article.
• Irish-domiciled UCITS ETFs: VWRA, CSPX and the like. The fund is registered in Ireland, so even if it holds nothing but US stocks, the fund share itself is an Irish asset.
• Non-US-listed foreign ETFs (for example, the Hong Kong-listed 2800).

The correct computation (where most articles get it wrong)

The common mistake is "subtract USD 60,000 first, then apply the rate." The statute actually works like this: apply the progressive rate schedule (18% to 40%) to the entire US-situs taxable estate to get a tentative tax, then subtract a unified credit of USD 13,000 (IRC §2102). The "USD 60,000 exemption" framing exists because a USD 13,000 credit exactly offsets the tax on a USD 60,000 estate. The two framings are equivalent only when the estate is exactly 60k; the larger the estate, the wider the gap.

Case 1: everything in US assets (hypothetical)

Portfolio: USD 500,000 (US individual stocks + US-listed ETFs, all US-situs)

Step 1  Apply the progressive schedule to the full 500,000
        = 70,800 + 34% × (500,000 − 250,000)
        = 70,800 + 85,000 = USD 155,800
Step 2  Subtract the unified credit of 13,000
        = 155,800 − 13,000 = USD 142,800

Effective burden: 142,800 / 500,000 = 28.6%
What the family actually receives: USD 357,200

Case 2: same USD 500,000, different structure (hypothetical)

Portfolio: USD 100,000 US individual stocks (US-situs)
           USD 100,000 Irish UCITS ETF (non-US-situs)
           USD 100,000 directly held US Treasuries (statutorily exempt)
           USD 100,000 Taiwan-listed ETF (non-US-situs; substitute your home-market fund)
           USD 100,000 Hong Kong-listed ETF (non-US-situs)

US-situs estate: USD 100,000
Step 1  Rate schedule: USD 23,800
Step 2  Subtract credit of 13,000 = USD 10,800

What the family actually receives: USD 489,200
Difference vs Case 1: USD 132,000

Even if the estate tax is low, be aware the assets can be frozen first

Most articles on US estate tax stop at the tax figure, but the real issue is usually not the tax; it is how to get the assets back. Before a US broker, transfer agent, or bank will hand a deceased person's assets to the heirs, it requires a transfer certificate (Form 5173) issued by the IRS. Under the IRS rule, that certificate is issued only after the estate tax has been paid. Without it, the assets in the account cannot be withdrawn.

How the assets get released: where US-situs assets (together with lifetime gifts) exceed the USD 60,000 threshold, the heirs must first file Form 706-NA (the estate tax return is generally due within 9 months of death), and the IRS issues the transfer certificate only after reviewing it. As for how long it takes: the IRS page for estates of nonresidents who are not US citizens states plainly that just processing the documents for a smaller estate (the affidavit route that does not require a 706-NA) takes 12 to 18 months, and a larger estate that must file a 706-NA is slower still. In other words, even if the tax is low or below the threshold, the family can still face an account frozen for well over a year with no access to the assets.

Three legal planning routes

1. Replace US-listed ETFs with Irish-domiciled UCITS ETFs. VWRA instead of VT, CSPX instead of SPY. There is a dividend withholding bonus: an Irish fund receiving US dividends qualifies for the 15% rate under the US-Ireland treaty, while a Taiwan investor holding US stocks directly is withheld at 30% (investors in other non-treaty countries face the same 30%; treaty-country residents should check their own rate). The trade-offs are thinner liquidity and the fact that some brokers do not carry them.
2. Allocate to directly held US Treasuries. Move cash and bond sleeves into directly held T-Bills and T-Notes: exempt from estate tax, and the interest is also free of US withholding for foreign investors (the portfolio interest exemption).
3. Consider structured holding for large positions. Above roughly USD 500k, insurance or trust structures start to make economic sense, but setup and maintenance costs are high. Get a full assessment from a professional; this is not a DIY project.

Self-check list

• Do your US individual stocks plus US-listed ETFs exceed USD 60,000 in total?
• Does your family know where the accounts are, and that a freeze-and-filing process is coming?
• Do you know who could handle Form 706-NA for your family? (Most local accountants have never filed one; you need a US tax practitioner who knows NRA estate tax.)
• In your bond and cash sleeves, are you actually using the directly-held-Treasuries exemption?

Frequently asked questions

What is the US estate tax exemption for foreign investors in US stocks?

USD 60,000. US citizens and US-domiciled individuals get USD 15,000,000 in 2026, a 250x gap. The threshold is not adjusted for inflation, and it has nothing to do with whether you buy through a home-country sub-brokerage or a US broker: the tax turns solely on whether the asset is US-situs.

Does everything above USD 60,000 get taxed at 40%?

No. The common "subtract 60k first, then apply the rate" computation is wrong. The statute applies the progressive 18% to 40% schedule to the entire US-situs estate, then subtracts a USD 13,000 unified credit (IRC §2102). On a USD 500,000 all-US-stock portfolio the tax is about USD 142,800, an effective burden of roughly 28.6%; the 40% marginal rate only applies to estates above USD 1,000,000.

Which assets escape the US estate tax?

US Treasuries (T-Bills, T-Notes, T-Bonds), ADRs of foreign issuers (such as TSM ADRs), Irish-domiciled UCITS ETFs (VWRA, CSPX), and non-US-listed foreign ETFs. Note: Treasuries wrapped inside a US-listed ETF structure are not covered by the exemption.

How long until the family can withdraw a deceased US-stock investor's brokerage assets?

The US broker freezes the account first. Where US-situs assets exceed the USD 60,000 threshold, the heirs must file Form 706-NA (generally due within 9 months of death), and the IRS issues the transfer certificate (Form 5173) only after the estate tax is settled; without it the assets cannot be withdrawn. The IRS states plainly that even a smaller estate (the affidavit route with no 706-NA) takes 12 to 18 months of document processing, and estates that must file a 706-NA take longer.

Will the pending US-Taiwan tax bill (H.R. 33) fix the estate tax problem?

No. H.R. 33 and its Senate companion S.199 cover income tax on wages, dividends, interest, and pensions; it is not an estate tax treaty and does nothing for the USD 60,000 exemption. As of July 2026 the Senate has not completed the legislation. The US has estate or gift tax treaties with only 15 countries, and Taiwan is not on the list.