How do you test for Pfic?
A foreign corporation (the tested foreign corporation) is a PFIC if, for its tax year: (1) at least 75% of its gross income is passive income (Income Test); or (2) the average percentage of assets that are held during the tax year and produce, or are held to produce, passive income (Asset Test and, collectively, the …
Are bonds Pfic?
Bonds are not PFICs Bonds are debts, not equities. In other words, if you own a bond, you do not have ownership in a company – you have ownership in a debt instrument. Therefore bonds cannot be PFICs, even though they produce passive income (interest).
Can a CFC be a PFIC?
An important thing to note here is that this classification occurs “with respect to a shareholder.” This means that a foreign corporation can be a CFC for some shareholders, but a PFIC for others.
What qualifies as Pfic?
A passive foreign investment company (PFIC) is a corporation, located abroad, which exhibits either one of two conditions, based on either income or assets: At least 75% of the corporation’s gross income is “passive”—that is, derived investments or other sources not related to regular business operations.
Do you have to file 8621 every year?
The annual filing requirement Then, the PFIC shareholder must attach Form 8621 to its federal income tax return (or information return) each tax year, unless one of the exceptions discussed below applies. A PFIC shareholder must file Form 8621 for each PFIC the shareholder owns.
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.
What is the benefit of a QEF election?
The QEF or Qualified Electing Fund election under §1295 is optional method of taxation available for certain PFICs. This election most closely mirrors the US taxation of US mutual funds and allows for capital gains treatment of some of the income as long as any prior §1291 gain has been dealt with.
What is a QEF?
A QEF, or Qualified Electing Fund, is a PFIC for which you have made a special election. The tax treatment of a QEF is better than the other two ways of taxing PFICs: the excess distribution rules of I.R.C. § 1291, or. the mark to market (MTM) rules of I.R.C.
Do you have to make a QEF election every year?
The QEF election is revocable only with the IRS’s consent. In every subsequent year, the taxpayer must file a separate copy of Form 8621 for each QEF asset.
Why Mutual Funds Are Pfic?
If you are an Indian American with investments in Indian mutual funds, the PFIC reporting is something you just cannot afford to miss. Foreign mutual funds in the US fall under the category of Passive Foreign Investment Company (PFIC) and must be reported on your income tax return in Form 8621.
Is Vanguard A PFIC?
Vanguard has chosen to proactively provide Passive Foreign Investment Company (PFIC) annual information statements.
Can a foreigner invest in US mutual funds?
Foreign investors are legally allowed to purchase US mutual funds. However, if a foreign investor decides to use an American brokerage firm to complete their purchase, they will be required to first register with the IRS.
Can I invest if Im not a US citizen?
There is no citizenship requirement for owning stocks of American companies. While U.S. investment securities are regulated by U.S. law, there are no specific provisions that forbid individuals who are not citizens of the U.S. from participating in the U.S. stock market.
Can a non US citizen open a brokerage account?
Non-U.S. investors with brokerage accounts are required to provide their brokerage firm with a complete and valid IRS Form W-8BEN to certify their tax status. That means non-U.S. citizens or international investors can open a brokerage account and invest in U.S. stocks.