It is really basic: income (including from trading) and capital gains (short/ long term) are completely two different things.
I definetely know individuals and corporations get taxed differently where they are resident wether their profits are considered income or cap gains (in their country of residence) but AFAIK neither individual traders nor trading firms/funds located outside the US will be taxed by the IRS on their US profits. It's not only for the US btw, wether one trade US or asian or european markets, the trading profits will be dealt with taxwise by the tax authorities of the country they or the corporation they trade through are registered in. It sure appears to be the case for everyone I know or hear of.
No foreigners will invest if there is tax. Most other markets don't even have capital gain tax even on their own residents.
Well I am a Canadian and do invest in the US market in a small way. I am not allowed to invest directly in the US market through a US broker discount or not because I don't have tax information, specifically a social security number. Similarly though Canadian exchanges have the highest listings in the world for Oil & Gas companies and Mining companies, Americans cannot directly invest in the Canadian markets....it is a TAX restriction to do it directly for an individual. http://www.tmx.com/en/pdf/Mining_Sector_Sheet.pdf http://www.tmx.com/en/pdf/OilGas_Sector_Profile.pdf Unlike American brokerage companies, Canadian brokers provide direct access to American stocks of any stripe. These brokers look after the payment of taxes in the USA and give the Canadian investor the tax details to be used on our Canadian tax returns. So we have the ability to have unfettered access to American markets including the OTCB. Since there is that access to American markets, US companies don't need to have a duplicate listing on Canadian exchanges in order to attract Canadian investors. On the other hand though, American brokers (unless you get a more expensive Global brokerage account) do NOT provide access to Canadian markets...which limits American investors to a lot of Mining and O&G companies...especially start-ups. They do have access to Canadian energy and mining companies that decide to go through the expense of listing on an American exchange in addition to their Canadian listing. Actually a lot of the less expensive stocks and some expensive ones (Wajax Industrial trading at about $36/share) use the OTCB to gain access though most US investors think everything in there is junk. So, yes, Canadians (and I expect other nationalities) have access to USA exchanges through our brokers (discount or not). The broker pays the taxes on our trades when the Buy/Sell is complete, subtracting those taxes from the final total trade....they then at tax time provide the tax information to us at tax time. I do note the taxes deducted at the USA end are rather low but then we pay the bulk of the tax for capital gains in Canada...probably as mentioned by someone else because there are agreements between Canada / USA as to how such income is taxed.
You provided some information and a lot of misinformation. Unless you do not file W-8 stating that you are not US person for tax purposes your broker is not deducting any US taxes (aside from exchange, SEC fees etc.). The reasons brokers do not accept foreign persons are multiple and very often not tax related but rather regulatory, compliance, reporting etc. which costs them money and time and they are not set up for this. Many brokers have affiliates/offices around the globe and by default they will set you up with local brokerage. I do not think that tax restricts Americans from investing in Canada directly; maybe you are confusing certain tax exemptions that were favoring foreigners investing in Canada energy trusts that are no longer in force. Until now Canadian brokers did not give much information for tax purposes but rather were issuing form T-5 with total amount for transactions and detailed record keeping was taxpayer responsibility. In the US if you do not have SS you can apply for tax id number from IRS. US/Canada agreements come into play if you are resident in both countries for tax purposes and have to report and pay taxes in Canada and the US All other tax issues are similar in both countries including distinction between capital gains and trading as income, world wide taxation and most importantly confusing and lengthy tax code written in language nobody understands meant as repression and intimidation rather than honest taxation of citizens