Non-USA Citizens investing in USA Stock Market

[savory]

Hi,

Can anyone let me know the 'rules' for non-usa citizens investing in the USA stock market? Can they simply do it online? Will they need to pay USA taxes? Any other thoughts?

International visitor conversation during thr TG holiday

Thanks

 

[Meadbh]

Dividends are subject to a 15% withholding tax.

 

[Texas Proud]

You need to find some company that will allow you to do it...

When I worked in London I was told by a number of people that they could not invest in Vanguard or Fidelity since they did not have a US address....

However, they did invest in individual stocks through their broker.... and yes, they had to pay US taxes....

 

[Totoro]

I am a non-USA citizen investing in the USA stock market.

• You can do it online with any broker.
• There is no tax due directly to the US. No need to file.
• US companies have to withhold taxes on dividends. Depending on where you live that will be 30% (no treaty) or 15% (treaty). Your broker handles this. The withheld tax goes to the US government. In some countries (e.g. Netherlands) you can manually claim back that tax with your local government.
• You can buy Vanguard ETFs. I own them (e.g. VT). Vanguard however cannot and will not consider you a client, and will when asked actively discourage you from buying them. Reason being they are only allowed to directly operate in Europe with a European passport (UCITS). They can't stop you though, and management fees on UCITS funds are frequently higher.

Important: There is a difference between being a non US citizen ("living outside the US") and a non US national ("passport ID"). A US national will have to file and potentially pay taxes even when living abroad.



That's about it. Any other questions, feel free to ask. I've got a pretty good handle on it.

 

[kcowan]

The withholding tax of 15% is credited to your Canadian tax due. Also if you have assets of more than $100k (cost basis), then you need to file a special form at tax time showing its peak value during the year. Includes real estate holdings and any business holdings. There are no tax implication by filing but serious penalties for not filing. I suspect if you show the balance varying evidence of flipping, there would be tax implications (capital gains tax at 25%).

 

[nun]

There's nothing to stop a non-US citizen resident in the US from investing in the US....it's being non-resident that causes problems, even for US citizens.

It's usually a bad idea to own cross border mutual funds as may tax authorities tax these at punitive rates ie the US PFIC rules and UK non-reporting funds rules. An exception are US vanguard ETFs which are UK reporting, but you really need a US broker or US Vanguard account to buy them.

For an NRA a W-8BEN is filed to claim tax treaty withholding and tax rates. Often a US treaty will have a 15% tax rate on dividends. This can be claimed as a tax credit where the investor resides if it's a treaty country. For capital gains and dividends the tax paid in the residence country the needs to be claimed as a foreign tax credit on a 1040NR and this is done by resourcing the income. The net result is that the sum of the tax paid in US and country of residence is the higher of the two tax rates.

 

[Totoro]

An exception are US vanguard ETFs which are UK reporting, but you really need a US broker or US Vanguard account to buy them.

Curious about this: can you name a few funds of those funds (Tickers)? Wonder if I can buy them here.

Often a US treaty will have a 15% tax rate on dividends. This can be claimed as a tax credit where the investor resides if it's a treaty country.

Not in every treaty country. In Belgium as far as I know you can't claim that 15% back.

 

[galeno]

My wife and I are USA-NRAs. We have been investing the financial markets for over 30 years.

The main rule is to NOT use USA domiciled MFs or ETFs. You will pay a minimum 30% withholding tax on all interest and dividend income. If you use non-USA ETFs the withholding tax is even higher. Your heirs will be penalized by BRUTAL USA inheritance taxes.

What to do?

Open a brokerage account at Interactive Brokers (IB).

With IB a USA-NRA can buy Ireland domiciled ETFs. Much better withholding taxes. No USA inheritance tax problems.

Our retirement portfolio: 60% VWRD (~VT) + 35% IUAG (~AGG) + 5% CASH.

I'm willing to answer reasonable questions.

 

[savory]

Thanks to all. I will pass this along to my relatives who requested the information.

 

[Alan]

Curious about this: can you name a few funds of those funds (Tickers)? Wonder if I can buy them here.

Here is a list of HMRC Reporting funds, which includes all/most of Vanguard's ETF's
https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds

In preparation for our move to the UK I have converted our VG MF's to VG ETF's.

 

[nun]

Not in every treaty country. In Belgium as far as I know you can't claim that 15% back.

If true, that you can't take a FTC in Belgium for US tax on dividends, that seems like a very unfair domestic tax rule.

 

[galeno]

For USA-NRA passive indexers from countries WITHOUT a treaty with the USA who count in USD.


My favorites:


For equities: VWRD (TWM)


For bonds: IUAG (TBM), VDTY (USA treasuries), VDCP (corps), ITPS (USA TIPS), and SDHY (junk).

 

[nun]

My wife and I are USA-NRAs. We have been investing the financial markets for over 30 years.

