Last Updated on 21 September, 2020 by Therobusttrader
The U.S. stock market is the largest in the world, and a lot of investors would like to invest in it. One way to gain access to the U.S. stock markets is by owning a U.S. trading account, but is it possible for a foreigner to open a U.S. trading account?
Yes, a foreigner can open a U.S. trading account through a US-based online stock broker, but it would require additional documentation to comply with U.S. regulations. Some of the extra paperwork include proof of identity, tax documents, and sometimes, visa information.
Of course, there are several ways to invest in U.S. stocks. Read on to learn about them and the tax situation of a foreign trading account.
The advice in this article is not financial advice. Please consult with an expert before making any decisions related to taxation or opening an account.
The article contains affiliate links.
Investing in the U.S. stock market as a non-resident: what are your options?
If you are a non-US resident but want to trade in the U.S. stock market, there are basically two ways you can do that:
1. Opening a brokerage account with a local financial institution that has access to the U.S. stock markets
Some local financial institutions and big brokerage firms have access to the U.S. stock market either by partnering with U.S financial firms like Merrill Lynch or through global depository receipts. So, check with the financial institutions in your home country to know the ones that offer such services.
For example, if you are a U.K. citizen, you can open a brokerage account with Saxo Bank or Barclays to trade in the U.S. stock market. Similarly, if you’re in Malaysia, you can use CIMB Bank to invest in the U.S. stock market. There are brokerage firms or other financial institutions that offer similar services in every country; you just have to ask around.
2. Opening a Trading Account With a US-based Broker
Although some US-based brokers don’t allow foreign clients to open a trading account with them, a couple of them do offer online services to clients in specified countries.
Some of the US-based brokers that serve international clients online include Firstrade, MBTrading, Zecco, TradeStation, TD Ameritrade, Sogotrade, and Just2Trade. Each of them has a list of countries it accepts clients from, so before you choose any of them, find out if it supports your country of residence.
There some brokers with an international presence. That is, they have offices in different parts of the world, even though they’re 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.
How to Open a Trading Account in the US
To open a U.S. trading account, you need to search for an online, US-based broker that accepts clients from your country of residence. When you have found the one you’re comfortable with, read their FAQ page to know all the documents you need to provide and the process involved. Alternatively, you can give them a call.
You will often be required to provide your international passport and current utility bill as proof of your identity and nonresident status, so make sure you have them.
Go to the broker’s website and click on the “open account” link to fill the necessary forms. Some of the forms may need to be signed, so you need to print them out. As a foreigner, you will be required to fill and sign the W-8BEN form. It is a very important form that indicates your foreign residence status, regarding taxations on income.
When you’re done with filling and signing the forms, scan them and email or upload them to the broker, along with a scanned copy of your passport and recent utility bill. Then, wait for the broker to review your application and send you an email indicating whether your application is successful or not.
If your application is accepted, you can proceed to deposit into your trading account. You must have already found out the methods of funds transfer supported by your broker: Wire Transfer, PayPal, ACH Transfer, etc. Use the option that suits you.
Once the deposited fund reflects in your trading account, you can start trading.
The Tax Situation for Foreign Trading Accounts
Normally all income from your investment in the U.S. market is subject to taxation. Below we lay out some of the necessary tax issues you need to know:
Please consult with a financial advisor before acting on any of the information below. The Robust Trader cannot completely guarantee that the information is up to date and correct.
Dividend Income Tax and Capital Gains
As a non-resident foreigner, any dividend you earn from investing in a U.S. security is subject to a 30% tax, which will be withheld by your broker at the time of payment. But the rate may be lower depending on your country of origin.
Some countries have tax treaties with the US, and if you’re a citizen of any of those countries, you may qualify for a lower tax rate. To get the exemption, you must have stated it in the IRS Form W-8BEN you submitted when you registered your trading account.
Form W-8BEN expires after three years from the day you signed it. Your broker will always notify you to renew it before it expires. If yours is expired, your account will be subject to the normal taxation for a foreigner even if you’re from a tax-exempt country.
Which Online Broker Should You Choose? – Our Pick (Online Broker for US Non-Residents)
There are some online brokers that allow foreigners to open accounts. After quite some research, we found that Firstrade had everything we were looking for!
They offer free stock, ETF, options, and mutual funds trading, which is a huge plus, since commission easily could eat into your profits if you’re not vigilant!
In addition, they offer quite a lot of tools, trading ideas, and good educational resources, ranging from videos to webinars!
Note: If you decide to sign up with the link above, we may get a small referral fee, at no cost to you! 🙂
You don’t need to be a U.S. citizen to trade in the U.S. stock market. You can open an online trading account with a U.S. broker, even as a foreigner, but more documentation is needed. Alternatively, you can make use of local financial institutions that have access to the U.S stock market. It is also important that you learn the relevant tax policies. Happy trading!
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