Taxation of dividends from stocks held in a foreign brokerage account

[ThomasHansenDK]

I am a US citizen living in the US with a brokerage account at a foreign institution, from which I receive dividends from stocks. My question is whether these dividends are considered qualified or non-qualified. The company paying the dividends is headquartered in the same country as my brokerage account. This company is listed in the US as an ADR and also has a US branch with sales, research and development, and manufacturing operations in the US.

[DaveF1006 · Accepted solution]

it depends. "Qualified dividend income” is defined as dividends received during the tax year from domestic corporations and qualified foreign corporations.

A foreign corporation can generally be considered a qualified foreign corporation if it meets one of the following three tests:

1. The corporation is incorporated in a possession of the United States (Sec. 1(h)(11)(C)(i)(I));

2. The corporation is eligible for benefits of a comprehensive income tax treaty with the United States that the Treasury secretary determines is satisfactory and includes an exchange-of-information program (Sec. 1(h)(11)(C)(i)(II)); or

3. The stock of the corporation with respect to which such dividend is paid is readily tradeable on an established securities market in the United States (Sec. 1(h)(11)(C)(ii))".

Since you mention that this is listed as an ADR, the dividend may qualify in the third point listed above.

Capital gains treatment for dividends from foreign corporations

[ThomasHansenDK]

Thank you @DaveF1006. So in general (due to bullet 3), if ADR shares held in a US brokerage account pays out qualified dividends then the dividend from shares of the same company held in foreign brokerage account will also be qualified?  Is that interpretation general accepted?

I have some of the same shares at Wells Fargo Advisors and they list them as qualified...

[DaveF1006]

It depends. I would encourage you to read the post that I sent you and you may decide if your shares fall within the guidelines of the test. My interpretation is that ADR's are stocks of foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs). In looking at that third point, they might be qualified based on the language of the test. 

I have no knowledge whether this is a universally accepted position. This is a decision that you would need to make. Here is a good reference source form the Securities and Exchange Commission that gives the deeper background and definition of ADR's. Between the two reference sources, you should have a good background on the subject.

American Depositary Receipts (ADRs) 

@ThomasHansenDK