Lesson 7 of 7 · All lessons in this module
- Bullet, fully amortizing and partially amortizing bondsVideo lesson
- Sinking funds, waterfalls, zero-coupon and deferred coupon bonds
- Floating, step-up, credit-linked and PIK coupons
- Index-linked and inflation-linked bonds
- Callable and putable bonds
- Convertible bonds, warrants and contingent convertiblesVideo lesson
- Domestic, foreign and Eurobonds; tax considerations
Lesson 7 of 7 · 13 min
Domestic, foreign and Eurobonds; tax considerations
Where a bond is issued and by whom decides whether it is domestic, foreign, a Eurobond or a global bond, which sets its legal and regulatory treatment, while tax rules on interest, capital gains, discounts and premiums shape its after-tax return.
In short
- Domestic bond: issuer incorporated in the country where the bond is issued. Foreign bond: issued in a country by an entity incorporated elsewhere, usually in that country's currency.
- Eurobond: issued outside the jurisdiction of any single country, in any currency; lighter listing, disclosure and regulatory requirements; usually unsecured.
- Global bond: issued at the same time in the Eurobond market and at least one domestic market. Foreign, Euro and global bonds together = international bonds.
- The currency of denomination affects a bond's price more than where it is issued or traded.
- Interest is usually taxed as ordinary income; capital gains may be taxed differently (often by holding period).
- Original issue discount (OID) = par − issue price; some countries tax it yearly, others only at maturity.
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