This article covers the best stock brokers for international share trading, tax and fee considerations and the pros and cons of investing internationally.

The age old question for us Aussies is whether we should bother investing overseas. The well worn reasons for investing overseas run along the lines of “the ASX only accounts for 1.7% of the world share market capitalisation” or “the ASX is too heavily weighted towards the big four banks and resources”. While this is true, I have decided to write the ultimate guide to buying international shares from an Australian perspective to help you make up your own mind. First off, we will focus on which stockbrokers let us invest internationally.

Bell Potter Argues That Investing Internationally Is A Good Opportunity To Diversify
In Recent Years the U.S Market has Outperformed the Australian Market. Over a longer period the performance of the U.S and Australian market has been about the same.

Stockbrokers

Almost all Australian stockbrokers allow us to purchase international shares. This article will focus on discount brokers. If you prefer full service brokers, check out Patersons Securities, Morgans or Bell Potter Securities.  First up, I will give you an overview of the fees these brokers charge which do not apply when buying domestic shares.

Fees and Charges to Watch Out for When Buying and Selling International Shares

Custody Fees

Custody fees are charged for the custodian of your shares to look after them. Unlike the Australian CHESS system, you do not own your international shares directly. An international custodian, such as Pershing, holds your shares on your behalf. You have a beneficial interest in these shares. This is the standard way to hold shares overseas.

For example, CMC Markets’ custody fee is charged to cover the following costs:

  • “Holding your international shares and maintaining a consolidated international portfolio on your behalf
  • Issuing distributions that result from mandatory corporate action events for your shares (such as dividends and bonus issues); and
  • Providing statements that reflect these events”

You should be careful with this fee as some brokers charge it on an annual or monthly basis either as a percentage of your portfolio (such as 0.50%) or a minimum amount, such as $10. It usually only applies if you do not make any trades in a 12 month period.

FX Spreads

An FX Spread is the cut the stockbroker receives when converting your AUD into the currency of the stock exchange you are buying your shares on. You will incur an FX spread when selling your shares and converting them back into AUD. Most stockbrokers convert your AUD into your chosen currency using the best conversion rate available when your order is executed plus their spread (for example 0.6%).

FX Buffers

An FX buffer is the amount the stockbroker withholds from you to account for any foreign currency fluctuations which may occur between when your order is placed and when your order is fulfilled. This amount is usually given back to you once your order is fulfilled. This ensures that you can buy the number of shares you ordered. The FX Buffer is usually around 1-3% of your order value.

Exchange Specific Fees

Some of the world’s stock exchanges charge fees, taxes or duties when you buy or sell shares. These fees are generally taken out of the amount of money you wish to buy shares with and/or the amount you sell for. Other times it is included in the brokerage fee. Below are some of the fees international exchanges charge.

  • Canada – 0.15% Trading Fee on Buy and Sell Orders
  • France – 0.3% Trading Fee on Buy Orders
  • Hong Kong– 0.0027% Transaction Tax, 0.1% Stamp Duty and 0.005% Trading Fee on Buy and Sell Orders
  • Singapore – 0.0075% Trading Fee, 0.0325% Clearing Fee and 7% GST on Buy and Sell Orders.
  • United Kingdom – 0.5% Stamp Duty on Buy Orders.
  • United States of America – Securities and Exchange Commission Fee of 0.00130% on Sell Orders. $50 Account Documentation Fee for Accounts which have not supplied W8 or W9 Form to the Internal Revenue Service.

Belgian, German, Swiss, Dutch and Japanese exchanges do not appear to charge any fees, taxes or duties at the time of writing. Keep in mind that these fees, taxes and duties change regularly. For example, the Securities and Exchange Commission Fee applicable in the U.S was recently changed from 0.00231% to 0.00130% in May 2018.

International Stockbrokers

Now let’s get onto analysing individual brokers.

Commsec

Commsec is the most popular broker in Australia. While Commsec’s fees are not the cheapest, they are known for being a safe way to invest internationally. Commsec has the broadest range of markets to invest in of any broker. Commsec’s international trades are executed through Pershing, a subsidiary of BNY Mellon. This is accessed through a second portal within Commsec. You must transfer money to the international account, which can take a while to go through. I personally find Commsec’s international portal user interface a little clunky to use, but it is still good enough for a buy and hold investor.

