What is an ADR stock?

How do ADRs work?

When a foreign company wants to list on a US stock exchange but avoid the hassle and fees of listing, they can enter into an agreement with a US bank or an institution known as the depository. This bank works with the foreign company and its custodian bank abroad to issue ADR shares in the US stock markets.
However, the US bank doesn’t always have to have an agreement with the foreign company. The bank — or another institution — can issue ADRs without the foreign company’s approval.

Types of ADRs

Depending on whether the foreign company and the ADR-issuing bank have agreements, there are two types of ADRs:

• Sponsored ADRs are issued by a US bank on behalf of a foreign company. Typically, these two entities enter into a legal agreement where the foreign company pays the cost of issuing the ADR, while the US bank handles transactions with US investors. These ADRs are often registered with the SEC and are available on US exchanges.
• Unsponsored ADRs can be issued by one or multiple US banks or brokers without direct involvement from the foreign company. Because multiple banks can issue unsponsored ADRs from the same company, there can be multiple ADRs from the same company, sometimes even with different dividends.

Note: Unsponsored ADRs are often traded over-the-counter (OTC) and cannot be offered to individual investors unless they file financial reports with the SEC or unless the company is 12g3-2(b)-qualified.

ADR levels explained

Based on the ADR’s access to the US stock exchanges, there are three categories:

• Level I: It’s the most basic type of ADR where foreign companies are only listed on the OTC market. These are often highly speculative — similar to penny stocks — and don’t have to meet SEC requirements.
• Level II: Mostly traded OTC, but sometimes can be traded on US stock exchanges. Unlike Level I, Level II must be registered with the SEC and must file an annual report (Form 20-F).
• Level III: The most prestigious of all ADRs. These are typically offered on a US stock exchange and foreign companies can use Level III to raise capital via initial public offering (IPO). Because of that, Level III ADRs have to report in full to the SEC.

ADRs vs. traditional stocks

Buy ADRs on US stock exchanges the same as any other traditional stock. But here are some differences between the two.

Taxes

ADRs follow the same taxation rules as traditional stocks. This means you’ll pay taxes on any dividend payment you receive. However, the foreign home country may withhold some percentage of the dividend as tax. This can be anywhere from 15% to 35%.
Luckily, the IRS offers tax credits, so your dividend doesn’t get double-taxed. To get the tax credit, you’ll need to fill out Form 1116. This will help you offset the amount you already paid to the foreign country. However, if the foreign country tax is higher than the one in the US, you can only get a tax credit for the amount taxed by the IRS. For example, you pay 15% tax in the US but 35% in the foreign country. The IRS can only give you credit for the 15%, thus the foreign country keeps the remaining 20%
Important: You can’t get tax credits for ADRs held in tax-deferred accounts, such as IRAs.

Benefits and drawbacks of ADRs

American depositary receipts are a hassle-free way to invest in foreign stocks. But there are some drawbacks to keep in mind.

How to buy ADRs

Buy ADRs like you would buy any other stock.

1. Open a brokerage account if you don’t have one.
2. Search for the foreign company you want to buy.
3. Find the company ticker symbol either using Google, using a website that lists ADRs or using your broker.
4. Enter the ADR symbol in your brokerage account.
5. Enter the number of shares you want to buy and submit.

Note: Some ADRs trade over-the-counter (OTC). Unless your broker allows buying OTC stocks, you won’t be able to buy the ADR you want.

Top 10 ADRs

We selected the 10 most popular ADRs trading on various US stock exchanges.

Alternatives to ADRs

The only alternative to buying an ADR is to open an account with a broker that offers access to foreign stocks, such as Interactive Brokers. However, this often comes with additional fees and conversion rate fluctuations.
If the stock you want to buy has an ADR, it’s often cheaper to buy it in that form. Otherwise, brokers that offer access to foreign markets can offer a higher variety of foreign stocks that may not have an ADR.

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Finder Score	Available asset types	Stock trade fee	Minimum deposit	Cash sweep APY	bullet point infobox
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Finder score 9.4 Excellent Webull	Finder score 9.4 Excellent	Stocks, Bonds, Options, ETFs, Futures, Money market funds	$0	$0	3.60%	Deposit or transfer $100,000+ to earn a 4% Match Bonus, or $2,000+ to earn a 3% Match Bonus. Plus: Get a $100 transfer fee reimbursement on your first brokerage transfer of $2,000 or more. T&Cs apply.	Trade stocks, ETFs and equity options commission-free, with access to futures, advanced charting tools, a robo-advisor and event trading powered by Kalshi.	Go to site More info	loading
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Finder score 9 Excellent Wealthfront	Finder score 9 Excellent	Stocks, ETFs, High-yield cash account	$0	$500	3.75%	Get a $50 bonus when you sign up and fund a taxable automated investing account with at least $500. T&Cs apply.	Automate your stock and bond portfolio or trade individual stocks for as little as $1 apiece. Plus, earn 3.50% APY on your cash.	Go to site More info	loading
Finder score 7.2 Great J.P. Morgan Personal Advisors	Finder score 7.2 Great	Mutual funds, ETFs	$0	$25,000	N/A	Financial planning, advice and portfolio management. T&Cs apply.	Get ongoing access to an advisory team with personalized financial planning and expert-built portfolios. Provider terms & conditions apply	Important information INVESTMENT PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE.	More info	loading
Finder score 8.2 Great M1 Finance	Finder score 8.2 Great	Stocks, ETFs, Cryptocurrency	$0	$100	4.00%	Build a custom portfolio of stocks and ETFs with automatic rebalancing. Plus, earn 4.00% APY with a high-yield cash account.	Important information M1 Finance, LLC does not charge commission, trading, or management fees for self-directed brokerage accounts. You may still be charged other fees such as M1’s platform fee, regulatory fees, account closure fees, or ADR fees. For a complete list of fees M1 may charge visit M1 Fee Schedule. M1 is not a bank. M1 Spend is a wholly-owned operating subsidiary of M1 Holdings Inc.. M1 High –Yield Savings Accounts are furnished by B2 Bank, NA, Member FDIC. Obtaining stated APY (annual percentage yield) with the M1 High-Yield Savings Account does not require a minimum account balance. Stated APY is accrued on account balance. APY is solely determined by M1 Spend LLC and its partner banks, and will include account fees that will reduce earnings. Rates are subject to change without notice. M1 High-Yield Savings Account is a separate offering from, and not linked to, the M1 High-Yield Cash Account offered by M1 Finance, LLC. M1 is not a bank.	More info	loading

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Bottom line

ADRs are an excellent option for investors looking to buy foreign stocks without the complexity of accessing foreign markets. Buy ADRs like you would buy any other stock on the US market.
But be aware of the pros and cons before you invest. And compare your options to find the right broker when looking to invest in ADRs.

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Kliment Dukovski

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Kliment Dukovski was a personal finance writer at Finder, specializing in investments and cryptocurrency. He's written more than 700 articles to help readers compare the best trading platforms, understand complex investment terms and find the best credit cards for their needs. His expert commentary has been featured in such digital publications as Fox Business, MSN Money and MediaFeed. He’s also well-versed in money transfers, home loans and more — breaking down these topics into simple concepts anyone can understand. In another life, Kliment ghostwrote guides and articles on foreign exchange, stock market trading and cryptocurrencies. See full bio

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Kliment has written 37 Finder guides across topics including:

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