Unlike many countries, the United States has very relaxed laws about foreign investment. Not only can foreigners own land and businesses, but they can buy securities both directly and through American brokerages. The only hurdles a foreign investor needs to overcome when buying American mutual funds is registering with the Internal Revenue Service (IRS). Of course, they can also avoid restrictions and registration by using brokerages in their home countries.
Financial institutions and brokerages around the world participate in trade of American securities. Some are licensed with the U.S. Securities and Exchange Commission to make trades directly, while others go through intermediaries. A foreign national of a country with open markets and strong financial institutions can have the easiest time buying mutual funds through local brokers. Those living in countries with restrictive or prohibitively expensive financial systems can forge relationships directly with U.S. brokers or mutual fund companies.
The Patriot Act requires, among other things, for U.S. financial institutions and brokerages to identify investors before conducting business. Although the law allows financial firms some room to develop their own policies on how they identify people, they commonly require an official photo ID, such as a passport. Some brokerages also insist on face-to-face visits to positively confirm identity when opening an account.
Federal tax regulations require foreign investors to register with the IRS. Anyone who is not a U.S. citizen or permanent resident -- even those in the country on a valid visa -- must complete an IRS Form W-8BEN Certificate of Foreign Status of Beneficial Owner. An investor can complete a form on her own or through an American brokerage or financial institution.
Foreign national living in foreign countries can apply for an exemption from American tax withholding on their investment returns by filing an IRS Form 1001. The IRS typically grants exemption to those who never enter the U.S. or who only visit on a limited basis. However, those who spend significant amounts of time and appear to be living in the country part-time may be scrutinized and even denied exemption to tax withholding on capital gains.
- Array Development; Online Brokerage in Europe -- Actors and Strategies; Jean-Michal Sahut
- Carter Ledyard and Milburn: The Patriot Act's Anti-Money Laundering Rules; What Private Funds and Investment Advisers Need to Know; May 2003
- IRS.gov: Form 1001
- IRS.gov: Form W-8BEN
- E-Trade: Account Requirements and Restrictions
- U.S. Securities and Exchange Commission: Regulation D and Rule 701
- Congressional Research Service; Foreign Investment in U.S. Securities; James Jackson; June 2010
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