There is no citizenship requirement for owning stocks of American companies. While U.S. investment securities are regulated by U.S. law, there are no specific provisions that forbid individuals who are not citizens of the U.S. from participating in the U.S. stock market. However, even if a non-U.S. citizen can legally trade U.S. stocks and bonds, it may still be required (in addition to being advisable) for them to consult with an investment firm and use the services of a professional.
There are some extra hoops that non-U.S. investors may have to jump through before investing in U.S. stocks. Foreign owners and holders of U.S.-based assets are subject to an array of U.S. laws intended to protect U.S. interests. An international stockbroker can help non-U.S. investors ensure that they are complying with any regulations that govern U.S. stocks and bonds.
- There is no citizenship requirement for owning stocks of American companies.
- There are some extra hoops that non-U.S. investors may have to jump through before investing in U.S. stocks because foreign owners and holders of U.S.-based assets are subject to an array of U.S. laws intended to protect U.S. interests.
- Some brokerage firms may require non-U.S. citizens to produce additional types of identification documents in order to comply with their individual policies.
- For investors that really want to invest in the U.S. market but are encountering barriers to entry, there are also some U.S. companies that list their stocks on foreign exchanges.
Identity Requirements for Non-U.S. Citizens
One of the goals of the Patriot Act of 2001, passed following the 9/11 terrorist attacks, was to prevent individuals with any links to terrorist activities from funding their illegal activities through the American capital markets. The act led to brokerage firms implementing more stringent requirements for verifying customer identities, particularly for non-U.S. citizens. Part of this legislation also requires stockbrokers to report any suspicious account activity to the U.S. government. However, these regulations obviously do not impact the majority of international investors because the vast majority of investors do not have any criminal associations.
Some brokerage firms may require non-U.S. citizens to produce additional types of identification documents in order to comply with their individual policies. This can include visa information, a valid Social Security number, or a Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting form (also called a W-8BEN). Some brokerages may also require non-U.S. citizens to submit paper applications versus submitting online applications to open accounts.
Opening a Brokerage Account
An international stockbroker can help investors new to the U.S. market manage their investments. Brokerage firms can help ensure that your investments comply with all laws. Plus, a broker in the U.S. will be familiar with how to navigate the intricacies of the American stock market. Some brokerage firms even specialize in working with international investors.
However, for non-U.S. investors, it is advisable that they research whether or not the brokerage firm accepts investors from their specific country; some firms restrict what geographical regions they work with. The good thing is that many brokerage firms maintain online portals where investors can monitor their investments at any time of the day and from any location.
For investors that have a hard time finding a U.S. stockbroker, some international financial institutions will allow investors to open accounts that give them access to U.S. stock exchanges. For investors that really want to invest in the U.S. market but are encountering additional barriers to entry, there are also some U.S. companies that list their stocks on foreign exchanges.
Tax Implications of U.S. Investments Abroad
There are tax implications for trading U.S. investments if you are not a U.S. citizen. Investors that qualify as non-resident foreign nationals of the U.S for tax purposes are not liable for capital gains tax on the earnings from their investments. This means that the brokerage firm will not withhold any taxes from earnings in an account. However, many other countries require their residents to pay capital gains tax on money earned in foreign markets. Investors may be liable for those taxes in the countries where they are residents or where they pay taxes.
If you are a non-resident foreign national, and you invest in a company that pays dividends, those dividends are usually taxed as income at a flat rate of 30 percent. There are some exceptions to this rule: for example if the investor's country-of-residence is involved in a treaty with the U.S. that allows for a lower tax rate. Similarly, some investors are eligible for a lower tax rate on their dividend earnings if the earnings are interest-related.
It is important to keep in mind that non-U.S. residents are subject to U.S. estate and gift taxation with respect to certain types of U.S. assets, also at a maximum tax rate of 40% but with an exemption of $60,000, which is only available for transfers at death.
International taxation rules are very complex; this is another reason that it may be advisable for a non-U.S. investor to work with an international broker who is knowledgeable about the tax implications of investing in foreign markets.