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Brokered CD at Schwab six days late paying semi annual interest payment
”Like regular U.S.-based stocks, ADRs that issue dividends are taxed in the same manner. However, the one caveat is that because it is considered a foreign investment, the foreign home country will typically have a withholding amount. Each country has a different withholding tax but typically the amount ranges from 15% to 20%. Some countries have a significant amount of withholding on their dividends, such as Chile and Switzerland – both of which withhold 35%. France, for instance, also has one of the highest withholding rates in the world. The initial base rate is 30% but if the investor is in a non-cooperative country of the European Union, the rate is 75%.
“Many countries around the world have set up tax treaties with the U.S. and Canada, which reduces the withholding rate for investors. Chile, Switzerland and France all have established tax treaties with both countries, so instead of the higher withholding rates listed above, U.S. and Canadian citizens only have to withhold a maximum of 15%. However, it is important to remember how ADRs work. ADRs are generally held in bulk by a foreign custodian, which may or may not have the residency information for each individual investor. In this scenario, the ADR custodian may reduce the dividend payment by the foreign domestic withholding tax.”
With apologies to @dtconroe - I agree there’s some thread drift here. A CD is not an ADR. But @Crash was reacting to the issue of timely payment of interest and / or dividends. Regardless of the source of those payments, failure to receive payment on time would unnerve me and many other investors.
@MikeM - The issue has been raised before. What I have surmised is: even if held in a tax exempt / tax deferred account, holders of an ADR will get hit with the foreign country’s tax on dividends. I experienced this for the first time a year ago. Everything I’ve read indicates that those taxes also apply to indirect ownership of foreign companies (ie through a fund). The tax is paid by the fund and comes out of “other fund expenses” so that holders are often not aware they are paying it. Yes, per @yogibearbull, there is a provision in the U.S. tax code that may allow someone to apply for / receive at least a partial reimbursement - but I have not looked into it further.
What ought not be overlooked (in my case anyway) - There is no capital gains tax. So one may trade in and out freely and perhaps recoup part or all of the income tax paid on dividends.
One problem is that there are different types of ADRs. Some are company-sponsored that follow all rules; you can think of these as "official" ADRs.
But there are some nonsponsored ADRs that may be different - you or I could start a nonsponsored ADR by setting up some trust, and it doesn't have to involve the company at all, but only pass the US SEC (that isn't easy, but it has been done).
BTW, the ADR issues mentioned (missing dividends, tax withholding) are quite different indeed from those for the brokered CDs. Foreign banks can offer CDs in the US only by following the US rules, via US branches/operations. Beware of their FDIC coverages that sometimes may be only for their specific US branches. Luckily, Fido and Schwab offer foreign bank CDs with FDIC coverage only, but it won't hurt to double-check (it's your money, and only you can take good care of it).
Yes, what y'all have offered in response to my own response is consistent and true. Thanks to (at last) a responsive employee connected to Norsk Hydro (NHYDY, an ADR) I found out that I could apply for a reduction or refund of the Norwegian foreign tax taken out of the dividend that was paid to me. TWENTY FIVE percent was taken. That's... ummmm.... BULLSHIT. So, I won't stand for it. In order to get the reduction or full refund, I'd have to establish an account with the Norwegian tax authority.
My reaction to that was to laugh in derision. Screw that. I have a life to live. On the 1040, credit can be given for foreign tax paid.... But I don't think it will do any good if the taxpayer owes zero tax, anyhow. There's nothing to deduct it "against."
Comments
”Like regular U.S.-based stocks, ADRs that issue dividends are taxed in the same manner. However, the one caveat is that because it is considered a foreign investment, the foreign home country will typically have a withholding amount. Each country has a different withholding tax but typically the amount ranges from 15% to 20%. Some countries have a significant amount of withholding on their dividends, such as Chile and Switzerland – both of which withhold 35%. France, for instance, also has one of the highest withholding rates in the world. The initial base rate is 30% but if the investor is in a non-cooperative country of the European Union, the rate is 75%.
“Many countries around the world have set up tax treaties with the U.S. and Canada, which reduces the withholding rate for investors. Chile, Switzerland and France all have established tax treaties with both countries, so instead of the higher withholding rates listed above, U.S. and Canadian citizens only have to withhold a maximum of 15%. However, it is important to remember how ADRs work. ADRs are generally held in bulk by a foreign custodian, which may or may not have the residency information for each individual investor. In this scenario, the ADR custodian may reduce the dividend payment by the foreign domestic withholding tax.”
With apologies to @dtconroe - I agree there’s some thread drift here. A CD is not an ADR. But @Crash was reacting to the issue of timely payment of interest and / or dividends. Regardless of the source of those payments, failure to receive payment on time would unnerve me and many other investors.
@MikeM - The issue has been raised before. What I have surmised is: even if held in a tax exempt / tax deferred account, holders of an ADR will get hit with the foreign country’s tax on dividends. I experienced this for the first time a year ago. Everything I’ve read indicates that those taxes also apply to indirect ownership of foreign companies (ie through a fund). The tax is paid by the fund and comes out of “other fund expenses” so that holders are often not aware they are paying it. Yes, per @yogibearbull, there is a provision in the U.S. tax code that may allow someone to apply for / receive at least a partial reimbursement - but I have not looked into it further.
What ought not be overlooked (in my case anyway) - There is no capital gains tax. So one may trade in and out freely and perhaps recoup part or all of the income tax paid on dividends.
One problem is that there are different types of ADRs. Some are company-sponsored that follow all rules; you can think of these as "official" ADRs.
But there are some nonsponsored ADRs that may be different - you or I could start a nonsponsored ADR by setting up some trust, and it doesn't have to involve the company at all, but only pass the US SEC (that isn't easy, but it has been done).
BTW, the ADR issues mentioned (missing dividends, tax withholding) are quite different indeed from those for the brokered CDs. Foreign banks can offer CDs in the US only by following the US rules, via US branches/operations. Beware of their FDIC coverages that sometimes may be only for their specific US branches. Luckily, Fido and Schwab offer foreign bank CDs with FDIC coverage only, but it won't hurt to double-check (it's your money, and only you can take good care of it).
My reaction to that was to laugh in derision. Screw that. I have a life to live. On the 1040, credit can be given for foreign tax paid.... But I don't think it will do any good if the taxpayer owes zero tax, anyhow. There's nothing to deduct it "against."