There's no citizenship requirement for owning stocks of American companies. While U.S. investment securities are regulated by U.S. law, there are no provisions forbiddingindividuals who are not citizens of the U.S. from participating in the U.S. stock market. However, even if non-U.S. citizens can legally trade U.S. stocks and bonds, they should still consult with an investment firm and use the services of a professional to do so.
Investing in U.S. stocks is a relatively straightforward process for non-U.S. citizens, thanks to the international nature of the financial markets. Nonresidents can open brokerage accounts with firms that cater to global clients, providing access to the vast array of publicly traded companies listed on American exchanges.
Nevertheless, there are 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 comply with any regulations that govern U.S. stocks and bonds.
Key Takeaways
- There's 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 requirenon-U.S. citizensto produce supplementary types of identification to comply with their policies.
- For investors who 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
For non-U.S. citizens seeking to invest in American stocks, navigating the identity verification process is a crucial step. U.S. financial institutions are required to comply with strict know your customer and anti-money laundering regulations, which require a thorough identity check for all investors, regardless of nationality.
Typically, non-U.S. citizens will need to provide the following:
- Government-issued photo identification: This could be a valid passport or national ID card.
- Proof of address: Recent utility bills, bank statements, or official government correspondence are usually accepted.
- Tax identification number: For U.S. tax reporting purposes, nonresident aliens generally need to obtain an individual taxpayer identification number from the Internal Revenue Service (IRS).
- Supplemental documents: Some brokerage firms may requirenon-U.S. citizensto produce added types of identification documents to follow their policies. This can include visa information,a valid Social Security number, or a Certificate of Status of Beneficial Owner for U.S. Tax Withholding and Reporting form (also called aW-8BEN).
Some brokerages also require non-U.S. citizens to provide paper applications versus submitting online applications to open accounts.
The U.S. has tax treaties with over 60 countries, which can cut the taxes for foreigners on dividends and capital gains. For example, investors from the United Kingdom benefit from a reduced withholding tax rate on dividends.
Opening a Brokerage Account
For non-U.S. citizens, opening a brokerage account to trade U.S. stocks is the pivotal step. While the process is generally straightforward, there are several key considerations and potential hurdles to navigate.
International-Friendly Brokers
Not all U.S. brokerages accept nonresident clients. However, many major brokerage firms and online platforms cater to international investors. International brokers often offer multilingual support and are experienced in handling foreign investors' requirements.
Account Types
Non-U.S. citizens typically open a standard individual brokerage account. Depending on their tax status and residency, they may also be eligible for other account types, such as joint accounts or certain retirement accounts, though restrictions often apply.
Online vs. Traditional Brokers
Online brokers generally offer lower fees and more accessible platforms for international clients. Traditional brokers may provide more personalized service but often have higher minimum account balances and fees.
Required Information
In addition to the identity documents mentioned earlier, prospective investors will need to provide the following
- Personal information (name, date of birth, etc.)
- Contact details
- Employment information
- Financial details, including income and net worth
- Investment objectives and experience
Funding Your Account
Non-U.S. citizens can usually fund their accounts through international wire transfers or, in some cases, credit card deposits. Be aware of potential currency conversion fees and minimum deposit requirements, which can vary widely between brokers.
The largest foreign investors in U.S. stocks are from Canada, Japan, and the United Kingdom, reflecting strong financial ties between these nations and the U.S.
Regulatory Compliance
Brokers must comply with U.S. securities laws and regulations, including those set by the U.S. Securities and Exchange Commission and other U.S. authorities. This compliance ensures protection for investors but may also result in additional paperwork or restrictions for non-U.S. citizens.
Restrictions and Limitations
Some brokers may limit the types of securities or trading activities available to non-U.S. citizens because of regulatory constraints or internal policies. For instance, access to certain mutual funds or options trading might be restricted.
Account Maintenance
Non-U.S. citizens should be prepared to regularly update their information and potentially reconfirm their nonresident status to maintain compliance with U.S. regulations.
Tax Implications of U.S. Investments Abroad
There are tax implications for trading U.S. investments specifically if you're not a U.S. citizen. Investors who qualify as nonresident foreign nationals of the U.S. for tax purposes are not liable for capital gains tax on earnings from their investments. Thus, your brokerage firm won't withhold any taxes from earnings in your account. However, many other countries require 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 nonresident foreign national and you invest in a company that pays dividends, those dividends are usually taxed as income at a flat rate. There are some exceptions to this rule, for example, if the investor's country of residence is 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 their earnings are interest-related.
It's essential to remember that non-U.S. residents are subject to U.S. estate and gift taxation concerning 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 knowledgeable about the tax implications of investing in foreign markets.
Estate Tax for Non-US Stock Holders
Non-U.S. citizens who hold stocks of U.S. companies may face U.S. estate tax upon their death. Unlike U.S. citizens, who receive a substantial exemption, nonresident aliens have a much lower tax-exempt limit, often around $60,000. This means that the value of U.S.-based assets exceeding this threshold could be subject to hefty estate taxes. Enforcement is stringent, with the IRS requiring clear documentation and valuation of these assets.
To mitigate potential estate tax liabilities, non-U.S. stockholders can consider various planning strategies. One effective method is establishing a foreign holding company to own U.S. stocks, thereby removing direct ownership and reducing exposure to U.S. estate taxes. In addition, consulting with international tax advisors who specialize in cross-border estate planning is all but necessary for helping navigate complex regulations while minimizing your tax bill.
What Additional Steps Might Non-U.S. Investors Need To Take?
Non-U.S. investors may need to follow extra regulations and provide additional identification documents.
Are Dividends from U.S. Stocks Taxed for Non-U.S. Citizens?
Yes, dividends are typically subject to a withholding tax, which varies based on tax treaties between the U.S. and the investor's home country.
Do Non-U.S. Citizens Who Own Shares Have Voting Rights in Those U.S. Companies?
Yes, non-U.S. citizens typically have the same voting rights as U.S. citizens for the shares they own in U.S. companies.
The Bottom Line
Non-U.S. citizens have the opportunity to invest in the world's largest and most dynamic stock market, despite common misconceptions to the contrary. While the process involves additional steps and considerations compared with domestic investors, it is both legal and increasingly common for international individuals to own shares in U.S. companies.
However, they may face added requirements to follow U.S. laws. Brokerage firms often ask for extra identification documents. For those encountering barriers, some U.S. companies also list their stocks on foreign exchanges, providing alternative access to the U.S. market.
