Regardless, Royal Bank’s move is certain to make international stock trading mainstream, with other banks prone to follow suit. So what’s RBC Direct Investing offering and what are the considerations for investors?
International trading with RBC Direct Investing
Online investors with RBC Direct Investing can now trade in Hong Kong, London, Paris and Frankfurt. Investors also can trade by telephone in Japan, Singapore, Australia and a few smaller European markets.
You can now also hold foreign currency echange corresponding to the British pound, euro, Swiss franc and Japanese yen, in addition to Singapore, Australian, New Zealand and Hong Kong dollars in unregistered accounts.
Foreign currencies can’t be held in registered accounts corresponding to Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). However, you may hold foreign securities in each registered and unregistered accounts. This signifies that Canadian dollars shall be converted into foreign currency echange by RBC Direct Investing for the aim of buying investments, and foreign dividends shall be converted into Canadian dollars upon receipt and deposit into your account.
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What in regards to the restrictions or limitations on foreign investment?
Previously, Canadians were restricted by a foreign asset limit in some registered plans. Between 1971 and 2005, there was a limit on foreign investment in RRSPs, Registered Retirement Income Funds (RRIFs) and pension plans, which ranged from 10% to 30%.
Some older investors still remember this rule and should be unsure if there are still restrictions. The foreign limit was abolished in 2005 and there are currently no restrictions on foreign stock ownership in Canada. However, there are tax considerations.
Tax implications of holding foreign stocks
When you buy foreign stocks through a registered account corresponding to an RRSP or TFSA, the dividends are generally subject to withholding tax.
Most countries impose a withholding tax on dividends of 15% to 25%. The tax rate may vary depending on the terms of the tax treaty between Canada and the opposite country, if there may be one.
