Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Withholding tax

With the advent of the euro, I am considering the possibility of purchasing European shares when, in the past, I would normally have invested directly in Irish equities. However, I have heard that there are extra costs such as custodian charges. Could you outline what charges might be encountered by investing directly in some of the various euro-zone stock markets and the level of those charges?

Mr P.O'B., e-mail

You are not alone. The advent of the euro has seen many investors, particularly the institutions that are so important to the market, deserting the Irish market in search of a more representative European portfolio. However, you are right that there are charges involved and the unwary can find themselves at a loss.

The first point to note is that companies on European exchanges do not issue share certificates as we know them. The US exchanges, which are also attracting an increasing number of Irish investors do not issue them either. Only Dublin and London issue certificates, a practice which most brokers seem to want to end.

In Europe, banks and other financial institutions hold the shares on behalf of the customer. Naturally, there is a charge for this service and such custodian charges can, I gather, vary widely. One broker spoke of a charge of around £80 (€102) by these custodians to take in a holding and a similar amount to release it, in addition to an annual management charge.

On the plus side, another issue to consider and one which can do something to offset the weight of the charges, is that most European markets do not charge stamp duty on share dealings. In the Republic, we pay 1 per cent stamp duty on all such share purchases - the highest in Europe - adding to the cost of share ownership here.

Another cost is incurred in buying the shares. In the Republic, this would normally be done by going through a marketmaker in London, or so brokers tell me. Generally, the minimum charge for such a transaction is £50 sterling (€81). Depending on the broker, there may well be charges at the Dublin end for carrying out the exercise. While I understand some brokers absorb this cost, it is bound to be reflected somewhere in the price of the shares.

For these reasons, Dublin brokers to whom I spoke advise customers not to invest directly in such shares outside of Britain and the Republic, below certain financial thresholds. To be fair, these vary widely as well. One broker suggested holdings of less than £10,000 should not be considered; another was advising against holdings under £20,000.

Their argument is that because of the charges, even the dividends received by the shareholder may not meet the costs involved in holding the shares. In the US, the charges are lower. Instead, they direct smaller investors towards a variety of managed funds on offer which buy into the euro zone or other markets. Naturally, any investor would need to carefully examine the charge structure involved in such funds, although it is certainly likely to be lower than direct investment as the administration costs are lower.

In addition to custodian and purchase costs, there is the issue of withholding tax. There is no uniform dividend withholding tax rate in Europe. Therefore, investors should ascertain what tax charge they face, before they enter markets.

In the Republic, dividend withholding tax is levied at 24 per cent with higher marginal taxpayers declaring the rest. Double taxation agreements should allow for taxes incurred in one jurisdiction to be offset against tax liabilities in another, but that depends on the wording of the particular agreement.

Share certificates

Several readers have written in concerning the inordinate amount of time it takes to receive share certificates once they have bought shares or sold part of their shareholding.

Following a piece last week, where I pointed out that, in this electronic age, it beggared belief that some investors should have to wait two months or more for certificates, Mr Albert Farrell, chairman of the Association of Corporate Registrars has contacted us. Registrars are the bodies that issue share certificates when a person invests in a company by buying shares. They also issue amended share certificates when part of one's shareholding is sold. Indeed, all matters of share certification go through them and, as Mr Farrell points out, until they issue a share certificate, one has no entitlement to anything, including dividends, regardless of any contract note or other piece of paper held.

Essentially, a company will issue dividends, communications, voting rights at annual and extraordinary general meetings to those people on its share register at that time. If a certificate has not been issued in your name following a purchase, you don't have such rights. That's the bad news and it seems to contradict what was said previously by the stock exchange and brokers about the right to dividends following receipt of contract notes.

Mr Farrell agrees with the contention that there is no excuse for such inordinate delays and that certificates are written up within days of a deal being settled. In fact, he outlined the process for issuing share certificates following a deal.

Shares are settled electronically through the CREST system. Once a deal has been done and paid for - settled - the company registrar has four days to make the turnaround on electronic transfer, write up a new certificate and deliver it to an office called the credit-counter service in Dublin.

The individual stockbroking companies pick up their certificates from this office. In the case of certificates for British brokers, the same turnaround period applies and the certificates are posted by TNT to their UK destination. In fact, Mr Farrell's own company executes the process in 24 hours, writing up the new share certificate at the end of the day in which the settlement has taken place and ensuring they reach the credit counter service the next morning.

What all this means is that, despite the delay, the shareholders' certificates are, in all probability, in existence and they are therefore entitled to dividends and any other rights accruing to shareholders. The delay in getting the certificate out to those shareholders lies, apparently, with the brokers themselves, whose back office operations are either too busy or too inefficient to process the certificates out to their customers. The answer is simple. If you have not received your certificate within a week of the transaction being settled - remember there is a week's leeway between the deal and the settlement date - contact your broker and chase it up.