FAQ: What Is A Passive Foreign Investment Company?

What is a PFIC for US tax purposes?

The Passive Foreign Investment Company (PFIC) rules are designed to prevent U.S. persons from deferring tax on passive income earned through non- U.S. corporations, or from converting this income into capital gains that are taxed at preferential rates.

How are PFICs taxed?

The U.S. tax code categorizes non-U.S. registered mutual funds as Passive Foreign Investment Companies (PFICs). PFICs are taxed very punitively by the U.S. Furthermore, each PFIC must be reported annually on U.S. tax form 8621, which requires complex accounting and is very time consuming to complete.

How do you determine if a company is a PFIC?

Under the income test, a foreign corporation is a PFIC if 75% or more of its gross income is passive income. Under the asset test, a foreign corporation is a PFIC if 50% or more of the average value of its assets consists of assets that would produce passive income.

Who must file Form 8621?

More In Forms and Instructions A U.S. person that is a direct or indirect shareholder of a passive foreign investment company (PFIC) files Form 8621 if they: Receive certain direct or indirect distributions from a PFIC. Recognize a gain on a direct or indirect disposition of PFIC stock.

You might be interested:  How To Raise Investment?

What happens when you sell a PFIC?

All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec.

What is passive company?

Passive companies don’t have a product or service. Instead, they make money from rental property or other investments, such as stocks or book royalties. For example, say Opportunity Real Estate Holdings purchases an office building and rents the space out to four different businesses.

Are ETFs considered PFICs?

If you pay attention you will notice that foreign funds and ETFs generally meet both PFIC tests: most of their income are passive and most of their assets generate passive income. Therefore, they are PFICs for tax purposes.

Are foreign banks PFICs?

Since a financial institution typically would earn interest income, and interest income generally is passive, every foreign financial institution would be prima facie a PFIC.

How do you report foreign passive income?

Use Form 1116 to claim the Foreign Tax Credit (FTC) and subtract the taxes they paid to another country from whatever they owe the IRS. Use Form 2555 to claim the Foreign Earned-Income Exclusion (FEIE), which allows those who qualify to exclude some or all of their foreign-earned income from their U.S. taxes.

What is foreign personal holding company income?

Foreign personal holding company income (FPHCI) is defined for U.S. controlled foreign corporation rules and, with modifications, for U.S. foreign tax credit rules. It consists of interest, dividends, rents, royalties, gains on property producing FPHCI, and certain other items.

You might be interested:  Readers ask: What Is Unquoted Investment?

Is Vanguard A PFIC?

Vanguard has chosen to proactively provide Passive Foreign Investment Company (PFIC) annual information statements.

What is sub F income?

Subpart F income includes: insurance income, foreign base company income, international boycott factor income, illegal bribes, and income derived from a ยง901(j) foreign country, which are countries that sponsor terrorism or are otherwise not recognized by the US, such as Iran and North Korea.

Do you have to file 8621 every year?

If you are a direct or indirect shareholder of a PFIC, you are required to file IRS Form 8621 for each year that you: Recognize gain on a direct or indirect disposition of PFIC stock, or. Receive certain direct or indirect distributions from a PFIC, or. Make an election reportable on Form 8621.

Is there a penalty for not filing Form 8621?

Penalties for failure to file Form 8621 could include a $10,000 penalty (under Form 8938), and suspension of the statute of limitations with respect to the U.S. shareholder’s entire tax return until Form 8621 is filed.

Who Must File 926?

U.S. citizens or residents, domestic corporations or domestic estates or trusts must file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, to report any exchanges or transfers of tangible or intangible property (as described in section 6038B(a)(1)(A) of the Internal Revenue Code) to a foreign

Leave a Reply

Your email address will not be published. Required fields are marked *