The U.S. stock market is one of the most influential forces in the global economy. And if you aren’t American, but you have investible resources, you’re probably wondering if there’s a way for you to get a piece of the proverbial pie.
The short answer is “yes.” It’s definitely possible for non-U.S. citizens to invest in American stocks. However, there are certain steps you’ll have to go through in order to do it legally.
Here’s a brief walk through of what the process will look like:
- Meet Basic Identity Requirements
You’ll have to meet a few basic identity requirements before you can be cleared to invest in American markets as a non-U.S. citizen. As long as you aren’t doing anything illegal, this shouldn’t be much of a problem. It’s simply part of the process.
“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,” Investopedia explains. “The Act led to brokerage firms implementing more stringent requirements for verifying customer identities, particularly for non-U.S. citizens.”
As part of this legislation, stockbrokers are required to report any suspicious activity they notice on accounts. Certain brokerage firms have requirements in place for non-U.S. citizens to produce additional forms of verification as part of the vetting process. This may include visa information, a Social Security number, or Certificates of Status of Beneficial Owner for U.S. Tax Withholding and Reporting.
- Open a Brokerage Account
The easiest way to get into American capital markets is to open a brokerage account. This helps you ensure all of your investments are complying with U.S. laws.
“When choosing a brokerage firm, make sure that they work with international investors. It is worthwhile to check that they work with your specific country of residence, as some brokerage firms only serve certain areas,” financial analyst Bea Bischoff writes. “Additionally, some brokers require additional documentation from international investors, including proof of identity, visa information and tax documents.”
Most brokerage accounts are going to be pretty similar – particularly if you’re just an average investor with basic needs – but it’s a good idea to research your options to make sure you’re going with the one that fits your objectives.
- Understand Tax Implications
While the internet has certainly helped eradicate many of the global economic borders over the past decade, there are still certain complexities that exist with earning money in different countries – particularly if you’ll be traveling to the U.S. and using an ESTA. However, for the most part, you don’t have to worry about that with stock investing. Instead, you simply have to be aware of the various tax implications and forms.
Here are a few basics you should know about:
- As a non-U.S. taxpayer, you are subject to something known as “Chapter 3 withholding.” This basically means that any dividend you earn is subject to withholding by your broker at the time the payment is made. In other words, the tax should be automatically taken out at the beginning and remitted to the IRS on your behalf. This prevents you from receiving a tax bill. (The statutory rate is 30 percent, though it’s possible that your country has entered into an agreement with the United States for a reduced rate.)
- As a non-U.S. taxpayer, you’ll receive a Form 1042-S by mid-March of the following year. Any withholding and related income will be reported on this form. You should keep this for your own records and/or to report any earnings to your home country.
- Consider Working With an Advisor
You certainly have every right to buy and sell stocks within your own brokerage account, but you may want to work with an advisor to ensure you’re making smart investment decisions. An international stockbroker or investment advisor can help you balance your portfolio and reduce risk.
Adding it All Up
By no means is this an exhaustive list of what it takes. (And it’s certainly not legal or financial advice.) But this article will at least give you an idea of the practicality of investing in American stocks, as well as some of what goes into the process. The opportunities can be great but proceed at your own risk!