How to Buy International Shares From Australia

Investing in shares listed on foreign stock exchanges allows Australian residents to broaden their investment horizons beyond the domestic market. This guide provides an overview of the process, from understanding international shares to navigating currency exchange and tax obligations. By exploring the steps involved in choosing a brokerage, setting up an investment account, and executing trades, Australian investors can confidently access a wider range of global opportunities.

Understanding International Shares

International shares represent ownership in companies listed on stock exchanges outside of Australia, such as the New York Stock Exchange (NYSE), NASDAQ, or the London Stock Exchange (LSE). Unlike investing in Australian shares traded on the ASX, these investments involve different currencies, potentially varying market hours, and distinct regulatory environments. The Australian share market constitutes only a small fraction, approximately 2%, of the world’s total shares, with a concentration in sectors like mining and financial services.

Investing globally provides access to a much broader universe of companies and industries, including technology, healthcare, and other high-growth sectors that may be less represented on the ASX. While Australian companies are known for higher dividend yields and franking credits, international shares generally do not offer franking credits. This fundamental difference means that the tax treatment of income from international shares will vary compared to domestic holdings.

Choosing a Brokerage Platform

Selecting an appropriate brokerage platform is a foundational step for Australian investors looking to buy international shares. Various types of platforms are available, from online discount brokers to full-service brokers. The choice of platform dictates which countries and exchanges can be accessed, with most offering major markets like the US, UK, Europe, and parts of Asia.

Key criteria for evaluation include the fee structure, which typically encompasses brokerage fees for each trade, currency conversion fees, and potential account maintenance charges. Currency conversion fees can impact overall returns. Additionally, investors should consider minimum investment requirements, the availability of research tools, and the quality of customer support offered by the platform.

Setting Up Your Investment Account

Once a brokerage platform has been selected, the next step involves setting up an investment account for international share trading. This process typically requires providing personal information and documentation to verify your identity and tax residency. Common identification documents include an Australian passport or driver’s license, alongside proof of address.

For investments in US-listed securities, Australian residents need to complete a W-8BEN form, which certifies that the individual is not a US taxpayer. This form allows for a reduced withholding tax rate of 15% on US-sourced income, such as dividends, under the Australia/US Double Tax Agreement, rather than the higher default rate of 30%. Providing your Tax File Number (TFN) is also a requirement for international trading accounts to meet global tax obligations.

Funding Your Account and Placing Orders

After successfully opening an international brokerage account, the focus shifts to funding the account and executing trades. Funds can typically be transferred from an Australian bank account to the brokerage account through methods such as electronic funds transfer (EFT) or direct debit. While some transfers may be real-time, others could take a few business days to process.

When placing a buy order for international shares, investors navigate the trading platform to search for the specific stock they wish to purchase. Different order types are available, such as market orders, which execute immediately at the prevailing price, or limit orders, which allow investors to specify a maximum purchase price. After inputting the desired quantity or value of shares, the order is confirmed, and once executed, trades generally settle within two business days.

Currency Exchange and Tax Implications

International share investing inherently involves currency exchange, impacting both the initial purchase and any subsequent dividend payments or sale proceeds. Fluctuations in exchange rates between the Australian dollar and the foreign currency can significantly influence investment returns, potentially creating a gain or loss on the currency component alone. Most platforms handle currency conversion automatically, though a foreign exchange (FX) fee is typically applied to these conversions, ranging from approximately 0.5% to 0.8% of the transaction value.

Regarding tax, the Australian Taxation Office (ATO) requires Australian residents to declare income and capital gains from international shares. Dividends received from international shares are generally subject to withholding tax in the source country, such as the 15% applied by the US. To prevent double taxation, Australian investors may be eligible to claim a foreign tax offset, which acts as a credit against their Australian tax liability on that foreign income. Capital gains from selling international shares are treated similarly to those from Australian shares, with the potential for a 50% Capital Gains Tax (CGT) discount if held for over 12 months. Investors should consider seeking professional tax advice for their specific circumstances due to the complexities involved.