Available markets (26):

United States, Canada, Japan, Hong Kong, Indonesia, New Zealand, Philippines, Singapore, Thailand, United Kingdom, Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden and Switzerland

Fees:

MarketBrokerage FeeOther Costs
United StatesUSD $19.95 for trades up to USD $5,000
USD $29.95 for trades up to USD $10,000
0.31% for trades above USD $10,000
United States Exchange Traded OptionsUSD $65.00 or 0.75%, whichever is greaterUSD $1.10 per contract applies to US Option trades
CanadaUSD $39.95 or 0.40%, whichever is greater0.15% execution fee
Japan and Hong KongUSD $39.95 or 0.40%, whichever is greaterTaxes and market fees put through at cost
Indonesia, New Zealand, Philippines, Singapore and ThailandUSD $39.95 or 0.40%, whichever is greaterTaxes and market fees put through at cost
United KingdomUSD $39.95 or 0.40%, whichever is greaterA stamp duty of 50 basis points may apply to buy trades executed on the LSE
Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden and SwitzerlandUSD $39.95 or 0.40%, whichever is greaterTaxes and market fees put through at cost
Exchange Rate Spread0.60% (USD)
Custody Fee$25.00 per yearOnly applies if hold at least one international holding and do not generate at least one trade or margin interest of USD $100.

Westpac Online Invest

Westpac’s international brokerage is completed via Pershing, a subsidiary of BNY Mellon. Westpac’s fees are very high and I would not use them.

Available Markets (26): United States, Canada, United Kingdom, Japan, Hong Kong, Indonesia, Philippines, Singapore, Thailand, Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, New Zealand and Israel.

Fees:

MarketTrading MethodBrokerage (GST Free)
United StatesOnline or over the phoneUSD $19.95 for trades up to USD $5,000, USD $29.95 for trades up to USD $10,000, 0.31% for trades above USD $10,000.
US Exchange Traded OptionsOnline or over the phoneUSD $57.95 or 0.65%, whichever is greater plus USD $1.10 per contract.
CanadaOver the phoneUSD$57.95 or 0.65%, whichever is greater. Additional fee of CAD$0.015 per share
United KingdomOver the phoneUSD$57.95 or 0.65%, whichever is greater
JapanOver the phoneUSD$57.95 or 0.65%, whichever is greater
Hong KongOver the phoneUSD$57.95 or 0.65%, whichever is greater
Indonesia
Philippines
Singapore
Thailand
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Italy
Luxembourg
The Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
New Zealand
Israel
Over the phoneUSD$115.00 or 0.90%, whichever is greater

Global Market Fees:

ServiceFee (GST Free)
Custody fee for inactive accountsUSD$63.50 per year
Only applies if hold at least one international holding and do not generate at least one trade or margin interest of USD $100.
Outgoing account transfers to either another custodian or direct registration to client (US securities only)USD$90.00 per transfer
Foreign Securities Custody FeeUSD$2.00 per non-US holding of security per month, per account
Posted trade confirmation or statement feeUSD$2.00 per trade confirmation or statement
Exchange Rate Spread0.60%

As you can see, they are very expensive, and you can only buy shares over the phone for many countries. I would only use Westpac if I were an existing customer.

Nabtrade

Nabtrade has the cheapest domestic and foreign brokerage fees of all the big four banks. That’s why I chose it for my Aussie share buying before I discovered SelfWealth. It’s international offering is alright for the casual international investor, although it lacks some exchanges you might like to buy shares on. For example, you can’t buy Canadian, Kiwi, French, South American, African or Dutch shares.

Available Markets (4): Germany, Hong Kong, United Kingdom and United States.

Fees (in AUD):

Online TradingTrade Size/VolumeBrokerage
0 - $5000$14.95
$5000.01 - $20,000.00$19.95
Over $20,000.010.11% of trade value
Over the PhoneN/A$59.95 or 0.55% of trade value (whichever is higher)
CustodyNo Trades per Year0.50% of average daily international holding balance, payable monthly
1+ trade per yearFree
Exchange RateN/A0.50% to 0.80% of trade transaction value
FX BufferN/A1.5%

A HUGE disadvantage of Nabtrade is that every time you sell your shares or receive a dividend the currency is automatically converted to AUD. This is very inconvenient as you must pay the foreign exchange conversion spread of 0.50% to 0.80% of the trades value each time. Using other brokers, you can keep your dividend or proceeds from sales in the currency they were originally in so that you can buy more shares in that currency without incurring conversion spreads.

ANZ Share Investing

The ANZ share trading service is provided by CMC Markets. Available markets (8): United States, Canada, Singapore, Hong Kong, United Kingdom, France, Belgium and the Netherlands.

