Last Updated on April 26, 2022 by Rational thinking
The US stock market is about 50% of the world’s stock market capitalization. If you want a diversified stock portfolio it’s pretty natural to include US stocks in your portfolio.
The good news is that you as a non-US citizen and resident can open a brokerage account, but as a non-resident, you face a limited selection of brokers due to the strict anti-money laundering rules (AML). There is no law prohibiting foreigners from opening an account, but the risk of money laundering makes most brokers limit or completely reject foreign investors.
How do you open a US stock account? How can foreigners invest in the US markets? Can a non-US citizen open a brokerage account? The article looks at different ways how you can open an account or get access to US markets:
So, in short, you as a foreign resident or foreign citizen can open a US account but the options are limited. It requires a lot of paperwork and red tape to comply with the anti-money laundering regulations. The easiest option is to use your local broker or invest via mutual funds or ETFs.
The article covers some US brokers that accept foreign nationals, and we evaluate two other options.
What are your options for investing in US markets as a non-resident?
If you are a non-US resident but want to invest in US stocks, there are basically just three ways of gaining access to the US market:
1. Opening a local brokerage account that has access to the US stock markets
This is a viable option for most investors. You simply use your existing local broker where you live, or you open a new local account. This could be a broker or a (big) financial institution, like for example your banking partner. They most likely offer access to US markets.
For example, if you are a Danish citizen and resident, you can open a brokerage account with Saxo Bank or Danske Bank to invest in the U.S. markets. Similarly, if you’re in Australia, you can use Westpac to invest in the U.S. stock market.
For Scandinavians, the easiest option is probably to use Nordnet. Their target audience is Norway, Sweden, Denmark and Finland and they have access to the whole Scandinavian/Nordic markets, the US, and a wide range of international ETFs and mutual funds.
2. Open an account with a US broker
Some years ago this was an easy task, but unfortunately, strict AML and GDPR-rules prevent many brokers from accepting foreign residents and citizens. The options are few.
The best option is probably Interactive Brokers. They primarily serve active traders, but investors are welcome well. If you don’t accumulate at least 10 USD in monthly commissions, you will need to pay the difference as an inactivity fee. Thus, you should have at least 20-30 000 USD in your account to make it worth it. Commissions are low, about one USD per order/trade.
Interactive Brokers have clients from over 200 countries, but our guess is that some jurisdictions will be declined in the future. You must comply with a pretty strict source of funds (SOW) compliance before your account is approved. Compliance involves showing bank statements, broker statements, tax receipts, etc. This is to prove your money is clean and not from illegal activities. In the AML-world you are guilty unless you prove otherwise.
Another broker, Zacks, accepts foreign residents from all over the world, but they use Interactive Brokers as clearing and compliance. Hence, they are very much affiliated with IB and both could be seen as one option as IB handles the account openings of Zacks.
Ameritrade used to accept many foreign residents, but recently EU residents were declined due to GDPR rules.
Below is a small list of brokers that offer foreign nationals, but please have a look at their website as all of them have a list of acceptable jurisdictions that differs from broker to broker:
- Degiro (for EU residents)
3. Buy mutual funds or ETFs
This is the easiest option for most investors. Practically all over the developed world, you can find local brokers or institutions that offer both ETFs and mutual funds for US stocks. This option offers another advantage: by not investing directly in stocks, you most likely improve your investment returns. Ample evidence shows that individual investors underperform massively to relevant benchmarks when they do it on their own.
How safe is your broker?
Most investors never consider the safety of their broker. However, this should be part of any due diligence.
Some weeks ago we wrote about Interactive Brokers and how safe your assets are:
If you are an EU-resident your assets are only insured up to 20 000 EUR. Previously it was 500 000 EUR. Most shareholdings held by foreign institutions are held in nominee accounts. Your shares are never owned in your name but held in the institution’s name with you as a beneficial owner.
Likewise, as mentioned, you need to give proof of the source of wealth and proof of identity. The latter means sending either a scan of your passport or residence permit or a notarized copy. For proof of address, you have to provide a recent utility bill or tax payment.
You should read all the terms in the agreement. It’s cumbersome, but it’s well-advised to do it.
Which broker is best for non-US citizens (non-residents)?
We at RationalThinking have been clients of Interactive Brokers for decades. We are thus of course biased, but IB offers many advantages compared to many other brokers:
- Most jurisdictions are accepted.
- You have access to 25 international markets, not only US markets.
- If you later want to be more active Interactive Brokers offers a great trading platform.
- The founder owns about 75% of the company and has skin in the game.
Taxes and death are certain
The taxation of capital is pretty similar all over the world. Capital gains are usually sourced to the residency (where you live) and not taxed where the gains accrued. If you live in Sweden and have capital gains in Interactive Brokers in US stocks, you need to file for taxes in Sweden, not in the US (unless it’s a partnership that provides a K-1).
However, dividends are almost always taxed at source. This means a dividend paid by for example AT&T in the US, is liable to US withholding taxes. The rate is per default 30%, but a tax treaty trumps the internal law. In most tax treaties the rate is reduced to 15%. You need to fill out the W-8BEN form to be eligible for the reduced tax rate (and update the form annually). The dividend tax can often be deducted against your local tax bill.
Some countries don’t withhold taxes on dividends. The UK, Singapore and Hong Kong currently have no withholding taxes on dividends.
Disclaimer: We are not tax advisors and please contact your own tax advisor. We can’t guarantee the above applies to all investors.
The easiest method to invest in the US markets is via mutual funds and ETFs. Alternatively, use your local broker. Unfortunately, it’s getting increasingly difficult to open brokerage accounts outside your jurisdiction, and options are decreasing every year. If you want to open an international account, we believe Interactive Brokers offers the best option.