It must also meet the exchange's listing requirements. Where beneficial ownership of the underlying shares cannot conclusively be determined by reference to the law governing the arrangements relating to the issue of the DRs, for tax purposes HMRC will continue to determine beneficial ownership according to its understanding of the principles of UK law. DRs are used as substitute instruments indicating ownership of securities such as shares. And for those countries that maintain tax treaties with the US, dividends are paid without foreign withholding. ADR investors are not subject to non-US stock transaction taxes. Make short-term dividend income. So, for example, an investor in the 28% tax bracket would be taxed $75.00 on a total dividend amount of $500.00, resulting in a net payout of 85%. One issue with ADRs is when the tax treaty rate is lower than the foreign country’s domestic withholding rate. An American depositary receipt (ADR) allows foreign companies to list their shares on U.S. stock exchanges. So, it is important to note that when an ADR is held in a qualified or registered account, the account owner can no longer claim the foreign tax credit and the ability to claim will be lost. Most stocks that pay dividends are considered ‘qualified’ under the U.S. tax code and therefore are taxed at a rate of 15% for investors that are in the 25% to 35% tax bracket. The UK’s First-tier Tax Tribunal concluded that EU law did not allow the SDRT charge to be levied on the issue of HSBC’s shares into a depositary receipt system in the United States. Because ADRs are issued by non-US companies, they entail special risks inherent to all foreign investments. A percentage value for helpfulness will display once a sufficient number of votes have been submitted. We have been asked to clarify how holding shares via DRs will affect liability to Capital Gains Tax or Corporation Tax on chargeable gains following the decision of the First Tier Tribunal in the Stamp Duty Reserve Tax case of HSBC v Commissioners for HMRC,  UKFTT 163 (TC). Many of the largest companies with ADR programs are Level 3. Don’t worry we won’t send you spam or share your email address with anyone. They represent some of the most familiar companies in global business, including household names such as Nokia, Royal Dutch Petroleum (maker of Shell gasoline), and Unilever. All Rights Reserved. And for those countries that maintain tax treaties with the U.S., dividends are paid without foreign withholding. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data. The ADR mirrors the price movements of the foreign equity as well as other features like dividend issuance. Important legal information about the email you will be sending. 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