Foreign governments tax dividends paid to U.S. investors at the source, typically withholding 15% under the relevant tax treaty (the statutory rate is often higher — 25% to 35% — and you reclaim the difference only by filing a treaty claim, rarely worth the effort at retail size). The U.S. then lets you offset that foreign tax against your U.S. liability through the foreign tax credit (FTC) under IRC §901, “Taxes of foreign countries and of possessions of United States”. The credit is dollar-for-dollar, far better than a deduction, and if your total creditable foreign tax is $300 or less ($600 on a joint return) you claim it directly on Form 1040 (Schedule 3) without the misery of Form 1116.
The asset-location rule that follows is the opposite of the one for REITs and taxable bonds:
Hold international equities in a taxable account, not a tax-deferred one. The foreign tax credit can only offset a U.S. tax liability. Inside a traditional IRA or 401(k) the dividend is not currently taxed, so there is no liability to credit against — the 15% foreign withholding simply vanishes, an unrecoverable leak of roughly 0.30% to 0.45% a year on a 2–3% foreign dividend yield.
The practical move: international index funds and ADRs go in the taxable brokerage account, where the FTC works and the qualified portion of the dividends still gets long-term capital-gains rates.