Fees:

Online Trading (U.S and Canada)Trading Size/VolumeBrokerage
0 - $10,000$59.00
Over $10,0000.59% of trade value
Online Trading (Outside Australia, U.S and Canada)All$59.95 or 0.59% of trade value (whichever is higher)
CustodyNo Trades per Year0.50% of average daily international holding balance
1+ trade per yearFree
Exchange RateN/A0.60%
US Markets SEC feeN/A0.00231% on sell orders

Below is an excerpt from the ANZ website:

Please note: The minimum trade value for Global Shares is AU$2,000. This does not include the brokerage fee. We may, at our discretion, accept sell orders for less than this amount in exceptional circumstances.

Transfers fee:
The fee for transfers of certificated holdings into the Global Shares Service is $50 per certificate. Electronic transfers into the Global Shares Service are $10 per shareholding. The fee for outgoing transfers to either another custodian or direct registration to client is $100 per shareholding.

Takeaway:

ANZ is the most expensive of the Big Four banks brokerage platforms. It has more markets available than NAB but less than Westpac and Commsec. Another negative is that the minimum trade is $2,000. I would only use ANZ if I were an ANZ customer.

Stake

Stake offers brokerage free international share trading in the U.S markets. They make money by charging for FX transfers. With Stake you can purchase fractional shares, i.e. you can buy part shares. Stake is a relatively new entrant to the Australian stockbroking market so I have not personally used their service. Completing the W8-BEN form is automated at Stake, which is a positive.

Pricing (from their website):

“We charge $0.70USD for every $100AUD (min $2USD). Only when you transfer funds between AUD and USD, not on each trade! 

A US tax fee ($5USD) is charged on your first funding. There are the small fees (USD) passed through to the relevant regulatory authority on share sales.

SEC Fee (sell side only): $0.231 per $10,000 of sales proceeds

TAF Fee (sell side only): $0.000119 per share (maximum of $5.95).

Minimum transfer between AUD to USD is $50AUD.

Express funding: 0.5% (min $2USD)

Card Funding:2% (min $1USD)”

Takeaway:

Their prices seem reasonable compared to competitors although their fee structure is rather unorthodox and it is difficult to easily calculate how much you will pay in brokerage.

CMC Markets

Fees:

Online Trading (U.S and Canada)Trade Size/VolumeBrokerage
0 - $5,000$19.95
$5,000.01 - $10,000.00$29.95
Over $10,0000.31% of trade value
Online Trading (Outside Australia, U.S and Canada)All$59.95 or 0.59% of trade value (whichever is higher)
CustodyNo Trades per Year0.50% of average daily international holding balance, payable monthly
1+ trade per yearFree
Exchange RateN/A0.60%
FX BufferN/A2%

CMC Markets Exchange Fees:

CountryTransaction TaxStamp DutyTrading FeeClearing FeeGST
USA
UK0.5% - Buys only
Singapore0.0075%0.0325%7%
Hong Kong0.0027%0.1%0.005%
Germany
Canada0.15%
France0.3% - Buys only
Belgium
Switzerland
Netherlands
Japan

Markets available: Belgium, Canada, France, Germany, Hong Kong SAR, Japan, Netherlands, Singapore, Switzerland, United Kingdom and United States.

CMC Markets services are reasonably priced although they are more expensive than Stake and have less markets available than Commsec.

Which one should I choose?

Well honestly, it’s up to you. I have hopefully outlined the pros and cons of each stockbroker in a clear enough way for you to make a decision yourself. The stockbroker you choose will be defined by your investment strategy. Both ANZ and Westpac have unjustifiably high fees so for that reason alone I will never use them. Personally, I use Commsec for most of my international share purchases. While they are expensive, the range of markets available is unbeatable. I also use Nabtrade for investing in stocks which do not pay dividends as they are cheaper than Commsec.

The reason why I don’t use Stake or CMC Markets for my international stock purchases is trust. I simply do not know how safe my money will be with them if they go bust. It is unlikely that the Big Four banks will go bust anytime soon. I am happy to use Selfwealth for my ASX purchases as they are CHESS sponsored meaning that even if they go bust my shares will still be safe. This is not the case with international shares.

Identification Requirements

All international stockbroking accounts require you to post identification documents to them before you can start buying. They usually need to be certified by a Justice of the Peace or similar. One of the documents required is usually your passport. This is required to meet international stock exchange identification requirements.

Dividend Reinvestment Plans (DRPs or DRIPs)

Unfortunately, us Aussies often cannot participate in non-Australian DRPs. This means that those dividends you receive from an American company paying quarterly dividends will have to be manually re-invested if you want to re-invest dividends. You will have to pay brokerage and maybe conversion spreads when you want to re-invest your dividends. This can eat into your returns and can be inconvenient.

