When U.S. residents invest in securities issued by foreign governments or companies, returns on those investments can be taxed both in the investment's country and back home by the IRS. Some countries impose a tax on purchases or sales of their domestic securities. Other countries impose a value-added tax (VAT) on the broker's commission rather than on the price of the security. For the most part, however, these taxes have been phased out over the years and are nominal in those few industrialized nations where they still exist.

  • Capital Gains
    • Conventionally, an investor's capital gains are taxed in the country where he or she resides.

  • Dividends
    • As for taxing dividends on foreign stocks, it is a legal patchwork. In some cases, the investor is taxed in her own country; in others, she is taxed by the investment's native country, or she could even be taxed in both.
    • Note that an investor can receive a Federal tax credit for foreign tax paid on their investments.
    • By treaty, the Canadian government cannot tax U.S. residents more than 10% on interest income or 15% on dividends. Under most circumstances, Canada is effectively unable to tax U.S. residents on capital gains.

It is important to remember that these taxes exist, and they are often a barrier to those seeking tax-free or tax-deferred investments. A U.S. resident who is inclined to buy municipal bonds is likely to lose the advantage of those instruments if she purchases the obligations of a municipality in another country.



Wash Sales and Substantially Identical Securities

Related Articles
  1. Taxes

    Get A Tax Credit For Your Foreign Investments

    The foreign tax credit provides a break on investment income made and taxed in a foreign country.
  2. Taxes

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  3. Taxes

    3 Ways To Avoid The Dividend Tax Hike

    Find out how you can offset the potential tax hikes.
  4. Managing Wealth

    What Taxes Do I Owe On Retirement Accounts Abroad?

    If you're a U.S. retiree, but previously worked abroad, here's what you need to know about taxes on foreign pensions and retirement accounts.
  5. Financial Advisor

    Advisors: Don’t Overlook This Foreign Dividend Tax

    Paying income tax on income earned from foreign investments can be a tricky proposition. Here's what advisors and their clients need to know.
  6. Taxes

    The Top 10 European Tax Havens

    While the popular stereotype of a tax haven is a Caribbean island, these countries in Europe serve as attractive places for foreign individuals and companies to store funds.
  7. Taxes

    Which Countries Have the Highest Taxes on High Incomes?

    These countries charge the highest taxes on high incomes.
  8. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  9. Taxes

    Why America's Taxes Are Too Low

    The solution to America's economic woes may not be in lowering taxes further, but may, in fact, lie in increasing them.
  10. Taxes

    Explaining Double Taxation

    Double taxation refers to income taxes being imposed twice on the same source of earned income.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center