How to Invest in US Stock Market if you are Not a US Citizen
Everything you need to know to buy American Stocks as a Foreigner
Are you interested to know how do Foreign Investors can Trade in U.S. stock market? What You Need to Know before you start Buying US Stock as a non-US Citizen? Let me walk you through the entire process to be Successful in investing American stocks market.
US stocks is regulated by US Securities law but there is no citizenship requirement for owning stocks of American companies or any stocks listed in the US stocks market. It’s perfectly legal for non-US citizens to trade in the US stock market.
“It’s not how much money you have but how hard they work for you, that’s what make the difference.”
Your residential status doesn’t matter when talking about investing in the US stock market. Anyone from any country can trade in US stock and earn their financial freedom (let your money work hard for you so you don’t have to), Unless you live in North Korea, Iran, Syria and a couple of other countries designated terrorist states by the U.S. government.
“If you don’t find a way to make money while you sleep, you will work until you die.” -Warren Buffett
Why choose US Stock Market to Invest? Why to Invest Oversea?
First picture come to mind while talking about Stock Market is undoubtedly US Stocks. The time I’m writing this, it is by far the largest capital market in the world. US Stock market has $30.44 trillion in total market capitalization (value of all outstanding shares) while the total amount of debt owned through bonds is more than $40 trillion. The US stock market is 5x the size of the closest competitor China, which hold the second position with a stock market valuation of 6.32 trillion. Besides here are a few other reasons to consider;
· There is no doubt technology will dominate the future and all the top tech company trade in US Stock Market.
· Diversify your portfolio with different asset class by leveraging this amazing volume of US market.
· Significant growth potential.
· Global diversification will reduce overall single country portfolio risk.
Can I invest in the NYSE if I’m not a U.S. national?
There is more than one stock exchange in the US. The most well-known securities market are the New York Stock Exchange (NYSE) and the NASDAQ. The NYSE is a physical marketplace while the NASDAQ is a virtual exchange. Different stock exchanges that exist in the US are American Exchange (AMEX), Boston Stock Exchange (BSE), Chicago Stock Exchange (CHX) and a few others.
Usually, once you open an account with US based brokers, you are allowed to invest or trade in most of the stock exchanges mentioned above through their online trading platform.
How to Open an Account and Buy US Stock: Step-by-Step beginners Guide.
There are several ways to approach stock investing. But here I’ll continue with the most common two ways, for you to invest in US Stock Market. I’ll Show the complete process, from opening a retail investor account to investing in your account, from Start to complete the first trade.
The first option for investing is via local brokers and the second method is to open an account with US based brokers. To open an account;
Firstly, you need to have a dollar savings account in any bank in your own country. But choosing a big bank, especially international big banks like City Bank, Standard Chartered, HSBC will give you some advantage over local Banks. Or you can simply open an account virtual US bank account by signing up in any Global Payment Service like; Payonner global payment service (It’s free to open the account from any country).
“According to the IRS, most millionaires on an average have seven income streams from seven different sources.”
Secondly, Find Brokerage (Financial institution that helps you buy and sell securities):
Choosing a right brokerage can help you to get a good currency exchange rate and you will save on trading fee. Different brokerage can give you different advantage over others, i.e.; some insure your stock against unlikely risks, some brokers offer the cheapest rate and some can handle large scale investment. See the pro-tips below for more tips. Knowing all your options will definitely help you to make the right decision.
Now you need to open a brokerage account that allows trading stocks. That is possible in many countries, where you can then trade stocks locally. If not, or if you just want US stocks then open a brokerage account with a firm that allows non-US citizens to do so and then you can easily trade in the US. Many US brokers allow that.
Take your time to choose your broker because it is undoubtedly one of the most important things in this entire process. You can choose with your preference. My first choice is Interactive Brokers LLC is an American multinational brokerage firm. They allow clients to join from all over the glove, with the ability to invest worldwide at the lowest cost. Account opening is fairly fast it should be approved within 2 working days.
“ETORO” is my second choice which is an international multi-asset brokerage company. It takes less than a minute to open an account and you can start trading with only $50. They also have a $1000 demo account for you to navigate their site and being familiar with the actual trading environment.
Thirdly, once your account is approved, they will give you a bank account number for wire transfer. Now fill out the transfer information and make the transfer to your designated beneficial bank account.
Finally, convert your currency to the stock’s currency, e.g. US stock is in USD. Don’t worry about the exchange rate, they usually convert at the best possible rate and it takes about 1–4 hour to complete the process. After 4 hour you can see converted balance in your account. Now you are ready to buy any US stocks!
Is it possible to invest in the US Stock Market from outside the US without a SSN?
Yes. There are some online brokers whose license permits them to accept offshore investors without SSN and some who don’t. To find who do and who don’t simply check their websites “About” or “FAQ” section, you will all the information you need to know.
To open an account with US brokers is not difficult, can be done online. You have to provide proper Government issued identification document such as a national passport or a driver’s license. You have to send copies of your local ID and postal address proof and the source(s) of funds you will invest with (your job or business particulars). Also, you have to send them IRS (Internal Revenue Service) declaration form being non-American and have to furnish local income tax number. Be sure to complete a W-8BEN (It takes less than 10 minutes to complete) form for tax purposes for every investor outside the US. Most of the time they accept the scan copy of the documents, and you can send it via e-mail.
