Investing in a Foreign Stock (in a US Brokerage)? How to? Dividend?

[TripleB]

I want to invest in a stock on the London Stock Exchange, ideally within my VG Brokerage account. The website for VG suggests there's a $50 fee for investing in a stock outside of the US exchange. I'm OK with that provided I get my dividend for free.

The stock in question currently pays a 3% dividend and it probably pays it in Pounds. Not sure how VG would give me the dividend, or if there's a conversion fee. I'd be OK with a reasonable FOREX conversion fee. I wouldn't be OK with Vanguard sending me a check denominated in Pounds and telling me to take care of depositing it somewhere - especially since I want to do this in an IRA.

Anyone have experience with this? Either at VG or elsewhere?

[TripleB]

There's actually two companies I'm looking to invest in. The second one is on a Finnish OMX exchange.

Both companies are ones who make a type of consumer product that I like to use.

[Gosso]

My guess is that there'd be a withholding tax of 10-30% on the dividend, which will be returned when you file your US taxes.  You're also going to be charged the FOREX of around 1% to 4%, depending on the size, for each transaction.  Vanguard will likely convert everything over to USD, unless it has an actual account denominated in your desired currency.

[AgAuMoney]

My guess is that there'd be a withholding tax of 10-30% on the dividend, which will be returned when you file your US taxes.

Not in an IRA.

There are two cases for foreign taxes on investments within an IRA:

• Case 1, the tax is withheld and lost to you forever.
• Case 2, the U.S. has a tax treaty with the foreign country that recognizes tax sheltered accounts and thus there is no withholding.

I believe but am not certain, that the U.K. (and hence U.K. companies) will fall into the second category.

I believe the description of the rest of the process to be accurate.  The company will pay the dividend to Vanguard (because as the custodian of your IRA they are listed on company records as the owner of the stock).  Vanguard will convert to U.S. dollars and deposit to your IRA after subtracting all fees.

A similar process happens with A.D.R.'s except you do not directly see the effect of currency conversion (you can usually compute it) and there is often yet another layer of explicit fees imposed by the American agent of the A.D.R.  (In my experience such fees are a low fraction of 1%.)