Currency Risk

One question you will want to consider is whether you want your international investments to be hedged or unhedged against currency movements. While this generally isn’t available for individual stocks, it is available within international hedge funds, managed funds and ETFs. Currency changes can mean that your return in Australian Dollars can fluctuate wildly even if the amount you receive in dividends (in the foreign currency) is consistent.

Political and Sovereign Risk

Political risk is the risk of government actions having a negative effect on your investments. This risk is greater when investing overseas, particularly in countries where corruption is an issue, such as Russia, Brazil and China.

Custodian Risk

Unlike the CHESS system in Australia, when you purchase international shares you do not own those shares directly. The shares are held on your behalf by a custodian. Complications can arise if this custodian goes bankrupt, although a good custodian would quarantine its assets held on behalf of others from the rest of its business. If your Australian shares are CHESS sponsored, even if your broker goes bust your shares will not be put at risk.

Tax

The tax you pay on foreign income is complex and varies based on where the company you invested in is a resident for tax purposes. Foreign tax data is often not pre-filled in MyGov and you will have to manually enter all information. Managing the international tax aspects of your portfolio also takes more time than managing your Australian tax. That said, the diversification benefits and world class foreign companies available overseas sometimes outweigh these negatives.

Dividend Franking

Dividends from foreign companies are not franked. Therefore, $1000 in dividends from Unilever N.V (a Dutch company) would represent a lesser return compared to $1000 in fully franked dividends from Wesfarmers Ltd (an Australian company). This is a significant factor to consider for dividend investors as this reduces one’s after-tax return. Some Australian LICs invest overseas and are taxed in Australia so this may be a more effective way to gain international exposure while maintaining fully franked dividends.

Withholding Tax

Some countries withhold tax on income sent offshore (such as to Australia). The rates of withholding tax vary from country to country.  It must be noted that most treaties negotiated by the Australian Government reserve Australia’s right to tax capital gains. Therefore, withholding tax generally only applies to income from dividends and the like. Make sure you talk to your tax adviser about this.

Australia’s Double Taxation Treaties

The Australian Government has treaties with many countries to minimise double taxation. Double taxation occurs when income is taxed first in one country, such as the U.S and then again when it enters another country, such as Australia. Double taxation treaties try to reduce this. Below is a list of countries Australia has a double taxation treaty with. The maximum withholding rate listed is for an Australian tax-resident individual who holds a small percentage of the company’s total capital. These rates are found in the applicable treaties.

CountryMaximum Dividend Withholding Tax Rate Under Treaty
Argentina15%
Austria15%
Belgium15%
Canada15%
Chile15%
China15%
Czech Republic15%
Denmark15%
Fiji20%
Finland15%
France15%
Germany15%
Hungary15%
India15%
Indonesia15%
Ireland15%
Italy15%
Japan10%
Kiribati20%
Korea (South)15%
Malaysia15%
Malta15% (Rate at which the company’s profits were taxed)
Mexico15%
Netherlands15%
New Zealand15%
Norway15%
Papua New Guinea20%
Philippines25%
Poland15%
Romania15%
Russia15%
Singapore15%
Slovakia15%
South Africa15%
Spain15%
Sri Lanka15%
Sweden15%
Switzerland15%
Taipei (Taiwan)15%
Thailand20%
Turkey15%
United Kingdom15%

Some of these countries have other provisions which may reduce or increase tax withheld based on many complex factors such as the number of shares held, whether shares are held by a trust, company, partnership or individual and whether the holder of the shares carries on a business in the foreign country. Please consult an accountant about this. These rates do change.

I personally do not invest in countries that Australia does not have double taxation treaties with.

Notifying Foreign Tax Offices That You Are an Australian Tax Resident

It is your responsibility to ensure that you notify the relevant countries that you are an Australian resident for tax purposes. In some cases, your broker will do this.

In other cases, you, not your broker will have to fill out a form to let the foreign country’s tax office know you are an Australian tax resident. Talk to your broker and your accountant about this as it is important, preferably before you sign up for a brokerage account and start investing. Many brokers will require you to fill out a W8-BEN form when you apply for your international trading account.

The United States and the W8-BEN Form

Since I am sure many people reading this will be investing in the United States, I thought I would cover U.S withholding tax in more detail.

If you are investing in the United States, you will have to fill out the infamous W8-BEN Form. This form tells the United States tax office (the Internal Revenue Service) that you are not an American resident for tax purposes. You will generally have to fill out this form yourself and send it via snail mail, although some brokers do that for you. Make sure all sections are filled out correctly as even the smallest error, such as one wrong letter in your street address, can mean that your form will be rejected. The form is available on the I.R.S website or your broker may provide it.

