Can Foreigners Buy Stocks in the United States?

Non-U.S. citizens and residents are permitted to purchase and hold stocks in U.S. companies. While the process involves steps and considerations beyond those for domestic investors, it is common practice for individuals globally to invest in U.S. equities.

Opening a US Brokerage Account

Opening a U.S. brokerage account as a non-U.S. resident involves careful preparation and submission of specific documentation. Financial institutions in the U.S. are subject to regulations requiring thorough identity verification for all investors. Individuals need to gather several pieces of information and supporting documents.

Required documentation includes a valid government-issued photo identification, such as a passport, as proof of identity and foreign status. Proof of residential address, such as a utility bill or bank statement, is also required. Brokerage firms may additionally request information regarding the source of funds intended for investment to comply with anti-money laundering regulations.

A tax identification number is another important requirement. Non-U.S. residents need to provide either an Individual Taxpayer Identification Number (ITIN) or their foreign tax identification number (FTIN). An ITIN is a nine-digit tax processing number issued by the U.S. Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but are not eligible for a Social Security Number. To apply for an ITIN, individuals must complete IRS Form W-7, providing personal information and supporting documents like their passport or national identification card.

Many U.S.-based brokerage firms offer online application processes for non-U.S. residents. It is important to select a brokerage that explicitly serves international clients, as not all firms do. Larger brokerages like Charles Schwab, ETrade, and Interactive Brokers are known to accept applications from a wide range of countries.

The prepared documents, such as scanned copies of identification and proof of address, are submitted electronically through the brokerage’s secure online portal. In some cases, physical mailing of certified copies might be necessary. After submission, the brokerage will undertake a verification process, which can take approximately one to two weeks. Upon successful verification and approval, the account will be activated, allowing the investor to fund it and begin trading.

Tax Implications for Non-US Investors

Investing in U.S. stocks carries specific tax implications for non-U.S. residents, primarily concerning dividends and capital gains. Dividend income received from U.S. companies is subject to a flat 30% withholding tax. This tax is withheld by the brokerage firm at the source before the dividends are credited to the investor’s account.

Capital gains are not taxed by the U.S. for non-U.S. residents, provided the individual is not present in the U.S. for 183 days or more during the tax year. If a non-U.S. resident is physically present in the U.S. for 183 days or more in a calendar year, any U.S.-source capital gains may become subject to a 30% tax rate. This rule applies even if the transactions occurred outside the U.S.

Tax treaties between the U.S. and an investor’s country of residence can reduce or eliminate the 30% withholding tax on dividends. These treaties are designed to prevent double taxation and provide preferential tax treatment for residents of treaty countries. To claim these benefits, non-U.S. investors must document their foreign status.

Form W-8BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals),” is used for this purpose. By submitting this form to the brokerage, an individual certifies they are a foreign person and the beneficial owner of the income. The form requires specific information, including the investor’s full name, country of citizenship, permanent residence address, and foreign tax identifying number (FTIN). If the investor’s country does not issue an FTIN, there is an option to indicate this on the form.

The information on Form W-8BEN allows the brokerage firm to apply the correct withholding tax rate based on any applicable tax treaty. Without a valid W-8BEN, the default 30% withholding tax rate on dividends will be applied. This form remains valid for three full calendar years after it is signed, but a new form must be submitted within 30 days if any information becomes incorrect due to a change in circumstances.

Key Considerations for Foreigners

Foreign investors should consider several practical aspects when investing in the U.S. stock market. Selecting a brokerage firm requires evaluating factors such as international customer support, minimum deposit requirements, and the availability of desired trading platforms. It is important to confirm that the chosen brokerage accepts clients from the investor’s country of residence, as policies can vary.

Currency conversion is another consideration that can impact investment returns. Funds need to be converted from the investor’s local currency to U.S. dollars for investment and then back again for withdrawals. Fluctuations in exchange rates between the U.S. dollar and the investor’s home currency can affect the overall profitability of investments. These currency movements can either enhance or diminish returns, regardless of the stock’s performance.

Managing investments from abroad necessitates ongoing portfolio monitoring and understanding U.S. market dynamics. Technology facilitates remote access to trading platforms, but investors should stay informed about market conditions and any regulatory changes that may affect their holdings. Maintaining communication with the chosen brokerage regarding account details and tax documentation remains important for compliance.