How To Invest In US Stocks As A Foreigner
The bustling US stock market is one of the foundations of the world economy, with good reason.
The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly held companies happen. It’s by far the world’s largest stock exchange with listed companies valued at $30.1 trillion as of February 2018.
But can you only trade in the market if you’re a citizen?
Good question. US stocks and bonds are indeed regulated by US law. However, as it turns out, you do not have to be a citizen to trade in the US stock market.
There are no specific laws prohibiting non-US citizens from investing in the US stock market.
In fact, many investment firms cater to international clients.
The Securities and Exchange Commission and our government actually encourage foreign investments in the equities and debt markets that fund US capital markets and the US economy. Why is this? It’s because no US/foreign investors bring in a lot of money to US markets!
It is also wise to diversify your portfolio with stock from within your home country as well as investments outside of it. This is known as global market exposure.
US investors love buying stock in foreign companies. A few examples of this are Alibaba, JD.com and Baidu.
However, there are some extra hoops that no US citizens have to jump through to get US stocks in their portfolios. You can open an online trading account with some US brokers, even as a foreigner, but more documentation will be required.
Some of the extra paperwork will include proof of identity and visa information, and there will likely be other requirements as well.
Firstrade: Top International Brokerage Pick!
Our top pick for an international brokerage is Firstrade. They offer commission-free trading, retirement accounts and most importantly international accounts for non-US investors. This brokerage participates with over a dozen foreign countries. If your country is listed below, you can invest in US markets with Firstrade!
- Hong Kong
- South Korea
- New Zealand
- Saudi Arabia
- United Arab Emirates
If you are from any of the countries listed above, click here to learn more about Firstrade!
Opening A Brokerage Account
To trade US stocks, the easiest thing to do is to open a brokerage account with a US broker.
However, brokerage firms have different procedures for non-citizens based on their residency status, and non-citizens will have to produce more documents to comply with their internal rules.
On top of that, not all brokerages participate with international investors.
International investors in the US stock market typically choose to go through a brokerage firm to manage their investments. Using a reputable broker ensures that investments will comply with applicable laws, and a US-based broker who is familiar with international investments can help people navigate the somewhat complicated topic.
If you are a non-resident of the US looking to invest and you are choosing a brokerage firm, make sure that they work with international investors. Do the homework. Take the time to check that they work with your specific country of residence because some brokerage firms only serve certain areas.
Also, some brokers require additional documentation from international investors, including proof of identity, visa information, and tax documents.
W8-BEN Tax Form
The W-8BEN is a common tax form required for foreign investors. Many international investors choose to work with a web-based brokerage account. This allows them to access their accounts from anywhere at any time, without worrying about finding a branch location.
Many web-based brokerage firms specifically cater to international investors.
Form W-8BEN expires after three years from the day you signed it. Your broker should always notify you to renew it before it expires. If yours has expired, your account will be subject to the normal taxation for a foreigner, even if you’re from a tax-exempt country.
If you can’t find a broker you like in the US, then some foreign financial institutions will allow you to open brokerage accounts that will give you access to US stock exchanges.
Some foreign financial institutions and big brokerage firms have access to the US stock market either by partnering with US financial firms like Merrill Lynch or through global depository receipts. So, be sure to check with the financial institutions in your home country to determine the ones that offer these services.
Deciding On A Brokerage
For example, if you are a UK citizen, you can open a brokerage account with Saxo Bank or Barclays to trade in the US stock market. As another example, if you’re in Malaysia, you can use CIMB Bank to invest in the US stock market.
There may be brokerage firms or other financial institutions that offer similar services in every country, so do your research.
Although some US-based brokers don’t allow foreign clients to open a trading account with them, a few do offer online services to clients in specific countries.
Some of the US brokers that serve international clients online include Firstrade, MBTrading, Zecco, TradeStation, TD Ameritrade, Sogotrade, and Just2Trade. Each of these has a list of countries they accept clients from. Before you choose any of them on the list, find out if it supports your own country of residence.
There are some brokers with an international presence. This means that they have offices in different parts of the world, even though they are headquartered in the US. The two brokers in this group are Charles Schwab and InteractiveBrokers. They have offices in the UK, some European countries, Hong Kong, Singapore, and Japan.
