What is an ADR? You should know before buying foreign stocks

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In today’s world of multinational domination and rapid globalization, investors can buy stocks of foreign companies quite easily. For US investors, these shares usually come in the form of US certificates of deposit, or ADRs. What is an ADR, you ask? While these special stocks are quite common, they are not exactly the same as domestic stocks of US companies. Today we’ll learn what investors need to know about ADRs before buying foreign stocks.

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What is an ADR?
An ADR is basically a certificate issued by a US bank that represents a number of foreign stocks. It should be noted that even stocks that look American and trade on the New York Stock Exchange can be ADRs.

These certificates and the number of ordinary shares of the foreign company they represent can vary widely. For example, an ADR for Anheuser-Busch InBev represents a share of the company, but an ADR for Diageo represents four common shares of the company. Before making a purchase, be sure to research your business on one of the two ADR-specific websites operated by JP Morgan Where BNY Mellon so you know exactly what you are buying.

How do you know if a share is an ADR?
Sometimes when you search for a stock on a financial website you will notice a handful of extra letters at the end of its official name – for example, Anheuser-Busch InBev SA / NV. These letters are essentially the foreign equivalent of “Inc.”, “Corp. ”Or“ listed company ”. These foreign acronyms can tell you that a stock is an ADR, but it doesn’t work in all cases. For example, Honda engine does not have a foreign suffix but is also an ADR.

That’s why the best way to do Absolutely certain an action is an ADR is to search for it on one of the aforementioned ADR sites. Just type in your ticker or company name in the search box and hit enter. If your business shows up, it’s an ADR; if not, it is not. Quite simple.

Are all ADRs the same?
Most of the reputable foreign stocks you come across will be one of two types of ADRs. Level I ADRs refer to companies that trade their shares “over-the-counter”. Their actions are often referred to as “pink leaves”. You will see it with companies like Heineken Where Volkswagen, and that just means that they chose not to list their ADRs on the US stock exchanges. ADR level II and level III, as Alcatel Lucent and Toyota, are ADRs that trade on US stock exchanges such as the New York Stock Exchange or the NASDAQ. This subjects them to a full filing with the SEC. Level I ADRs fall under FINRA and are not required to undergo full registration with the SEC.

What about taxes?
ADRs can get a little tricky when it comes to dividend taxes. Remember that you are essentially investing your money in a foreign country when you buy them, and each country has different approaches to taxation. In certain situations, the withholding tax may completely eliminate the benefit of the dividend. So it makes sense to look at the withholding tax rates for your particular title. You can find a list of these rates here.

That said, if foreign dividends are an important part of your investment strategy, it would be a good idea to consult a tax advisor or representative of your bank or brokerage firm to find out exactly how the dividend tax scenario plays out. will play for your particular title. .

At the end of the line
Buying overseas-based companies can add a new dimension to your portfolio, but it does require a bit more work at the start, especially when it comes to taxes. At the end of the day, it’s more important than ever to know exactly what you’re getting when it comes to buying foreign stocks.

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