Domestic vs Foreign Dividend Stocks: Which Nets You More After Tax?
For a US investor, capital gains on domestic and foreign stocks are taxed identically — the rate depends only on your holding period, not on where the company is based. Dividends are where the two paths actually diverge. Foreign stocks often have tax withheld by the source country before the dividend even reaches you, and the US Foreign Tax Credit (FTC) only offsets that withholding up to your US tax liability on the same income. This calculator compares the total after-tax outcome of a domestic dividend against an equivalent foreign dividend.
How the Math Works
The domestic dividend's total tax is simply your dividend rate applied to the income. For the foreign dividend, the source country withholds its own rate first; the Foreign Tax Credit then covers up to your US tax liability on that dividend, and any US liability beyond what was already withheld is added on top. If the foreign withholding rate is at or below your US dividend rate, the two options come out equal — the FTC fully absorbs the difference. If it's higher, the excess generally can't be recovered, making the foreign stock a bit more expensive after tax.
US dividends from companies like Apple or Coca-Cola have no foreign withholding to worry about, so the comparison usually favors domestic stocks whenever the foreign country's rate exceeds around 15-20%. Countries with lower treaty rates, or foreign stocks held inside an IRA (where the FTC generally can't be claimed at all), change the math further, so it's worth checking your specific country's withholding rate and account type before assuming either side is clearly better.
Frequently Asked Questions
No, capital gains are taxed the same based on holding period regardless of the company's country. The real difference is on dividends, via foreign withholding.
Only up to your US tax liability on that income. If the foreign rate is higher than your US rate, the excess generally isn't recoverable.
※ Excludes account type (taxable vs. IRA) and treaty specifics; this is an estimate for reference only.