Can Non-US Citizens Invest in Stocks?

Non-US citizens can invest in US stocks, opening avenues to one of the world’s largest and most dynamic capital markets. While there are no citizenship-based restrictions preventing foreign individuals from participating, specific rules and considerations apply to ensure compliance with US regulations. These requirements primarily address identity verification, tax obligations, and certain reporting procedures.

Eligibility and Requirements

To begin investing in the US stock market, non-US citizens must fulfill several foundational criteria and provide specific documentation. A valid passport is typically required as primary proof of identity. Depending on the brokerage firm and the investor’s country of residence, a visa or other immigration documents might also be requested. Proof of foreign address, such as a utility bill or bank statement, is also commonly needed to verify residency outside the United States.

A United States Taxpayer Identification Number (TIN) is generally required for tax reporting purposes. For non-US citizens who do not qualify for a Social Security Number (SSN), an Individual Taxpayer Identification Number (ITIN) serves this purpose. An ITIN is issued by the Internal Revenue Service (IRS) to individuals who have US tax obligations but are not eligible for an SSN.

A crucial document for non-US investors is the Form W-8BEN, known as the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).” This form certifies to the brokerage firm that the investor is a non-US person, preventing them from being treated as a US resident for tax purposes. By submitting this form, investors can claim eligibility for reduced tax withholding rates on certain types of income, such as dividends, often under the provisions of a tax treaty between their home country and the United States. Without a valid W-8BEN on file, US brokerage firms are generally required to withhold taxes at a higher, standard rate, typically 30%, on applicable income.

Brokerage firms maintain their own eligibility criteria for opening accounts for non-residents, which can vary. Some firms may have stricter policies or may not accept clients from certain countries due to regulatory or compliance reasons. It is advisable to research different brokerage options to find one that accommodates non-US citizens and provides access to the desired investment products.

Investment Account Options

Non-US citizens primarily utilize individual taxable brokerage accounts for investing in US stocks. These accounts offer flexibility, allowing investors to buy and sell a wide range of securities, including individual stocks, exchange-traded funds (ETFs), and mutual funds.

Certain types of investment accounts commonly available to US citizens are generally not accessible to non-resident aliens. This includes most retirement accounts, such as Individual Retirement Arrangements (IRAs) and 401(k) plans. These tax-advantaged accounts are primarily designed for US citizens and resident aliens who contribute earned income and typically have specific residency or employment requirements within the United States. The tax benefits associated with these accounts, such as tax-deferred growth or tax-free withdrawals, are tied to the US tax system and are not typically extended to non-resident aliens.

Some non-resident aliens working and residing in the US may open certain retirement accounts, but this is an exception for foreign investors living abroad. For non-US citizens focused solely on investing in the US stock market from their home country, the individual taxable brokerage account remains the most common and accessible option. Investors should confirm with their chosen brokerage firm the specific account types available to them based on their residency and tax status.

Tax Implications

The US tax treatment for non-resident aliens distinguishes between different types of investment income. Dividends received from US companies are typically subject to a flat 30% withholding tax. This tax is generally withheld at the source by the brokerage firm before the dividend payment reaches the investor’s account.

However, this 30% rate can often be reduced or even eliminated if the investor’s country of residence has an income tax treaty with the United States. Tax treaties are agreements between countries to prevent double taxation and promote economic cooperation. These treaties often specify lower withholding tax rates on various types of income, including dividends, for residents of treaty countries. To claim these reduced rates, the non-US investor must submit Form W-8BEN to their brokerage, certifying their foreign status and specifying the applicable treaty provisions.

Capital gains from the sale of US stocks are generally not taxed by the US for non-resident aliens, provided they are not physically present in the United States for 183 days or more during the tax year in which the gain occurs. This exemption applies unless the gains are considered “effectively connected” with a US trade or business. This US exemption does not mean the gains are tax-free; investors may still be liable for capital gains taxes in their country of residence according to their local tax laws.

Certain exceptions exist where capital gains may be subject to US tax for non-resident aliens. For instance, gains from the sale of US real property interests are taxable regardless of the investor’s presence in the US. Similarly, if a non-resident alien is engaged in a US trade or business, any capital gains effectively connected to that business would be subject to US tax.

Brokerage firms are required to report income paid to non-US investors to the IRS. For example, they issue Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” to report dividends and other US-sourced income subject to withholding.

While the US generally does not tax capital gains for most non-resident portfolio investors, it is crucial for individuals to understand their specific tax residency status as defined by the IRS. This status determines whether they are taxed as a non-resident alien or a resident alien, which has significant implications for worldwide income taxation.

Specific Considerations

One significant aspect is the potential applicability of US estate tax. For non-resident aliens, US estate tax applies to US-situs assets, which include shares of US companies, held at the time of death. The US estate tax exemption for non-resident aliens is relatively low, set at $60,000, compared to the much higher exemption for US citizens.

Assets exceeding this $60,000 threshold can be subject to US estate tax rates that can reach up to 40%. This can significantly impact the value transferred to heirs. While some tax treaties may offer provisions to mitigate or eliminate this estate tax, it is a complex area that often requires careful estate planning.

The Foreign Account Tax Compliance Act (FATCA) also imposes reporting obligations, primarily on foreign financial institutions (FFIs), but indirectly affecting non-US investors. FATCA requires FFIs to report information about financial accounts held by US persons to the IRS. While non-US citizens are not directly subject to FATCA’s reporting requirements unless they are considered US persons, they may be asked by their financial institutions to provide documentation to confirm their non-US status. This helps the FFIs comply with their FATCA obligations.

Individual brokerage firms may have internal policies that restrict account openings based on the investor’s country of residence. This can be due to various reasons, including anti-money laundering regulations, compliance costs, or sanctions.