American Depository Share (ADS)

Exploration Essay

An American depositary share or ADS is an equity share of a non-U.S. company that is available on a U.S. trading platform and is available for purchase by U.S. investors. ADSs are meant to make non-American stocks available to trade on the American exchange. These trades can be done on a major exchange such as the New York Stock Exchange or on Nasdaq, depending on how much the foreign company is willing to comply with U.S. regulations. Listing on a major exchange generally requires the same level of reporting as American companies The Benefits of ADSs Foreign companies that choose to offer shares on U.S. exchanges gain the advantage of a wider investor base, which can also lower costs of future capital. For U.S. investors, ADSs provide an opportunity to invest in foreign companies without dealing with currency conversions and other laws that they aren’t familiar with. The disadvantages of ADSs There is some currency risk involved in holding ADSs. Fluctuations in the exchange rate between the U.S. dollar and the foreign currency will affect the price of shares and any income payments, which must be converted into U.S. dollars. Taxing of dividends from ADSs is also different. Most countries apply a very high tax amount on dividends issued for ADRs. For example, Chile and Switzerland want 35% while France can ask for as much as 75% of the tax on dividends, in the case of non-cooperative countries within the EU. The withholding tax is in addition to the dividend tax already levied by U.S. authorities. These tax amounts are significantly higher than if you were to just take your profits from an American company.