Buying Foreign Stock In The U.S. Market
Even if you are not a citizen or resident of the United States, it is very easy to invest in the U.S. stock market. The advantage of investing in foreign stock such as in the U.S. market is that it is well capitalized and offers more liquidity and investment options than other stock markets.
You can buy stocks that are listed on the New York Stock Exchange (NYSE) or on NASDAQ, without any difficulty. You can also invest in mutual funds, index funds and exchange-traded funds, which will channel your money to stocks or any other underlying assets like commodities.
How to go about buying foreign stock
You should start by opening a trading account with an online broker. Many U.S. based online brokers accept overseas accounts. Alternatively, you can look for a broker in your own country, who allows you to invest in the U.S. market.
In order to open an account, you will need to provide copies of an identification proof like passport, a utility bill, a bank statement and some other documents. You will also need to fill up a form on the broker’s website with all the pertinent information.
After you open the account, you have to transfer some money to it to start investing. You can fund the account through wire transfer or a check payable to your broker. Once the account is successfully funded, you are ready to start trading foreign stock.
Applicable tax laws
If you are a non resident alien (NRA), i.e. you are neither a citizen of the U.S. nor are you residing in the country, then some specific tax laws and statutory requirements will apply to you.
You have to file 1040 NR form for your tax returns. You would also have to file a ‘Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding’, or the W-8BEN, with the mutual fund company or the broker so that they withhold tax from your investment income. This form will require you to mention your country of residence, address, and your local tax identification number if any. You’ll get form 1042-S that will give you the details of the tax withheld.
Under the U.S. law, there is no tax on short-term or long-term capital gains made by trading in foreign stock if you are an NRA. This also includes the returns you get through a mutual fund or any regulated investment company. However, if you spend more than 183 days in the U.S., then you will have to pay a flat 30% tax on capital gains.
You would also have to pay 30% tax on dividends. Some mutual fund companies might report short-term capital gains as dividend, but you can treat them as capital gains for tax purposes.
A lot will also depend on the DTAA (double taxation avoidance agreement) or the tax treaty between the U.S. and your country. You should make yourself familiar with tax provisions on capital gains and dividends in the tax treaty, as they will supersede other tax laws.
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