Depositary banks charge ADR holders a small service fee per share, usually collected once or twice a year or netted from dividends. Because it is charged per share rather than per dollar invested, the same fee can be trivial on one ADR and meaningful on another.
Why the ADR's price matters more than the fee
A $0.03 fee on a $150 ADR costs 0.02% a year, less than most index funds. The same $0.03 on a $3 ADR costs 1% a year, which can swallow a third of a modest dividend. Low-priced ADRs, often of companies with low share prices at home and a one-to-one ratio, are where the fee bites.
How the fee is collected
For ADRs that pay dividends, the depositary usually subtracts the fee from the dividend before it reaches you. For ADRs that pay no dividend, the fee is typically billed through the clearing system to your broker, which debits your account. Either way, it appears on your statement as a depositary or ADR fee. Read the full explanation in ADR fees.
Tax note
An ADR fee is not a foreign tax and does not count toward the foreign tax credit. See the foreign tax credit.
Common questions
Where do I find the fee for a specific ADR?
The depositary bank's ADR directory lists fees for each program it runs, and the full fee schedule is in the deposit agreement filed with the SEC as an exhibit to Form F-6. Your broker statement also shows any 'ADR fee' or 'depositary service fee' line items.
Can I avoid ADR fees?
Owning the ordinary shares directly on the home exchange avoids depositary fees, but usually brings higher trading and currency-conversion costs and different tax handling. For most investors with modest positions, the ADR fee is the smaller cost.
Sources
Educational content only, not investment, tax or legal advice. The Stateside Report does not recommend buying or selling any security. Tax rules depend on your situation; confirm with a qualified tax professional. Full disclosures.