Articles 10, 11 and 12 of the Convention Between the Government of the United States of America and the Government of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income provides that the tax at source (i.e. where the income is generated) will not exceed 15% for dividend income and 10% for interest and royalty income.

By filling out the W8-BEN Form, you are telling the I.R.S that they, pursuant to the above treaty must not withhold any more than 15% of dividend income. If you do not fill out the form, then your withholding tax rate may be greater than 15% as the treaty will not apply. You must fill out the form every three years.

Any tax you do pay to the U.S may be accounted for in the tax return you submit to the ATO (via a Foreign Income Tax Offset). Note that ‘tax leakage’ can occur in some cases, i.e., you can’t claim back the full amount of the tax that was withheld. You should talk with your tax adviser about this.

Miscellaneous Taxes

Please note that this article is just an introduction to international taxes. There may be taxes specific to the country you are investing in or specific to the legal entity you are investing in. For example, a trust may be taxed differently to a company or individual. Again, talk to your tax adviser.

Benefits of International Stocks

While most of this article has highlighted the negatives associated with international stock market investing, there are some positives!

Diversification and Strong Brands

The ASX has a bias toward the banks and resource companies such as BHP and Rio.

Australia does not have many big internationally successful companies which compete internationally. BHP and CSL are the only ones which come to mind. The Big Four Banks, while successful within Australia and New Zealand, have had problems expanding internationally.

These big international companies, such as Unilever, Proctor & Gamble, Ecolab, Toyota, Stanley Black & Decker and others have strong brands which we are familiar with. Unilever produces Dove soap; Proctor & Gamble produce Gillete razors and Ecolab provides sanitation products to many industries such as restaurants. Toyota makes cars many of us drive and Stanley Black & Decker make the tools in our sheds.

Australia’s exposure to consumer staples and technology companies in general is minimal and we don’t even manufacture cars anymore. This is a key advantage of international investing: we can access the companies which make the products the world loves. The companies which produce the products the world loves often have strong competitive advantages relative to their peers.

Pessimists of Australia

Another benefit of investing internationally is that if you think Australia’s future or an individual Australian industry’s future is pessimistic compared to other countries, then international stocks allow you to invest in another country’s industry which has better prospects.

For example, if you are young and are investing for the next 50 years or so then climate change may be a relevant consideration in your investments. Many models of the potential impact of climate change on Australia predict that annual rainfall will be severely reduced, and rates of evaporation will increase throughout most of the continent. This would not be good for the Australian agricultural sector. Other countries in the world may not be as affected and thus the agricultural sector of another country may be a better investment in the long term. Even if these models are inaccurate, it might be best to hedge your bets anyway.

Currency

While I talked about hedging currency above, there are benefits to not hedging. The one which comes to mind first is if you plan on living overseas in the future. If your future bills are not in Aussie dollars, then maybe it would be best to invest in companies which are traded in the same currency as your future destination country to avoid fluctuations in future income.

The Verdict

As you can see, investing in international shares can be complex. It is up to you to decide whether it is worth the extra effort. As an alternative, one could invest in Australian shares which have international exposure (such as BHP, CSL etc.) or invest in Australian domiciled international focused ETFs or LICs to keep tax time simple. What do you think? Is international investing worth it?

If you do decide to invest in Aussie shares, then consider signing up for Self Wealth at the following link. Self Wealth offers $9.95 brokerage on unlimited share purchase amounts. That means you can buy $1,000,000 of shares for only $9.95 brokerage. It is CHESS sponsored just like the big four bank’s brokerage platforms. If you use the link you will get 5 FREE trades and I also get 5 free trades. Win-win right? Click here to sign up.

4 COMMENTS

  1. just the article I was looking for, for my son who is a dual US/Aus citizen and he needs to invest in US domiciled ETFs such as VTI on the NYSE….because of complicated US-person tax issues

  2. If I buy/sell and get dividends on foreign shares, do I pay foreign tax automatically (maybe by custodian, at transaction time)?, OR do I need to somehow pay tax direct to that foreign government?
    PS: great article thanks

    • Dividends from foreign companies usually have an amount of tax withheld automatically by your broker. You should then be able to claim a foreign income tax offset at tax time on your Australian tax return to recognise the tax already paid to the foreign gov and avoid double taxation. You don’t generally pay tax directly to the foreign government. Under the various treaties, capital gains tax is payable to the ATO on capital gains on foreign assets so the foreign government is not involved. Sometimes you have to fill out a form to claim benefits under the treaty, such as completing the W8-BEN form for US companies. I personally use Sharesight to help calculate my tax as international taxes can be a pain otherwise.
      Disclaimer: I’m not a tax adviser! Please consult your tax adviser to determine your own personal tax situation.

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