Non-US resident? How to trade stocks in a boarding school …

Foreigners can invest in US stocks by opening a US-based brokerage account. Be aware of tax documents that may be required for an international brokerage account.

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Key points to remember

  • International investors and traders can open a US brokerage account to access US-based stocks
  • Before opening an international brokerage account, make sure that the firm provides services in your country of residence
  • Non-U.S. Taxpayers should be informed of any additional tax documents required for a foreign brokerage account

Most of the information available on taxes assumes that you are a US taxpayer. But what if you are a non-US taxpayer and are considering opening an international brokerage account? You probably have questions. For example, can foreigners invest in US stocks? Can a Non-US Resident Open an Individual Retirement Account (IRA)? Are there brokerage accounts for non-US residents or non-US citizens? And how does the withholding tax on U.S. stocks work if you’re not a U.S. taxpayer?

If you are a non-US taxpayer and want to trade US stocks on a brokerage account, this article is for you.

In a brokerage firm, most accounts fall into one of three broad categories: retirement, domestic, or foreign. Retirement accounts include IRAs, 401 (k), and many more. If you are a U.S. resident (and this can include permanent residents and non-resident aliens), you may be subject to the same tax laws as U.S. citizens and be subject to national reporting. The third category, foreign accounts, may be held by non-US taxpayers.

There are a number of ways that non-US investors can open an international brokerage account. You can open an account with a financial services company in your country of residence that offers access to US stocks. Or, you can open a brokerage account for non-US residents with a US-based broker. But before that, make sure that the services are available for your country of residence. Also, be aware that there may be additional documents including tax documents. Here are some general tax considerations to keep in mind.

U.S. dividend income

As a non-US taxpayer, you are subject to Chapter 3 retained. When you invest in a US security, any dividend income is subject to withholding by your broker at the time of payment. You may not have a year-end tax bill because the withholding is paid to the IRS on your behalf when the income is deposited into your account. The legal tax rate is 30%. Some countries have a treaty with the United States that may entitle you to a reduced rate if you are eligible and have applied for the exemption on an IRS W-8BEN form. To learn more about tax treaties, explore the tax treaty tables section on the IRS website.

Non-US dividend income

Dividend income received from non-US securities may already be subject to country of incorporation tax deduction before the income is received. The net amount is distributed to your account; additional withholding in the United States is not applicable.

871m of restraint

In response to concerns that non-U.S. Investors could avoid dividend withholding by purchasing certain equity-linked instruments, the U.S. Congress passed a new withholding regime titled Article 871m which has an impact on equity-linked derivatives that give rise to a “payment equivalent to a dividend”. For those with TD Ameritrade brokerage accounts, this will primarily affect options. Although no income payment is actually received, the “dividend equivalent payment” is considered income and is subject to withholding tax. Withholding is made at your current dividend rate and is treaty eligible. Your broker will remit the withholding to the IRS on your behalf.

Tax return and Form 1042-S

As a non-US investor, you will receive Form 1042-S before mid-March for the previous tax year on any reportable activity. Any U.S. withholding that has occurred, along with the income to which it is attributed, will be reported on Form 1042-S. This form is available online and is also mailed to your current registered mailing address. The form is also sent to the IRS, which then gives it to the tax authorities in your country of residence. Generally, no US tax filing is required; however, you may need to report some income in your country.

Form W-8BEN

Non-U.S. Investors with brokerage accounts are required to provide their brokerage firm with a complete and valid IRS Form W-8BEN to certify their tax status. This form expires three calendar years from the date of signing, unless important account information changes (rendering the form invalid prematurely). Without a valid W-8BEN on file, Section 3406 (a) (1) (B) of the Internal Revenue Code will require TD Ameritrade to begin a federal safeguard withholding at a rate of 24% on all taxable dividends, interest, sales proceeds (including those from options trades) and other reportable distributions credited to your account. Typically, notifications are sent before your W-8BEN expires to remind you that new documents are needed.

The US stock market is one of the pillars of our country’s economic system, and US citizenship is not required to trade US securities. This means that non-US citizens or international investors can open a brokerage account and invest in US stocks. But it’s important to identify the different forms and policies that apply to non-U.S. Taxpayers.

TD Ameritrade does not provide tax advice. We suggest that you consult a tax planning professional regarding your personal situation.

How can foreigners invest in US stocks?

TD Ameritrade offers different types of accounts for non-US taxpayers here.

You will also find several educational tools, webcasts, videos and investing ideas to help you better understand the US stock markets.

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