1. What are ADR stocks?
ADR (American Depositary Receipt) stocks allow investors to buy shares of foreign companies on U.S. stock exchanges such as NYSE or NASDAQ. They trade in U.S. dollars, just like regular U.S. stocks. Each ADR represents either one share, multiple shares, or a fraction of a share of a foreign company, depending on how the ADR is structured.
2. Why do companies issue ADRs?
Foreign companies issue ADRs to make their shares accessible to U.S. investors, increase visibility, and improve trading liquidity. For investors, ADRs make international investing easier by removing the need to trade on foreign exchanges, use foreign currencies, or navigate different settlement systems.
3. What are some examples of ADR stocks?
Well-known ADRs include Alibaba (China), TSMC (Taiwan), Sony (Japan), Samsung Electronics (South Korea), and Toyota (Japan). Although these stocks trade in the U.S., the companies themselves are based outside the United States.
4. Why do ADR stocks have different taxes and fees compared to U.S. stocks?
ADR dividends can be subject to additional charges that do not apply to ordinary U.S. stocks. The company’s home country may apply withholding tax to dividends before they are paid out, and the depositary bank that manages the ADR may charge a service fee. In addition, each ADR program has its own structure, which can affect the final dividend amount an investor receives.
5. Why does each ADR have different tax and fee amounts?
Tax and fee amounts vary depending on the company’s country of origin, tax treaties with the U.S., the policies of the depositary bank, and how many underlying shares each ADR represents. Because of these factors, there is no single standard rate that applies to all ADRs.
6. Who collects the taxes and fees on ADR dividends?
Foreign governments collect withholding taxes at the source, while depositary banks such as JPMorgan, Citi, or BNY Mellon collect ADR service fees. Brokers or custodians simply pass these charges through to investors as part of the dividend process. These deductions are typically automatic and shown in the dividend payment.
7. What is an ADR depositary fee?
An ADR depositary fee is a small service charge collected by the depositary bank for issuing and maintaining ADRs, holding the underlying foreign shares, and processing dividends and corporate actions. The fee is usually around USD 0.01 to USD 0.03 per ADR and is commonly deducted directly from dividends.
8. Are ADR fees charged if I don’t receive dividends?
In most cases, ADR depositary fees are only deducted when a dividend is paid. If no dividend is received, no fee is typically charged.
9. Can ADR dividends be taxed twice?
ADR dividends may be taxed by the foreign country through withholding tax and may also be subject to local tax rules depending on the investor’s country of residence. Some countries allow tax credits or treaty benefits, but this depends on local regulations. Investors should consult a tax advisor for personal tax guidance.
10. Do all foreign stocks traded in the U.S. have ADR fees?
Most ADRs do have depositary fees, although the amount varies by stock. In many cases, the fees are small and may go unnoticed unless dividends are paid.
11. Can ADR taxes or fees change over time?
Yes. Taxes and fees can change due to updates in foreign tax laws, changes in tax treaties, adjustments by depositary banks, or corporate actions taken by the issuing company. These changes are outside the broker’s control.
12. Are ADR fees and withholding taxes charged by Gotrade?
No, Gotrade does not charge or profit from ADR fees or withholding taxes, these are mandatory charges set by foreign governments and ADR depositary banks, Gotrade only facilitates the payment of these charges to the relevant parties on your behalf.