Wondering if someone can help me better understand the tax implications of ADR stock shares, and I think relatedly, ETFs that invest in Chinese companies.
I understand the basic premise that I may be charged foreign tax, and can claim a credit for that foreign tax when I file my taxes next year. But these are the questions I have:
1) Does every ADR charge foreign tax? If not, how do you find out the details of that for a particular ADR? Say, for instance, NSANY or UMC.
2) When is foreign tax charged? Is it an annual event, or only triggered by selling the security?
3) How is this different or the same for ETFs that hold foreign companies? For instance, GXC and ECNS are Chinese-company ETFs. Do the answers above for ADRs apply the same to ETFs that have foreign holdings? I guess if that is true, it's also true for holding something like VXUS.
4) Am I understanding correctly that ADRs and foreign-taxed ETFs are best not held in tax-sheltered accounts, because you'll still be charged the foreign tax but cannot claim it since it was tax sheltered. But in contrast, in a taxable account you would be entitled to claim the foreign tax credit?
I lean toward avoiding these just to avoid making tax time more complicated. But since I already own VXUS, maybe these options don't really change my tax situation significantly.
Thanks for the help!
Unclear on foreign tax events for ADRs (and China ETFs?)
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Re: Unclear on foreign tax events for ADRs (and China ETFs?)
Typically, or perhaps always, you pay your share of foreign taxes from dividends. It’s taken out automatically both for ADRs and funds.
You can google for recent historical data. For example, fund companies likely will have 2023 foreign taxes on their websites. You could also buy 1 share and see how it works.
Some countries might have complicated tax policies, and low rates in certain situations. I don’t have 100% faith in ADR banks or fund companies to always get this right. But I suspect that large fund companies won’t cost you much in taxes that didn’t have to be paid.
You can google for recent historical data. For example, fund companies likely will have 2023 foreign taxes on their websites. You could also buy 1 share and see how it works.
Some countries might have complicated tax policies, and low rates in certain situations. I don’t have 100% faith in ADR banks or fund companies to always get this right. But I suspect that large fund companies won’t cost you much in taxes that didn’t have to be paid.