.png){kind=tracking}
.webp)
Americans overseas and U.S.-connected individuals obligated to file taxes in the United States often make the common mistake of investing in a foreign mutual fund (including ETFs or other non-U.S.-based funds). These non-US funds are classified as PFICs (Passive Foreign Investment Companies) and come with serious tax consequences for the U.S. taxpayer.
In simplified terms, PFICs are pooled investments registered outside the United States, including mutual funds, non-US pension plans, hedge funds, and insurance products.
A fund is classified as a PFIC if:
Passive income includes:
“Excess distributions” from a PFIC can lead to punitive taxation. Tax rates on these investments can rise to over 50%, due to highly complex rules regarding the timing of PFIC income recognition. The compliance burden is on the taxpayer.
A significant compliance burden also comes with reporting PFIC investments. For example, tax filers must complete separate forms each year for each PFIC. Many hours of professional time can be spent completing these individual documents, and the information provided by foreign investment firms rarely aligns with PFIC reporting requirements.
Choosing the right financial advisor who understands how PFICs work and is conscious of your U.S. tax obligations can significantly impact your retirement and investment planning.
Due to FATCA (Foreign Account Tax Compliance Act), the likelihood that the IRS will eventually identify unreported PFICs has increased dramatically. It is crucial for U.S. persons residing offshore with U.S. tax obligations to understand PFICs and how they affect their U.S. tax filings as expats.
Understanding how to avoid PFIC investments can lead to wiser investment decisions.
Beacon Global Wealth Management can work with you to develop an investment strategy that is both IRS compliant and tax-efficient.
Before you engage us, we’ll get to know you to make sure we’re a good fit in terms of understanding what is most important to you.
After our discovery call, we will summarise our understanding of your current situation and the key objectives which will ensure we're aligned with your goals.
Once you’re happy that we’re right for you, we’ll provide our recommendations and implement them for you. But there’s never any pressure from us to proceed – that’s just not our style.
We will implement your plan, constantly monitor and report on the performance to ensure your private wealth is optimised and aligned with your goals and working for you. Additionally, we’ll provide you with regular statements and a half yearly review to ensure that you remain up to date with any investment or tax changes and that we continue deliver for the long term.
