How to Buy US Stocks for Non-Residents

Individuals residing outside the U.S. can invest in the United States stock market, which offers diverse investment opportunities. While the process involves specific requirements compared to domestic investors, it is a common practice for international individuals to own shares in U.S. companies. Understanding the necessary steps and associated financial and tax implications is important for a successful investment journey.

Essential Preparations

Before engaging with U.S. financial institutions, non-residents must gather specific documentation. Financial institutions adhere to strict “Know Your Customer” (KYC) and anti-money laundering regulations, which necessitate a thorough identity verification process. This often leads to additional paperwork and scrutiny for non-U.S. citizens.

A valid government-issued photo identification, such as a passport or national ID card, is a primary requirement for identity verification. Proof of address is also necessary, typically accepted in the form of recent utility bills, bank statements, or official government correspondence.

A U.S. tax identification number is often required for tax reporting purposes. An Individual Taxpayer Identification Number (ITIN) is issued by the Internal Revenue Service (IRS) to individuals who must file a U.S. tax return but are ineligible for a Social Security Number (SSN). This number allows individuals to comply with tax obligations, report U.S. source income, and potentially claim certain tax benefits under treaties. To apply for an ITIN, individuals typically complete IRS Form W-7 and submit a U.S. federal tax return, unless an exception applies. Valid identification documents, such as a passport, are also required. A passport is the only document that alone proves both identity and foreign status.

Another essential document is Form W-8BEN. This IRS form certifies foreign status for reporting purposes. It allows individuals to claim a reduced rate of, or exemption from, U.S. tax withholding on U.S.-sourced income, especially if their home country has a tax treaty with the U.S. Without a completed W-8BEN, income may be subject to a 30% withholding rate.

When completing Form W-8BEN, individuals provide their full name, country of citizenship, permanent residence address, and country of tax residency. The form also requires a foreign tax identifying number (foreign TIN) from their country of residence. If their country does not issue a foreign TIN, this can be indicated on the form. This form is submitted to the brokerage firm, not directly to the IRS.

Choosing and Opening a Brokerage Account

Selecting a brokerage firm is the next step after gathering necessary documents. Not all U.S. brokerages accept non-resident clients due to stringent anti-money laundering (AML) rules, but many major online platforms do. While it is not illegal for non-residents to have U.S. brokerage accounts, some firms have made it more challenging to open accounts due to heightened regulatory requirements. When choosing a broker, non-residents should consider the firm’s support for international clients, available investment products, and fee structures.

Minimum deposit requirements and customer service quality are also important considerations. Some brokerages may have specific country restrictions based on local regulations. The application process for non-residents often involves more detailed steps compared to U.S. citizens. Many U.S. brokers allow non-residents to open accounts remotely, with applications typically submitted online, though some may require paper applications.

During the application, individuals submit identification and tax forms, including copies of a valid passport and proof of address. The completed Form W-8BEN is also required, as it certifies foreign status and helps apply correct tax withholding rates.

After submission, the brokerage firm undertakes an account verification process, which may involve additional information requests or verification calls. The W-8BEN form generally remains valid for three full calendar years after signing, unless information changes.

Funding and Trading Investments

Non-residents typically fund U.S. brokerage accounts through international wire transfers. This method involves sending funds directly from a foreign bank account to the U.S. brokerage account. These transfers may incur fees, often ranging from $25 to $50 per transaction, and can take a few business days to process. Some brokerages also accept Automated Clearing House (ACH) transfers from U.S. bank accounts or third-party payment services. Always confirm funding options, costs, and processing delays directly with your chosen brokerage.

Currency exchange is an important consideration when funding from a non-USD denominated bank account. Funds transferred will be converted to U.S. dollars, and the exchange rate at the time of conversion will impact the final amount received in the brokerage account. Exchange rates can fluctuate, and there may be conversion fees or spreads charged by the transmitting bank or the receiving institution. Investors should be aware of these costs as they affect overall investment returns.

Once funds are available, investors can place buy and sell orders for U.S. stocks. Common order types include market orders and limit orders. A market order instructs the broker to buy or sell immediately at the current price, though the execution price may differ, especially in volatile markets. A limit order specifies a maximum buy price or a minimum sell price, offering more control over the execution price but not guaranteeing execution if the market does not reach the specified limit.

U.S. stock markets offer various investment types, including individual company stocks and Exchange-Traded Funds (ETFs). ETFs provide diversification across sectors or market indices with a single investment, making them a popular choice.

Understanding US Tax Implications

Investing in U.S. stocks as a non-resident involves specific U.S. tax implications. A primary consideration is the U.S. withholding tax on dividends. Non-resident aliens are generally subject to a 30% flat tax rate on dividend income from U.S. sources. This tax is typically withheld by the brokerage firm when the dividend is paid.

Many countries have income tax treaties with the United States, which can significantly reduce or eliminate this 30% withholding tax. To claim treaty benefits, the non-resident must have submitted Form W-8BEN to their brokerage, certifying foreign status. The specific reduced rate depends on the tax treaty between the investor’s country of residence and the U.S.

Generally, non-residents are not subject to U.S. capital gains tax on the sale of U.S. stocks. This exemption applies unless the individual is physically present in the U.S. for a significant period (typically 183 days or more in a tax year) or if the gains are effectively connected with a U.S. trade or business. While the U.S. may not tax these capital gains, investors may still be liable for capital gains taxes in their country of residence.

U.S. estate tax is another important consideration for non-residents holding U.S. assets. Non-resident aliens typically have a much lower exemption than U.S. citizens, often around $60,000. U.S.-situs assets exceeding this threshold could be subject to U.S. estate taxes upon the investor’s death, with a maximum tax rate potentially reaching 40%. Careful consideration of asset ownership and estate planning may mitigate potential estate tax liabilities.

Regarding reporting requirements, non-residents generally do not need to file a U.S. federal income tax return unless they have U.S. source income effectively connected with a U.S. trade or business, or if they are claiming a refund of over-withheld tax. Brokerages will report dividend income paid to non-residents to the IRS. Investors should consult a tax professional regarding their specific circumstances, especially concerning tax treaties and reporting obligations in both the U.S. and their country of residence.