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You want to invest in companies like Apple, Google, Amazon, or Tesla, but think you need to open a foreign brokerage account, transfer money overseas, and deal with currency exchange and international taxation? Not necessarily. Depositary receipts — such as ADRs (American Depositary Receipts) or BDRs (Brazilian Depositary Receipts) — allow you to invest in global companies directly from your local stock exchange, using your existing brokerage and paying in your local currency.
This investment vehicle exists in most major markets worldwide: ADRs let international companies trade on US exchanges, GDRs (Global Depositary Receipts) trade in Europe, and BDRs provide access to foreign stocks through the Brazilian exchange. The concept is the same everywhere.
But before buying depositary receipts of any company, it’s crucial to understand how they work, what the costs are, the risks involved, and when they truly make sense. Let’s dive in.
What Are Depositary Receipts
A depositary receipt is a certificate representing shares of a foreign company, traded on your local stock exchange. When you buy a depositary receipt, you’re not buying the stock directly. You’re buying a receipt that represents that stock, held in custody abroad.
How the Structure Works
- A depositary institution (like a major bank) purchases shares of foreign companies on their original exchanges (NYSE, Nasdaq, LSE, etc.)
- These shares remain under custody at a bank in the foreign country
- In your local market, the institution issues depositary receipts representing those shares
- The receipts are traded on your local exchange in local currency, like any domestic stock
Types of Depositary Receipts
| Type | Description | Common Examples |
|---|---|---|
| Sponsored Level I | The foreign company participates in the program | Many major multinationals |
| Sponsored Level II | Greater regulation and transparency | Companies seeking broader access |
| Sponsored Level III | Can make public offerings locally | Less common |
| Unsponsored | Local institution issues without company participation | The majority of receipts |
Most depositary receipts available on local exchanges are unsponsored, meaning the foreign company didn’t actively participate in the issuance.
Most Popular International Companies Available
Some of the most commonly traded depositary receipts worldwide:
| Company | Sector | Country |
|---|---|---|
| Apple | Technology | USA |
| Amazon | E-commerce/Cloud | USA |
| Alphabet (Google) | Technology | USA |
| Microsoft | Technology | USA |
| Tesla | Automotive/Energy | USA |
| Nvidia | Semiconductors | USA |
| Meta (Facebook) | Social Media | USA |
| Netflix | Entertainment | USA |
| TSMC | Semiconductors | Taiwan |
| Samsung | Electronics | South Korea |
Depending on your exchange, hundreds or even thousands of depositary receipts may be available, covering companies from diverse countries and sectors.
Advantages of Depositary Receipts
1. Convenience
You invest through the same local brokerage you already use, without needing to open a foreign account, wire money internationally, or deal with foreign regulations.
2. International Diversification
Depositary receipts provide exposure to different economies and currencies. When your local currency depreciates, investments tied to stronger currencies tend to protect your wealth.
3. Access to Global Giants
Many of the world’s largest companies don’t trade on your local exchange. Depositary receipts are the simplest way to add these companies to your portfolio.
4. Natural Currency Hedge
Since the receipt tracks the share price in foreign currency, exchange rate movements are automatically incorporated. If the stock rises 10% in dollars and the dollar strengthens 5% against your currency, your receipt rises approximately 15% in local terms.
5. Simplified Tax Reporting
Depositary receipts are domestic assets. You report them on your tax return like any local stock, without dealing with foreign tax forms.
Disadvantages and Risks
1. Spread and Implicit Costs
Although there’s no explicit exchange fee, the depositary receipt price includes a spread over the original share price. This spread can range from 1% to 3%, and during high volatility it can be even higher.
2. Lower Liquidity
Most depositary receipts have much lower trading volume than the original shares. This can mean wider bid-ask spreads and difficulty executing large orders.
3. Dividend Withholding
When the company pays dividends, the country of origin withholds a portion at the source (in the US, for example, it’s 30% for most foreign investors). You receive dividends after this deduction. Tax treaties between countries may reduce this withholding rate.
4. Currency Risk (Works Both Ways)
If your local currency strengthens against the foreign currency, the receipt can fall in local terms even if the stock rises abroad. Currency exposure is a double-edged sword.
5. No Voting Rights
In most cases, depositary receipt holders don’t have voting rights in company assemblies. You’re economically exposed to the stock, but don’t participate in corporate decisions.
Depositary Receipts vs. Direct Foreign Investment
| Criterion | Depositary Receipts | Direct Investment |
|---|---|---|
| Convenience | High (same brokerage) | Medium (foreign account needed) |
| Currency | Implicit in price | You control conversion |
| Costs | Spread in receipt | FX + fees + brokerage |
| Liquidity | Lower | Higher (original exchange) |
| Dividends | With withholding | With withholding (treaties may help) |
| Tax filing | Simplified (domestic asset) | Complex (foreign income reporting) |
| Variety | Limited selection | Thousands of stocks |
| Voting rights | Generally no | Yes |
Depositary receipts make more sense for: Investors who want international exposure simply, with smaller amounts and without the tax complexity of investing directly abroad.
Direct investment makes more sense for: Investors with larger portfolios who want access to the full market, control over currency conversion, and potential treaty benefits.
How to Invest in Practice
Step 1: Choose Your Brokerage
Any local brokerage with exchange access allows you to trade depositary receipts. Check if there are extra fees for these instruments.
Step 2: Research the Receipt
Identify the ticker symbol. Check trading volume and the spread between bid and ask prices.
Step 3: Analyze the Company
The fact that it’s a depositary receipt doesn’t change fundamental analysis. Study revenue, profits, debt, growth prospects, and valuation, just as you would with any stock.
Step 4: Define How Much to Invest
Experts recommend that international exposure represent between 10% and 30% of your total portfolio, depending on your profile. Start slowly and increase as you gain confidence.
Step 5: Execute the Order
Buy through your brokerage’s platform, just like any domestic stock. Market or limit orders work normally.
Tax Considerations
Tax treatment of depositary receipts varies by country, but generally:
- Capital gains are taxed at your local capital gains rate when you sell
- Dividends may be subject to withholding in the country of origin
- Tax treaties between countries can reduce double taxation
- Specific exemptions or thresholds may apply depending on your jurisdiction
Always consult a tax professional for the specific rules in your country.
How Monely Can Help
Investing in depositary receipts requires tracking your contributions and having a clear allocation strategy. Monely helps with this process:
Financial goals: Set a target for your international portfolio, like “Invest $1,000/month in depositary receipts” or “Reach $100,000 in international exposure.” The app tracks your progress and keeps you focused.
Charts: Visualize the evolution of your investments over time. Track how your global portfolio is growing and maintain the discipline of monthly contributions.
Conclusion
Depositary receipts have democratized access to the world’s largest markets for local investors. With them, you can have Apple, Google, Amazon, and hundreds of other global companies in your portfolio without leaving your local exchange.
But like any investment, depositary receipts have costs, risks, and limitations that need to be understood. They don’t replace careful analysis — they just simplify access.
If you’re starting to diversify internationally, depositary receipts are an excellent starting point. They’re simple to trade, don’t require a foreign account, and taxation is relatively straightforward. As your portfolio grows and you gain experience, you can evaluate whether investing directly abroad makes sense for your profile.
Most importantly, as always, is having your finances organized and investing consistently. Access to global markets is just one part of the equation — discipline is what makes the difference in the long run.
Next steps: Set your international investment goal in Monely and start tracking your depositary receipt contributions. With discipline and clear goals, building a global portfolio is simpler than it seems.