Do Foreign Investors Pay Capital Gains On US Stocks?

Posted Nov 18, 2022

pay-1337206652Many investors around the world are interested in purchasing American stocks. Investing internationally means you have more companies to choose from when building a portfolio. Additionally, some of the world’s buzziest stocks trade on the US market.  

Before purchasing any stocks, it’s important to be aware of the tax responsibilities associated with them. US tax law requires American investors to pay capital gains taxes on profits from stocks sold, but does this apply to foreign investors?  

Capital Gains Taxes For Foreign Investors 

In short, foreign investors do not have to pay capital gains taxes to the US government on sales of American stocks. Instead, they will have to pay capital gains taxes in their home country. Every country has its own capital gains laws, some of which are more favorable to investors than others.  

For example, Finland and Denmark have some of the highest capital gains rates in the world - investors in both countries can expect to pay rates of 30% or higher on capital gains. There are also several countries that do not impose capital gains taxes at all, such as Switzerland, Hong Kong, Belgium, Malaysia, and more.  

Conversely, US investors can also buy and sell stocks on foreign exchanges. However, they will be subject to American capital gains rules rather than international ones.  

It’s best to familiarize yourself with the tax laws in your home country before making any investments. You also may benefit from consulting a local tax specialist when making foreign investments to avoid any confusion.  

Foreigners who are living in the US for an extended period of time may be subject to American capital gains taxes, although this situation is rare. This is another situation where it is best to consult with a tax specialist who is familiar with your specific situation.  

How To Invest In US Stocks As A Foreigner 

Investors from around the world can buy and sell US stocks through brokerages that cater to foreign investors. Not every international brokerage is available in every country, so you will need to find one that specifically provides services in your country of origin. Going through a brokerage can help ensure that the investments are conducted legally. You may also want to seek out individual guidance from an investment firm that specializes in international trades to maximize your financial potential.  

For national security reasons, US law requires foreign investors from many countries to adhere to very strict identification standards when setting up a brokerage account. This means that foreign investors may need to provide multiple identification documents before selling any stocks.  

If you’re struggling to set up a US brokerage account as a foreigner, you may still be able to purchase US stocks through an exchange in your home country as well. Many major companies with operations in the US are dual-listed on exchanges around the world.  

However, it is more common for foreign companies to be dual-listed than US-based companies. Major dual-listed companies like Tencent, BP, and Nestle are all based outside of the United States.  

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.  

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 

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