also called Passive Foreign Investment Company
A US classification of many foreign pooled investments that triggers punitive tax and heavy reporting for American owners.
PFIC is a US tax label that catches many foreign pooled investments, like non-US mutual funds and ETFs, and hits American owners with harsh tax treatment and heavy reporting. The trap is that perfectly ordinary foreign funds, the kind a local advisor might suggest, can fall into it. For an American abroad, what looks like a normal investment can become a costly, paperwork-heavy mistake.
You are an American living abroad, and a local bank sets you up with a home-country mutual fund like any resident would use. Come tax time you discover it counts as a PFIC, dragging punishing tax treatment and its own reporting forms behind it, and the tidy investment turns into an expensive headache.
Ordinary foreign mutual funds or ETFs can be PFICs, making them a costly trap for American expats.
The difference is the whole point, so here is each one in a line.
These are the rules that reach through a company to tax an owner or create a tax bill abroad.
Controlled Foreign Corporation rules tax a resident on a foreign company's profits even if it never pays them out, and GILTI is the US version aimed at low-taxed foreign profits.
A PFIC is a US classification that punishes Americans holding many foreign funds, and permanent establishment is when a company's activity in a country is enough to be taxed there.
Controlled Foreign Corporation · GILTI · Permanent establishment
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