Non-U.S. Residents Trading Stocks in an International Brokerage Account (2024)

Much of the information out there about taxes assumes you’re a U.S. taxpayer. But what if you’re a non-U.S. taxpayer and considering opening an international brokerage account? You probably have questions. For instance, can foreigners invest in U.S. stocks? Can a non-U.S. resident open an individual retirement account (IRA)? Are there brokerage accounts for non-U.S. residents or non-U.S. citizens? And how does the withholding tax on U.S. stocks work if you aren’t a U.S. taxpayer?

If you’re a non-U.S. taxpayer and want to trade U.S. stocks in 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)s, and many others.If you’re a U.S. resident (and that could include permanent residents and non-resident aliens), you may be subject to the same tax laws as U.S. citizens and fall under domestic reporting. The third category,foreign accounts, can be held by non-U.S. taxpayers.

There are a couple different ways non-U.S. investors can open an international brokerage account. You could open an account with a financial services company in your country of residence that offers access to U.S. stocks. Or, you might open a brokerage account for non-U.S. residents with a U.S.-based broker. But before you do that, make sure the services are available for your country of residence. Plus, know that there may be additional paperwork involved, including tax documentation. Here are some general tax considerations to keep in mind.

U.S. Dividend Income

As a non-U.S. taxpayer, you’re subject to Chapter 3 withholding.When investing in a U.S. 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 remitted to the IRS on your behalf when the income is deposited into your account. The statutory tax rate is 30%. Certain countries have entered into a treaty with the United States that may qualify you for a reduced rate if you’re eligible and have claimed the exemption on an IRS Form W-8BEN. To learn more about tax treaties, explore the tax treaty tables section on the IRS website.

Non-U.S. Dividend Income

Dividend income received from non-U.S. securities may already have the country of incorporation’s tax deducted before the income is received. The net amount is distributed to your account; additional U.S. withholding is not applicable.

871m Withholding

In response to concerns that non-U.S. investors could avoid dividend withholding by purchasing certain equity-linked instruments, the U.S. Congress enacted a new withholding regime titled Section 871mthat impactsequity-linked derivatives that give rise to a “dividend equivalent payment.” For those who have TDAmeritrade 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. The withholding is performed at your current dividend rate and is treaty eligible. Your broker will remit the withholding to the IRS on your behalf.