Do I have a PFIC?
Many Americans who have lived abroad for years hold foreign funds without knowing how the U.S. treats them. Here is how to screen what you own.
If you invest through a local bank or platform, some of your holdings may be PFICs. Nothing about the purchase would have flagged it. The question is how the investment is structured and whether you are a U.S. person for tax purposes.
The legal definition
A Passive Foreign Investment Company is a foreign corporation that meets either of two tests, subject to applicable rules and exceptions:
- Income test. Generally, at least 75% of its gross income is passive income, such as dividends, interest and gains.
- Asset test. Generally, at least 50% of its average assets produce, or are held to produce, passive income.
Foreign mutual funds, ETFs and money market funds are common examples because their business is holding investments.
Domicile is a clue, not the answer
Where a fund is legally registered is a useful first screen. A fund registered in Ireland, Luxembourg or the U.K. is foreign, whatever it invests in and wherever you bought it. The ISIN prefix (for example IE, LU or GB) often shows this.
Domicile and ISIN prefix help you decide what to look at more closely. They are not conclusive proof that something is or is not a PFIC.
Shares can be PFICs too
PFIC status is not limited to funds. Shares in a foreign company can be PFIC stock if that company meets the income or asset test, as some holding companies and early-stage companies do.
Who the rules apply to
The rules apply to U.S. persons for federal tax purposes. That includes U.S. citizens and resident aliens, such as green card holders, wherever they live. Holding a U.S. bank or brokerage account does not, on its own, make someone a U.S. person. If your status is uncertain, have it confirmed first.
A quick screening checklist
- Is it a non-U.S. fund or a foreign company share? Note its legal name and ISIN.
- Where is it domiciled? Check the factsheet or prospectus.
- Is it mainly passive? Funds that hold investments usually are.
- Are you a U.S. person for tax purposes?
If the answers point toward yes, have the holding reviewed by a qualified professional.
Treat foreign funds as possible PFICs until reviewed. That assumption helps you avoid surprises.
Before you sell
A sale can be a taxable event under the PFIC rules. Start by listing your holdings and gathering records, then speak with a qualified U.S. international tax professional before making changes.
Not sure how this applies to you?
PFIC questions need coordinated tax and investment expertise. A qualified U.S. international tax professional can assess reporting and elections, while an appropriately authorized investment advisor can help evaluate portfolio decisions.
This guide is general education, not individualized tax, legal or investment advice. PFIC rules are complex and fact-specific. Speak with a qualified professional about your own situation before acting.