How are divicends taxed on ADRs? (American Depository Receipt)
Category: Business and Money
Asked by: moneymgr-ga
List Price: $7.50
25 Jan 2005 09:25 PST
Expires: 24 Feb 2005 09:25 PST
Question ID: 463046
If a US company pays a dividend, you obviously have to pay tax on the dividend (at CG rates). If an ADR pays a dividend do you have to pay foreign tax or just US taxes? If the foreign company underlying the ADR paid a tax in that country, who would pay that tax and how would it flow through to the investor in the ADR? Just assume I have a portfolio of $100,000 in various ADRs - as the dividends are received is there any foreign tax due? I assume with non ADR's (ordinary shares) you have to pay foreign taxes. I am not looking for any elaborate tax advice (obviously for this amount of money), but just a general concept on taxes due on ADRs and how that differs from Ordinary foreign shares.
Re: How are divicends taxed on ADRs? (American Depository Receipt)
Answered By: vercingatorix-ga on 25 Jan 2005 10:11 PST
Dividends from ADRs are indeed subject to U.S. taxes -- dividends from ADRs also benefit from the new dividend-tax rules, with regards to the new marginal rates. As far as foreign taxes, in many (if not most) cases foreign taxes will be withheld from the payment. You should not technically be liable for both foreign and U.S. taxes, though arguing that point with a foreign government is likely to be fruitless. However, you do have some options for recouping that money: * You can fill out Form 1116 and take the foreign tax credit. This allows you a dollar-for-dollar credit for the withholding. You can download the form from the IRS Web site at http://www.irs.gov/pub/irs-pdf/f1116.pdf. The form is straightforward. * You can claim the taxes paid as a deduction on your own income taxes. This is easier and requires less paperwork, but of course is not as good as a tax credit, as it will save you less money. http://smartmoney.com/ask/index.cfm?story=19991108 http://www.liberty.co.za/liberty/index.asp?sCatID=investorrelations&sPageID=adrprogramme/adrprogramme.htm#How%20are%20ADR%20dividends%20paid http://www.bnatax.com/tm/insights_newdividendtaxprovision.htm V. Search strategy: Google search for ADR dividend taxes foreign withheld ADR dividend taxes
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I am still a little confused about whether an ADR pays its foreign taxes directly - since certainly the individual shareholder wouldn't have to file a tax return with a foreign government. Also, still am uncertain about whether a non-ADR foreign holding is US taxable, and if so, is foreign tax also due. Overall I am pleased with the explanation, since it didn't pay enough for a thorough research.
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