This is one of the most common questions we receive from clients investing in foreign companies or funds.
Short Answer:
A passive foreign investment company, or PFIC, is a foreign corporation that meets certain income or asset tests based on passive income or assets.
Explanation:
A foreign corporation is a PFIC if at least 75 percent of its income is passive or at least 50 percent of its assets produce passive income.
PFIC classification can result in unfavorable tax treatment, including higher effective tax rates and interest charges.
Example:
A foreign investment company holding stocks and earning dividends is typically a PFIC.
Common Mistake:
Not realizing PFIC rules apply to foreign investments.
When to Get Help:
We would be happy to review your investments.
If this situation applies to you, we would be happy to review your structure and confirm your filing requirements.