INTERNATIONAL STUDENTS

Investing on a Visa: The International Student Investor

Employment restrictions stipulated by international student visas can leave many students feeling stressed. For undergraduate students, these limitations can result in worries about their financial future after graduation. For graduate students, it can feel suffocating trying to incorporate saving for the future with only a stipend for teaching or research. However, there are avenues to make existing funds work more effectively in the long term. One of the more popular methods is the U.S. stock market, as it presents the opportunity to potentially earn passive income on your funds without violating employment restrictions imposed by student visas.

Outlined by the U.S. government, international students are legally allowed to invest in the U.S. stock market, and this may include stocks, ETFs, mutual funds and more. Since most investing activities, excluding frequent trading or day trading, are considered passive activity, it’s not typically substantial enough to classify as employment. Therefore, it typically does not violate student visa restrictions.

Before getting started, there are some key considerations to review. 

Opening a Brokerage Account

A brokerage account will be required to start investing. The account and its services are provided by a firm referred to as a broker. Requirements to open an account may differ depending on the broker. Some companies may require a Social Security number (SSN), while others can accept an Individual Tax Identification number (ITIN). Some may only require a valid government passport and proof of address. While some non-U.S. citizens may be eligible for multiple account types through brokers, most international investors open a standard individual brokerage account.

When reviewing potential brokerage firms, international investors may choose to work with one of the many major traditional brokerage firms, also known as full-service brokerages. These firms may offer a broader range of personalized services, but they can also feature higher minimum balance requirements and fees. Alternatively, investors may use online brokerage, also called discount brokerages. These platforms often have lower fees compared to traditional firms, and services may be more accessible for international clients.

Furthermore, investors may pursue business through international brokers with experience in navigating international investor requirements, and these brokers may also offer multilingual support. It’s important to note that across all types of brokerage firms, some may limit the types of investments available to international investors, most often due to regulatory constraints or internal policies. In these cases, it may be helpful to check a broker’s policies or disclosures before opening an account.

Once the account is open, it’s usually funded through international wire transfers, but some companies may also accept credit card deposits. As international currency is transferred, investors may face currency conversion fees as well, and these fees may vary between brokers.

Considering Taxes

Once investing begins and additional income is earned, there may be tax implications to consider. In accordance with IRS regulations, investment income is subject to taxes, and the tax rate may depend on the term of the investment, the investment type, residency status and personal income.

For dividends paid by a company to its stockholders, income may be taxed at a flat rate of 30% for international investors classified as nonresidents. However, these rates may differ if a tax treaty exists with an international investor’s home country and provides a lower rate.

For capital gains, defined as the profits earned from selling investments at a higher price than the original purchase price, earnings are typically exempt from taxation for international investors classified as nonresidents. However, tax rules may differ depending on each investor’s home country, and it may be helpful to consult the IRS or a tax advisor for additional guidance. Furthermore, some international investors may need to pay capital gains tax in their home country, where money earned in foreign markets may be taxed. 

Reviewing brokerage account and tax information, international students investing while on their visas may feel confident as they step into the U.S. stock market. For international students who choose to return to their home country after their student visa expires, there are options to maintain their investments in the stock market. Investors classified as nonresidents may prepare to regularly update their personal information with their chosen brokerage firm. They may also need to reconfirm their nonresident status to stay compliant with U.S. regulations.

Sources:

https://www.isoa.org/blog/can-international-students-invest-in-the-us-stock-market

https://www.investopedia.com/terms/b/brokerage-company.asp

https://www.investopedia.com/ask/answers/06/nonusresidenttax.asp

https://www.investopedia.com/ask/answers/05/foreignownershipusstocks.asp