Investing across borders: taxes, listings and what to check first

Looking beyond your home market can improve diversification and open up opportunities, but cross-border investing adds practical details that are easy to overlook: taxes in two countries, different ways of holding foreign shares, different trading rules, and extra costs. This article explains the main points to understand before you invest abroad. Rules vary widely by country and change over time, so treat this as a guide to what to ask, and confirm the details with official sources or a qualified professional.

Taxes on dividends

Many countries withhold tax on dividends paid to foreign investors, taking it before the money reaches you. Suppose a foreign company pays a dividend of 100 and the source country withholds 15%. You receive 85.

Your home country may then also tax that income. Many countries have tax treaties that reduce the withholding rate, and many allow a credit for foreign tax paid, to limit double taxation. The result depends on your country of residence, the country of the company, the treaty, the type of account you use, and sometimes the paperwork you file. Investors from some countries must submit forms to claim treaty rates, and without them a higher rate may apply.

Taxes on gains

Capital gains from selling foreign shares are usually taxed according to your country of residence, with rules about how gains are calculated, including currency movements. Some countries also tax gains on certain assets in the country where they are located. Keep records of purchase prices, dates and exchange rates, as you may need them.

Transaction taxes and duties

Some markets charge taxes on trades. Examples include stamp duty on purchases of certain shares in some countries, and financial transaction taxes in others. These add to your cost and vary by market and by type of security.

Local listing or depositary receipt

There are two main ways to buy shares of a foreign company.

• A direct listing on its home exchange. You buy the shares in the local currency through a broker with access to that market.
• A depositary receipt, such as an American Depositary Receipt (ADR) or a Global Depositary Receipt (GDR). A bank holds the underlying shares and issues certificates that trade in your market in your currency.

Depositary receipts are convenient, but they can involve custody fees charged by the bank, extra costs on dividends, and slightly different rights. They can also differ from the underlying shares in price. Check the terms of each.

Account and broker access

Not every broker offers access to every market. Check:

• Which exchanges and countries your broker supports.
• Commissions and spreads for foreign trades.
• Currency conversion rates and fees.
• Whether you can hold foreign currency.
• Any minimums, inactivity fees or special account requirements.

Practical differences between markets

• Trading hours and holidays. Markets in other time zones open at different times, and local holidays vary.
• Settlement times. The time between a trade and the final transfer can differ.
• Reporting and disclosure. Standards, languages and the timing of results differ, which can make research harder.
• Investor protections. Legal systems and shareholder rights vary.
• Liquidity. Some foreign shares trade thinly, which can mean wide spreads.
• Currency. Exchange-rate movements affect your return, as our article on currency explains.

Reporting and estate considerations

Some countries require residents to report foreign accounts or holdings above certain thresholds. Failing to do so can bring penalties. Inheritance and estate rules can also apply to assets held in other countries, sometimes with unexpected consequences for non-residents who hold certain foreign shares. These rules are technical, so check them for your situation.

Using funds instead

An alternative is to invest in funds that hold foreign shares, such as a global or regional index fund. The fund handles many of the practical matters, including trading, custody and often the tax reclaim process. Costs and tax treatment still apply, and the way the fund is domiciled can affect the withholding taxes it suffers, so compare funds with care.

Common mistakes

• Ignoring withholding tax when comparing dividend yields across countries.
• Not filing the forms needed to claim a lower treaty rate.
• Overlooking depositary receipt fees.
• Not keeping records for gains and currency conversions.
• Assuming that rules for domestic shares apply abroad.
• Missing reporting requirements for foreign holdings.

A short checklist

• I know how dividends and gains from the market are taxed, in both countries.
• I have the paperwork needed to claim any treaty benefits.
• I know whether I am buying a direct listing or a depositary receipt.
• I have compared the broker's access, costs and currency rates.
• I have checked reporting and estate rules for my situation.

Confirm what your broker supports, understand the total costs, and read the relevant guidance from your tax authority. When in doubt, ask a qualified professional.