New Restrictions And Regulations
One of the goals of the Patriot Act passed after the 9/11 terrorist attacks, is to prohibit organizations and individuals linked to terrorism from financing their illegal operations through American markets.
The US government has gone to great lengths to ensure that certain organizations that have been linked to terrorist activities, along with their members or suspected members, are not able to finance their operations through American capital markets in any way.
This means that brokerage firms are required to verify customer identities and report any suspicious account activity to the government. These regulations don’t have an effect on the vast majority of individual international investors.
It’s safe to say that if you are not involved in any illegal activities or any activities that the US government and its organizations may find offensive, you should be well within your rights to own stock in US-based companies.
However, you should always make sure to work with a reputable international broker. This will ensure that you are complying with the wide array of new and updated regulations that govern US stocks.
Also, make sure to plan for some additional obstacles you might need to overcome first before you can begin investing.
Tax Implications On Foreign Investors
Non-US citizens trading US stocks potentially have to deal with elaborate taxation issues. In general, nonresident aliens pay a 30% tax on investment income. The tax will typically be withheld at the source by the brokerage firm involved.
If you qualify as a non-resident foreign national of the US, you are not subject to capital gains tax.
This means that your brokerage firm will not withhold that tax from earnings on international investments. However, most countries require that residents pay capital gains tax on money earned in foreign markets. You may have to report the income and capital gains at home.
Earned dividends are taxed as income for non-resident foreign nationals. Non-resident foreign nationals are subject to a flat 30 percent tax rate on their income. Earned dividends, which come directly from the US companies you invest in, are considered income.
There are some situations in which you may be subject to a lower rate. This is depending on any treaties, your home country has with the US, and if the dividends are interest-related.
Navigating international taxation is a reason it may be better to work with an international broker. A reputable broker will make sure you know all the US tax implications of your investments.
Not being a US citizen shouldn’t stop you from investing in US stocks. Just be aware that there are some extra hurdles you might need to overcome to do it!
Best Brokerages For Non-US Investors
You will have to do research on individual brokerages based on your home country. Some of the options listed below may allow you to invest in US stocks as a non-US investor.
Here is my video on this topic if you are interested:
This brokerage supports a multitude of different currencies, and it allows you to place trades and make withdrawals and deposits in different currencies.
The minimum to open an account with them is $0 and the fee for trading is $0.005 per share.
This brokerage supports dozens of different countries. You can view a full list here.
The documentation required to open a brokerage account is different for each country.
This brokerage specializes in CFDs which are available in many different countries. They do not specifically list which countries are supported, however here is a list of the countries that are not supported.
One word of caution is that the primary product offered on eToro is a CFD. This is a complex financial instrument that comes with a high risk of losing money. You should not invest with this brokerage unless you understand the risk involved.
They also offer cryptocurrency and forex trading on this site. However, with a CFD you actually do not own the underlying asset. You are simply investing in a derivative, which is something that derives a price from the value of the underlying asset.
While the CFD is based on the price of the underlying stock/cryptocurrency, you do not own the actual asset itself.
This brokerage has numerous different entities based on which region it is serving. The fees and services they offer vary based on what country you are in. This is a popular platform for forex trading as well.
They support 19 different currencies on the platform.
This brokerage gives you access to over 35,000 different financial instruments based on numerous different assets. They work with over 300 different financial intermediaries, and this allows them to offer investment services in over 120 different countries.
One common complaint about Saxo Bank is that they do have high minimum deposits required in most cases. They offer a variety of different investment vehicles including stocks, ETFs, forex, bonds, options, futures, CFDs and cryptocurrencies.
This brokerages has international accounts for numerous different regions worldwide. According to their site, this includes support for:
- Hong Kong
- United Kingdom
The products, fees and services vary based on what region you are in. Each of these regions has a separate Fidelity site. They have over 40,000 employees in 8 other countries outside of the US.
You may find that they support your home country and offer the product you are looking for!
This is a UK based stock broker with more than 400,000 customers in 18 different countries. The fees and commissions vary based on what country you are in, but overall many have said the fees through this brokerages are less than others out there.
DEGIRO offers stocks, bonds, ETFs, options, futures and cryptocurrencies. They do not offer forex trading, which is a popular investment vehicle among non-us investors.
According to their website, DEGIRO offers investment services for the following regions:
- Czech Republic
- United Kingdom