What is an ADR in stock trading?

An ADR can represent a one-for-one exchange with the foreign shares, a fraction of a share, or multiple shares. This is one major way in which traditional U.S. stocks differ from ADRs. This is an important consideration, so let's go through an example.

What are American Depositary Shares (ADRs)?

Technically, securities of a foreign company that are represented by an ADR are called "American depositary shares" (ADS), but typically, the terms ADR and ADS are used interchangeably. ADRs can be "sponsored" or "unsponsored." Sponsored ADRs are those for which the foreign company has negotiated directly with the U.S. depositary bank.

Are ADRs taxed differently than common stock?

ADRs are also taxed differently than common stock. You’ll still need to pay the same capital gains taxes and dividend income taxes on ADRs that you would pay on shares of U.S.-based common stock. However, you must also pay dividend taxes levied by foreign governments on stocks issued in their country.