Best article that explains step by step guidance on how a foreigner can open a brokerage account and invest in the US (without SSN).
Not a lot of useful information (presented in an easy to understand format) exists around the following issue: How can someone without an S.S.N. (social) invest in US markets?
I am talking about people who live overseas and may or may not have traveled to the United States occasionally, but would like to invest directly in the United States stock market.
You can Invest without SSN
Step – 1: Get ITIN (if there is a tax treaty between your country and US)
Use W-7 to obtain an ITIN. You should select “a Nonresident alien required to get ITIN to claim tax treaty benefit”.
If there is no tax treaty between your country and US, then you do not even need an ITIN, just go to step-2 below.
Step – 2: Open a brokerage account
You will need to submit W-8BEN form to the brokerage firm – The form has three parts – fill part I and part III if no tax treaty exists between your country and the US, fill all the three parts if there is a tax treaty.
Step – 3:Transfer money
This is a fairly easy step with tons of options – most commonly used is an international wire transfer.
Step – 4: Buy stock
You account is open and you have the money. Now you can trade stocks/ bonds like the rest of us.
Important tax considerations
Capital gains taxation
There are no capital gains tax for such accounts – yes really, let me repeat, there is no capital tax on such brokerage accounts. IRS documentation does not say this anywhere but a detailed understanding of IRS Publication 519 will lead you to this conclusion.
(IRS Publication 519 is actually better worded as compared to some others, but still if you prefer not to read the entire 68 pages, please search for the following“If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year”.)
There is a dividends withholding tax rate of 30%. This withholding can further be reduced if United States and your country of residence have a tax treaty. A complete list of the tax treaties can be found here.
Look for your country and open the treaty. Do not be afraid of the tax treaty document, you do not have to read the entire document. Just search for ‘Article 10’, look at item 2.b – Voila, this is the dividends tax rate. Below is an example from the tax treaty with Austria.
OneMoreDime Special – in case you become a US citizen or resident alien later, do not forget to submit a W-9 to your brokerage firm within 30 days.
Actual Case study (I did this for a friend)
Step 1 – We went to www.tdameritrade.com and filled in the account information to open a new account. There was a question about citizenship status, we chose “Neither a U.S. citizen nor a permanent resident of the U.S.”
Step 2 – We had to print the application and get it signed by the parent
Step 3 – Fill in the W-8BEN form
Step 4 – Faxed the application, W-8BEN, ‘supporting documents’ – 11/16
Step 5 – VOILA, account was open
Step 6 – International wire transfer from the foreign country into the US bank account – initiated on 11/25
Step 7 – Cash was there to trade
Step 8 – Bought stock
Step 9 – W-8 withholding was automatically withheld by the broker when dividend was paid out