Can you trade in the US stock market from another country? What are the laws and tax implications? Can foreign companies list their companies on US stock exchanges? Two of the world’s biggest exchanges are in the US. Foreigners and foreign companies would do anything to have access to the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). This article will elaborate on which individuals and companies can trade in the US stock market.
Table of Contents
- Foreign Individuals Investing in the US Stock Market
- Can you trade in the US stock market from another country: Fewer Requirements for Foreign Private Issuers
- Can You Trade In the US Stock Market From Another Country: Possible Future Foreign Listing
Foreign Individuals Investing in the US Stock Market
Can you trade in the US stock market from another country? In short, yes, but there are a few obstacles some may encounter. Therefore, we ask the question who can trade the US markets?
American citizenship is not mandatory to be able to trade in the US stock market. Stockbrokers will perform enhanced due diligence for individuals who require their assistance and knowledge to purchase stocks.
Residents of certain geographical areas are not permitted to trade at all. Some countries will allow individuals to trade on the local stock exchange as well as foreign stock exchanges. The opening process and identity verification will be more stringent.
The Patriot Act of 2001 prevents individuals linked to terrorist or criminal activities from trading. What are the tax implications for nonresident traders?
Non-resident foreign nationals are exempt from any capital gains tax in the US, but they may have to report their gains in their home country and pay tax there. Dividends are taxed at 30%.
The country of origin impacts the tax rate for all other cases but generally stands at 30%. Knowledge of local tax laws is essential for investing abroad.
Foreign Companies Listing on the US Stock Market
Requirements for NASDAQ (Electronically Traded)
Annual fee of $47,000
Revenue over the previous 3 years must be over $11M
At least 1.25M shares issued
At least $45M market value
The minimum price at listing is $5 and must remain over $1 afterward
IPO fee of $150,000
Requirements for NYSE (More International Prestige/ Auction Market)
Annual fee of $71,000
At least 100M shares issued
The minimum price of $1
IPO fee of $295,000
Why would foreign companies want to list in the US? They can gain access to much more capital than in their home country. The US stock exchanges also provide more credibility internationally for companies looking to make a name for themselves out of their home country.
Foreign companies who can’t satisfy all these rules can also apply for the OTC markets, which are less prestigious, and fewer investors have access to them.
Many successful multinational companies would do anything to be listed in those markets, but are there additional requirements?
Can you trade in the US stock market from another country: Fewer Requirements for Foreign Private Issuers
Unlike US companies, Foreign Private Issuers aren’t required to report quarterly. They are also not required to ask for shareholder approval for equity compensation and stock issuances. Additionally, they can submit their quarterly reports under IFRS or GAAP. Many US companies have complained about the looseness of rules for foreign companies.
What does it take to be considered a Foreign Private Issuer?
- US residents hold less than 50% of shares
- Less than 50% of directors or executive officers are US citizens or residents
- Less than 50% of assets are located in the US
- The business is conducted in most part outside the US
Can You Trade In the US Stock Market From Another Country: Legal actions
Foreign companies become subject to US laws. What is permissible back home may not be in the US. Shareholders can sue the company for a variety of issues. Hence, only quality companies will decide to list and have to follow the rules rigorously.
Chinese company Luckin Coffee was delisted from NASDAQ in 2020 after fraud charges. The company fabricated over $300M in sales and had to downgrade to the OTCMKTS. After replacing their top management, they are attempting to make a comeback to the top listing.
As we can see, there aren’t many barriers for a foreign company to enter the US stock market. In fact, once the company is listed, they can apply to be a Foreign Private Issuer, which helps them tremendously.
Alibaba Group Holdings Ltd – ADR (NYSE: BABA)
Alibaba is based in China and listed on NYSE in 2014. They were the biggest foreign company to date to list on the exchange and are currently worth over $335B. Often called the Amazon of China, they specialize in E-commerce, cloud, and technology. Many Chinese companies have seen their stock prices drop over the last months due to some tensions with China. Alibaba saw its price drop from over $300 in October 2020 to $123 today due to problems with co-founder Jack Ma and tensions between both countries. Alibaba is currently trading below expectations and could have a bright future if tensions deescalate.
Taiwan Semiconductor Mfg (NYSE: TSM)
TSM is a Taiwanese company and is currently the most valuable foreign company in the US. It is worth over $573B and trading just under $120 short of its $145 set in January 2021. With the surge of 5G, demand is at an all-time high but supply is short. TSM is the largest chip manufacturer in the world and might see its stock skyrocket if it can increase its production and meet global demands.
Shell PLC (NYSE: SHEL)
Shell is a Dutch oil and gas company. They are worth over $200B and currently trading at a 52-week high at $53.91. Oil prices are slowly increasing and tensions with Russia are causing shortages in Europe for gas.
Shell could supply Europe with much-needed energy during this shortage. They are increasing their dividends as well as stock buybacks. There are many reasons to consider this stock in the near future.
Did you know Shell wasn’t an American company? You learn something new every day.
Can You Trade In the US Stock Market From Another Country: Possible Future Foreign Listing
The world’s biggest petroleum and natural gas company based in Saudi Arabia is public but only in its home country since December 2019. Aramco is currently the world’s third most valuable company. Its revenues are above $200B and this company hasn’t reached its full potential yet. Sources stated that they do not plan to trade in the US, but that may change in the next few years. Such a listing would draw a lot of interest from global markets. US investors can only trade on the Saudi exchange if they have at least 5 years of investing experience and $5B in assets, which makes it very difficult.
To conclude, individuals can trade in the US exchanges as long as they are not involved in any criminal activities. Nevertheless, it is important to know the tax rules back home. Additionally, foreign countries can also list on the US exchanges, either NASDAQ, NYSE, or OTC markets as long as they respect the rules in the US. Many foreign companies are already listed and are very successful. Investing in companies that could enter the US exchanges can become beneficial for investors who are looking for a long-term play.
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