Tax treatment on buying (Asian or German) shares via American Depository Receipts

What is the tax treatment on buying (Asian or German) shares via American Depository Receipts. Via a USA broker account. Is that treated tax wise the same as a USA share (i.e. 15% withholding then Irish CGT, dividends as income)?

Asian, because that is where growth is.
German shares as German shares direct have odd withholding/paperwork rules.

I might buy Irish REIT that way. (REIT seems to be an only average investment, I may as well buy a USA REIT.)

(I need access to any money invested at short notice.)

I do have to avoid dying as USA Estate taxes are pretty harsh.

History: conservative investments (Age 51/ maxing out pension/ bought company I work for shares (over 10 years ago)/ paid off mortgage/ have too much cash at no return)

Turloch O'Tierney said:

What is the tax treatment on buying (Asian or German) shares via American Depository Receipts. Via a USA broker account. Is that treated tax wise the same as a USA share (i.e. 15% withholding then Irish CGT, dividends as income)?

Click to expand...

To the best of my knowledge -

The level of withholding tax on ADRs corresponds to that determined by the country of incorporation of the underlying share i.e. Siemens ADRs will be levied dividend withholding tax according to that determined by Germany. The US IRS is not the relevant taxing authority in this instance.

On the assumption that Turloch O'Tierney is tax resident and domiciled in Ireland, any gains/losses on a German ADR holding will be subject to the capital gains tax regime. Any dividend income received will be liable to Irish income tax, USC and PRSI. As an Irish individual investor, Germany will levy dividend withholding tax at 26.375% on the dividend pay date. Under the double tax treaty, Irish investors can reclaim 11.375%, thereby suffering a net withholding tax of 15%. The gross dividend income received is declared on your tax return and Irish tax authorities will allow a dividend withholding tax credit of 15% to recognise that 15% tax has already been paid.

It is also worth noting that if you hold ADRs, you may receive a slightly lesser dividend than if you had held the underlying ordinary share as it is common practice for the ADR depositary bank to levy a fee for the services it provides. It's not terribly material in the grand scheme of things. More information can be found here:



You should check with your broker's corporate actions department to see if they can file a reclaim for the 11.375% on your behalf rather than having to file a reclaim directly with the BZSt (German tax authority) yourself. The US settlement system (DTC) offers this service. Manual German tax reclaims are taking a long time due to a reclaim tax scandal that happened there and Germany is reforming its tax reclaim procedures and processes. If your broker can process the reclaim, all the better.


The principle should be the same for Asian ADRs.

Hi AAAContributor,

Understood.

Sorry for the basic question, to summarise your post, ADR does not simplify withholding reclaim.

I could change my pension in part to emerging market funds, to get non USA exposure, so non USA withholding is handled by the pension fund. USA investing could then be done through my stockbroker outside the pension fund. USA 15% withholding is a known issue.

Thanks.
Turloch

Turloch O'Tierney said:

History: conservative investments (Age 51/ maxing out pension/ bought company I work for shares (over 10 years ago)/ paid off mortgage/ have too much cash at no return)

Click to expand...

It looks like you are making changes to your overall finances. I wouldn't let the tax tail wag the dog on these things without first looking at the overall strategy. You know this anyway I'm sure.

Presumably, you have your own accountant/adviser, but if you are looking to re-jig things or are considering putting surplus cash to work, it may be useful to draft a new money makeover thread as there are some competent heads around on AAM that could provide useful insights or a second opinion.

OK, I will sort something out for the makeover thread. I will some research on previous makeover thread entries.