The United States has the largest and most liquid stock markets in the world, and many people outside the country want to invest in them. Buying US-listed shares from abroad is often possible, but it is not as simple as opening an app. Access depends on where you live, the brokers available to you, the currency you hold, and the tax rules of two countries. This guide explains the main steps and costs, so you know what to check before you start.
It is general information, not tax advice or a recommendation of any broker or share. The rules for non-residents vary widely, so check them with a qualified adviser in your own country.
Step 1: check whether you can open an account
Many brokers that serve US investors will not accept customers who live in some other countries, and some serve only certain residents. Others accept international customers through a separate entity or platform. Start by checking whether the broker accepts residents of your country, what documents it needs, and which exchanges and products you can access.
Check the broker's regulator as well, because the protection you have depends on the regulator in the place where the broker is registered, not on where the shares are listed. Some protection schemes cover only certain customers, so read the terms carefully.
Step 2: understand the currency
US shares are priced in US dollars. If your money is in another currency, you must convert it before you buy, and you convert it again when you sell and withdraw. Each conversion carries a spread and possibly a fee, and each one exposes you to exchange-rate movements. A share can rise in dollars and still lose money for you if your currency strengthens against the dollar.
The guide on currency risk for foreign stocks explains how to think about this. For larger holdings, the conversion cost can be a significant part of the total return.
Step 3: know the tax on dividends
US companies pay dividends, and the US usually withholds tax at source when a dividend is paid to a non-resident. The default withholding rate for non-residents is high, but many countries have tax treaties with the US that reduce it. To claim the reduced rate, a non-US investor usually has to provide a certificate to the broker, commonly known as a W-8BEN form, that confirms residence and treaty status. Without it, the broker may withhold at the full rate.
Check whether your own country taxes the dividend again, and whether you can claim a credit for tax withheld abroad. Some countries tax foreign income in full, and others give relief. Keep the statements that show the withholding, because you may need them.
Step 4: know the tax on gains
Gains on shares are taxed under the rules of your own country, and in some cases they may also be subject to US tax. The rules depend on your residence, the type of account and the kind of investment. Some US-domiciled funds carry special tax reporting for non-US investors, which can be costly to meet, so check the tax status of any fund before you buy it, not only the broker.
Keep a complete record of every purchase, sale, conversion and dividend, with the dates and the amounts in dollars and in your own currency. Those records are what you need when you file.
Step 5: understand the costs
Costs add up for an investor from abroad. There may be an account fee, a commission on each trade, a currency conversion spread, a withdrawal fee, a charge for the withholding certificate or for tax documents, and the tax withheld on dividends. Add all of them to see the true return. A trade that looks cheap on the broker's headline fee can cost much more once the currency conversion is counted.
The guide on expense ratios and fees covers the same logic for funds, and it applies to costs on individual shares too.
Step 6: consider American depositary receipts
Some foreign companies list their shares in the US through American depositary receipts (ADRs), which are certificates that represent shares of the company held abroad. They trade in dollars on US exchanges, and they can be easier to buy than the shares on the home market. The guide on ADRs and GDRs explains how they work, and the costs and risks that come with them.
Worked example: a 1,250 currency-unit investment
Suppose you have 1,250 in your own currency and the exchange rate is 1 dollar for 1.25 of your currency. Converting gives you 1,000 dollars before costs. Your bank charges a conversion spread of 0.5 percent, so you receive about 995 dollars. The broker then charges a commission of 2 dollars on the purchase, which leaves about 993 dollars invested.
| Step | Amount | Notes |
|---|---|---|
| Start, in your currency | 1,250 | Your own money |
| Converted to dollars, before spread | 1,000 dollars | At 1.25 per dollar |
| After a 0.5% conversion spread | about 995 dollars | The bank's cost |
| Invested after the 2-dollar commission | about 993 dollars | The shares you hold |
If the shares rise 10 percent in dollars, the position is worth about 1,092 dollars. Converting back at the same rate, with the same spread, gives about 1,359 of your currency, which is roughly 109 more than you started with, or about 8.7 percent. Had the dollar weakened against your currency during the holding, the result would have been lower, and had it strengthened, higher. The example shows how the currency can add to or take away from the share's gain.
Step 7: check the protection and the regulator
Know which regulator oversees the broker and what compensation applies if the broker fails. Protection differs between countries, and for many non-US customers it is not the same as for US residents. Keep the broker's regulatory information and check it at the regulator's own site.
Common mistakes
Assuming a US broker is available to you. Many are not, so check before you plan.
Ignoring the currency. A rise in the share can be undone by a fall in the dollar against your currency.
Missing the withholding certificate. Without it, dividends can be taxed at the full rate.
Forgetting your own country's tax. Dividends and gains may be taxed at home as well.
Overlooking the fund structure. Some US funds create tax complications for non-US investors.
Checklist
- Confirm the broker accepts residents of your country, and check its regulator.
- Work out the full cost of converting, buying, holding and selling.
- Decide how you will manage the currency risk on the amount you invest.
- File the withholding certificate with the broker, and check the rate applied to dividends.
- Check your own country's tax on dividends and gains, and how foreign tax is credited.
- Keep a complete record of every transaction in dollars and in your own currency.
Key takeaways
Investing in US stocks from abroad is often possible, but access depends on your country, the broker and the products. Currency conversion adds cost and risk on each side of the trade. US tax on dividends can be reduced by treaty, but usually needs a certificate filed with the broker. Gains and dividends may also be taxed at home, and some US funds carry complex reporting. Work out the full cost and the tax before you invest, and keep complete records.
This guide is for general information, not financial advice. See the disclaimer.