Investing in foreign stocks from the US: ADRs, currency, fees and taxes
By the MeridIAn Screener team · Published on 13 October 2026 · 6 min read
Of the 2,122 companies in the MeridIAn Screener ranking, 1,123 are based outside the United States. Owning only US stocks leaves out a large part of the world. But buying abroad has costs you don’t see in the share price. Here they are, with examples in dollars.
Two ways to buy a foreign company
| ADR (American Depositary Receipt) | Shares on the home exchange | |
|---|---|---|
| What it is | A certificate issued by a US bank that represents shares of the foreign company | The company’s actual shares, on its own exchange (London, Frankfurt, Tokyo…) |
| Where it trades | On US exchanges or over the counter, in dollars, during US hours | Abroad, in the local currency, during local hours |
| Commission | Usually $0, like any US stock | Depends on the broker: many don’t offer it, others charge a fee |
| Currency | Converted inside the ADR: you see a dollar price | You convert dollars to the local currency (and back) |
| Extra costs | A small custody fee (often $0.01-$0.05 per share a year) | Currency conversion and, in some countries, a transaction tax |
Hundreds of large foreign companies have ADRs, and some list their shares directly in New York. For most US investors, that is the simplest way. But an ADR doesn’t remove the currency risk: its dollar price moves with the company’s shares and with the exchange rate.
The five costs of buying abroad
| Cost | What it is | When you pay it |
|---|---|---|
| Broker commission | What the broker charges to execute the order | When buying and selling (often $0 for ADRs) |
| Currency conversion | What it charges to turn your dollars into euros, pounds, yen… | When buying, selling and receiving dividends on local shares |
| Depositary fee | The ADR bank’s custody charge | Usually once a year, taken from dividends or charged by the broker |
| Transaction taxes | Taxes some countries charge on buying their companies’ shares | When buying |
| Dividend withholding | The part of each dividend kept by the company’s country | Every time you get paid |
The first two depend on your broker; the last three, mostly on the company’s country.
Currency risk: you can be right about the company and still not make money
Besides the cost of converting, there’s the risk: the exchange rate moves while you hold the stock.
Example: you buy $1,000 of a European stock when €1 = $1.10, so you get €909. A year later the stock is up 10% and your shares are worth €1,000. What you made in dollars depends on that day’s rate:
| If the euro… | €1 = | Your €1,000 are | Result in dollars |
|---|---|---|---|
| stays the same | $1.10 | $1,100 | +10% |
| falls 10% | $0.99 | $990 | −1% |
| rises 9% | $1.20 | $1,200 | +20% |
The company did the same in all three cases; your result went from −1% to +20%. In the short run, the currency can wipe out the whole gain or double it. Each MeridIAn company page shows the currency the stock trades in, so you can take it into account from the start.
Fees: watch the small orders
Most US brokers charge $0 to trade US stocks and ADRs. Trading directly on foreign exchanges is different: brokers that offer it may charge a commission per order, often with a minimum, plus a currency conversion fee that ranges from about 0.1% to 1% or more of the amount.
Example: you buy $1,000 of shares in London with a broker that charges 0.5% to convert dollars into pounds: $5 on the way in. If you sell when they’re worth $1,100, another $5.50 on the way out. That’s $10.50 just in currency conversion, before any commission. With a 0.1% fee, the same trip costs $2.10.
A useful rule: buying and selling shouldn’t cost you more than 1% of what you invest. With a $10 minimum commission, that means orders of at least $2,000 ($10 in plus $10 out is $20, 1% of $2,000).
The broker comparison shows what each broker charges.
Taxes when you buy
Some countries charge a tax every time you buy shares of their companies:
| Country | Tax | On a $1,000 purchase |
|---|---|---|
| United Kingdom | 0.5% stamp duty on UK shares (ADRs bought in New York generally don’t pay it on each trade) | $5 |
| France | 0.4% on French companies worth more than €1 billion (it can also apply to their ADRs) | $4 |
| Spain | 0.2% on Spanish companies worth more than €1 billion | $2 |
The US and Germany don’t charge a tax of this kind on purchases.
Dividends: foreign withholding and the foreign tax credit
When a foreign company pays a dividend, its country keeps part of it before it reaches you, usually at the lower rate set by its tax treaty with the US. On your US return you can then get that tax back as a foreign tax credit (or deduct it), but only up to the treaty rate. Anything withheld above that can only be recovered by claiming it from the other country.
| Country | Withholding | Creditable in the US | Excess to reclaim abroad |
|---|---|---|---|
| United Kingdom | 0% | — | Nothing |
| Canada | 15% (treaty rate; 25% without the paperwork) | 15% | Nothing, if the broker applies the treaty rate |
| Germany | 26.375% | 15% | 11.375% |
| Switzerland | 35% | 15% | 20% |
Example: you receive a $100 dividend from a Swiss company. Switzerland keeps $35. On your US return you claim a $15 credit. The other $20 can only be recovered by filing a claim with the Swiss tax authorities, which for small amounts may not be worth it.
- No form needed for small amounts. If your foreign taxes are $300 or less ($600 filing jointly) and all come from dividends and interest reported on a 1099, you can usually claim the credit directly on Form 1040. Above that, you file Form 1116.
- In an IRA or 401(k), the foreign tax is lost: those accounts don’t pay US tax, so there’s nothing to credit it against.
- Gains when you sell are taxed in the US like any other stock: short- or long-term (see the capital gains tax calculator).
- Accounts abroad: if you open an account with a foreign broker and the total in your foreign accounts goes over $10,000 at any point in the year, you must file an FBAR, and possibly Form 8938.
- Foreign funds are a different story: funds and ETFs domiciled outside the US are usually PFICs, taxed very harshly. Foreign individual stocks normally aren’t.
General rules as of October 2026 for a US tax resident. Your case may be different: check IRS Publication 514 or a tax professional.
Quick checklist before your first foreign purchase
- Is there an ADR, and does it trade on a major US exchange?
- If you buy on the home exchange, what does your broker charge to convert currency, and is there a minimum?
- What is its commission in that market for the amount you’re investing?
- Does that country have a purchase tax?
- If the company pays a dividend, how much does its country withhold, and in which account will you hold it?
- ADRs are the simplest way to own foreign companies from the US, but they carry the same currency risk.
- Buying on foreign exchanges adds commissions, currency conversion and, in some countries, a purchase tax.
- Foreign dividends are withheld at source; the foreign tax credit recovers up to the treaty rate, except in IRAs and 401(k)s.
Keep reading
General information for educational purposes. Not financial or tax advice, nor a recommendation to buy or sell securities. Investing in shares involves the risk of loss. · Contact: info@meridianscreener.com