Cost associated with International Stocks
2 Type of cost incurred
- Exchange Rate Cost (Currency Conversion Ratio). Brokerages invest in respective Currency of the interested stock. See the pro-tips below to reduce the cost.
- Transaction Cost. Minimum and maximum cost per transaction depends on which country’s stock you want to buy. And different brokerages take different approach, when charging their investors.
Is it possible for a non-US citizen to invest in US stocks without paying taxes? How to Save US taxes for Non-resident aliens?
It depends. Let me draw two scenarios
First, where you hold a green card but live in abroad or when you physically spend more than a few months per year in the USA, then your income tax liability is exactly the same as that of a US citizen. This applied to both short term and long-term capital gains (cap gains realized if you’ve held the stock for at least 12 months) and the qualified dividends (which include most of the dividends paid by US stocks).
How to Reduce Taxes
In this circumstance for both of your gain (cap & dividend) you can enjoy concessionary tax rate which is much lower rates than ordinary income. Its goes as low from 25% to 0% (yes, no tax!). Depending on one’s circumstances, it is often possible for a US taxpayer to reduce one’s adjusted gross income to put one’s income into the low tax bracket.
This same will be applied on you, even if you are qualified under Substantial Presence Test.
Substantial Presence Test: If your total day of presence in US soil is 183 or greater than you pass the test. To determine your number, you need to add all eligible days you were in U.S. in the current year, 1/3 of the eligible days present in the preceding year, and 1/6 of the eligible days present in the second preceding year.
In second scenario:
Non-US resident (NRA)
If you are a non-resident alien (i.e. you neither have a green card, nor spend much time in the US, or spend a long time in the US but as an “exempt individual” [such as a foreign government employer, a foreign student (under F visa), or a university staff member on a J-1visa]), then your US investment income is, in principle, taxed at the flat 30%. But this rate may be lower if a tax treaty is in place between the US and the NRA’s country.
How to Save Taxes for Non-Resident Aliens?
Nonresident aliens are subject to US capital gains tax, with some exception; dividends received from foreign companies are not taxable in the US.
If you spend less than 183 days within the US in a given year Substantial Presence is not applicable on you and your capital gains are tax-free.
Tax rates for dividends, cap gains, and interest (if not otherwise exempt) may be significantly reduced — typically to 10–15% by a tax treaty with your country or citizenship or residence.
Choosing a good brokerage also can be helpful for making the right decision and save some taxes.
Besides this is not only relevant for stock investment but for any “Portfolio Investment”.
Above Tax guideline is applied for all non-US citizen but every country have their own Tax rules on foreign investment. Be sure to check your countries Government and Central Bank’s policy for foreign investment before you enrolled for US stock.
Alternative to Direct US Stock Investment
Is there any alternative to direct stock investment? Answer is; Yes. If you want to avoid high brokerage cost and unstable and unpredictable cost of exchange rate, you can it through public fund or private equity in your own country or invest in international funds (Index Funds, Feeder Funds).
· It’s good for beginners who can’t pick stocks.
· As you are investing in your country, you don’t have to worry about exchange rate or any other international cost associated with Stock.
· This way you can still have yourself expose to US Stock market indirectly.
What are Top tips to invest in US stocks and things I need to know to be an expert investor?
10 Essential Pro-Tips for Investing in US Stocks:
· While choosing the brokerage, giving priority to those who operating under the US Federal Reserve’s policy and been in operation more than few years, are much more secure site to invest and can privilege you with more options.
· US based brokers have few advantages over local brokers i.e.; lower brokerage fees (there are some noticeable differences in fee) and less Forex risk or currency exchange rate besides per trade charge with US broker is much lower than local brokers.
· Some of the local brokers you have to do currency exchange each time transaction are made. Cumulative amount of charge is not small but this is not the case if you are using US based brokers.
· Choosing annual subscription can reduce your brokerage transaction fee significantly. If you calculate with and without annual subscription, you will see a clear cost different in cumulative outcome.
· Opening a joint account with someone in your family, will help you to operate that account uninterruptedly, without going through any paperwork’s, in case something happen to you.
· Keep practicing with eToro’s demo account and increase your investment amount as your confident grows.
· Always use those amazing research tools, available for you in those brokerage platforms. And try to learn ins and outs of every company you decide to invest.
“Every once in a while, the market does something so stupid it takes your breath away.” -Jim Cramer
· Have some reserve cash to cover your expenses for a good period of time or you run the risk of being a forced seller at a temporary market low.
· To be a successful investor you must learn the difference between the price and the value of a stock.
· Time is your friend. The longer you stay more likely you are to make money.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” -Paul Samuelson
Though I only have two year’s experience on share market, it’s all I can say about it; “A scary place with enormous opportunities, which can change a person’s life completely”. If you are really interested in investing in US stock market like me or even more than me than I hope this information may come to your help.
Let me know your thoughts in the comment below. You can send me any query through email at millionairesjourney01@gmail.com or connect with me on my Instagram @journey2millionaires. And don’t forget to Follow to get the latest articles on making money online, passive income, online entrepreneurship, investment and finance and more! And I will appreciate if you share and clap a couple of dozen times.
Thanks for reading this article. Have an amazing day!
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