The main rule is to NOT use USA domiciled MFs or ETFs. You will pay a minimum 30% withholding tax on all interest and dividend income. If you use non-USA ETFs the withholding tax is even higher. Your heirs will be penalized by BRUTAL USA inheritance taxes.

What to do?

Open a brokerage account at Interactive Brokers (IB).

With IB a USA-NRA can buy Ireland domiciled ETFs. Much better withholding taxes. No USA inheritance tax problems.

Our retirement portfolio: 60% VWRD (~VT) + 35% IUAG (~AGG) + 5% CASH.

I'm willing to answer reasonable questions.

First what is a US-NRA?

If the US implies US citizenship, how do you deal with PFIC issues.....do you mark to market every year?
There is no withholding on US source dividend, capital gains or interest income when owned by a US citizen....even if they live overseas. If you are an NRA then just invest in low cost index funds locally or ones that satisfy local reporting requirements....in the UK Vanguard offers many of them and several that are specific to North America.

If you are a US citizen you should invest in either individual stocks and bonds
not subject to PFIC rules or US domiciled mutual funds and ETFs that meet the reporting requirements of your residence country. For a US citizen living in the UK that would include US domiciled Vanguard ETFs (not the mutual funds) like VTI etc. It would be a bad idea to own Irish domiciled ETFs as you would run into PFIC issues and the annoying reporting requirements.

 

[galeno]

USA-NRA = USA Non Resident Alien. NOT a USA citizen. NOT a USA resident (legal or illegal).

 

[nun]

USA-NRA = USA Non Resident Alien. NOT a USA citizen. NOT a USA resident (legal or illegal).

Ah, so an NRA of the USA.

In that case any US specific investment fund that satisfies local reporting requirements is probably the easiest approach.

However, US citizens are practically limited to US domiciled funds and if they are non US residents they have to find ways to buy US domiciled funds that meet local reporting requirements....and that isn't trivial.

 

[galeno]

The investing world is divided into USA persons and USA-NRAs. USA persons SHOULD stick with USA domiciled assets. They are the BEST.


If the withholding taxes and inheritance taxes weren't so horrible for USA-NRAs, we'd use them.

 

[Totoro]

If true, that you can't take a FTC in Belgium for US tax on dividends, that seems like a very unfair domestic tax rule.

Tell me about it. Belgian taxpayers cannot claim back any dividend withholding tax.

And they pay dividend tax as well. 27% now. That's a 38% tax rate total on most foreign shareholdings.

 

[Totoro]

Here is a list of HMRC Reporting funds, which includes all/most of Vanguard's ETF's
https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds

In preparation for our move to the UK I have converted our VG MF's to VG ETF's.

One example: CUSIP 922908769 is Vanguard VTI. I can buy those through two different brokers (and have in fact owned it). So I don't understand your / Nuns comment about not being able to buy those. One clearly can. At least in Europe mainland.

 

[nun]

One example: CUSIP 922908769 is Vanguard VTI. I can buy those through two different brokers (and have in fact owned it). So I don't understand your / Nuns comment about not being able to buy those. One clearly can. At least in Europe mainland.

Yes, you are correct. I just checked on Hargreaves and Lansdown's UK site and you can buy VTI through them...in fact you can get all the US domiciled funds as VIPERS.

 

[galeno]

Portfolio costs for the USA-NRA retiree from a country w/o a USA tax treaty:


Assume SEC Yield = 2.0%


USA domiciled: 50% VT + 25% VGIT + 25% VCIT: ER = 0.10%. TR = 0.81%. TER = 0.91%.


Ireland domiciled: 50% VWRD + 25% VDTY + 25% VDCP: ER = 0.19%. TR = 0.14%. TER = 0.33%.

 

[galeno]

Everybody pays level 1 withholding taxes on dividends.


Using Ireland domiciled ETFs USA-NRAs pay 15% on USA equity dividends. 7.5% on non-USA developed equity dividends, and 11.2% on EM equity dividends.


Using USA domiciled ETFs a USA person pays 0% on USA equity dividends. Non-USA and EMs are the same.


If a USA person holds these USA domiciled non-USA equities in a taxable account, he can get a partial refund of these taxes by getting a "qualified dividend tax credit".

 

[Alan]

One example: CUSIP 922908769 is Vanguard VTI. I can buy those through two different brokers (and have in fact owned it). So I don't understand your / Nuns comment about not being able to buy those. One clearly can. At least in Europe mainland.

Here is a list of HMRC Reporting funds, which includes all/most of Vanguard's ETF's
https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds

In preparation for our move to the UK I have converted our VG MF's to VG ETF's.

I probably wasn't clear in my post. I didn't say that you can't buy VG ETF's once you are non-resident, but that I converted my existing VG Mutual Funds to ETFs before moving to the UK. That way the UK IRS won't treat them as PFICs.

I fully intend to continue to purchase VG ETF's while resident in the UK.