Can a REIT be a PFIC?

Can a foreign corporation be a REIT?

Must be taxable as a domestic corporation but for REIT status; foreign corporations cannot be REITs. Shareholders taxed at ordinary rates on dividends and capital gains rates on distributions representing capital gains.

What qualifies as a 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 …

Can an ETF be a PFIC?

The IRS typically treats mutual funds and ETFs registered outside of the U.S. as Passive Foreign Investment Corporations, or PFIC. … Tax treatment of PFICs is very complicated and onerous, making such investments not worthwhile in most cases.

Who is subject to PFIC?

Only U.S. persons are affected by the PFIC rules. A U.S. person includes a U.S. citizen, U.S. green card holder and U.S. resident. A Canadian who spends a significant amount of time in the U.S. (i.e. more than 183 days in the calendar year) may be considered to be a U.S. person for purposes of the PFIC rules.

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Do foreign investors pay taxes in the US?

As a general rule, foreign investors (i.e. non-U.S. citizens and residents) with no U.S. business are typically not obligated to file a U.S. tax return, including on income generated from U.S. capital gains on U.S. securities trades.

Do foreign corporations pay capital gains tax?

A foreign person such as an individual or corporation does not pay U.S. income tax on its capital gains from the sale of most U.S. securities. … Substantial tax rules exist that prevent a U.S. citizen or resident from avoiding income tax by using a foreign corporation to trade securities.

Why is PFIC bad?

A PFIC is Passive Foreign Investment Company. The IRS penalizes PFICs (unless certain elections are made) by requiring owners of the PFIC to pay increased tax rate on earnings such as Capital Gains and Dividends. A PFIC is a Passive Foreign Investment Company. From the U.S. tax perspective, a PFIC is a bad thing.

Do I need to report PFIC?

PFIC reporting is the requirement that US citizens or green card holders, who indirectly or directly own shares in a PFIC at any time during the year, must file Form 8621 with the IRS. As this is an additional and often complex form, you will need to pay your tax advisor additional fees to prepare these.

Is Vanguard A PFIC?

A common question we hear is, “how do I identify a PFIC?” A key point to understand is that mutual funds from U.S. companies with international investments—like Vanguard, for example—are generally not considered PFICs.

How are PFIC 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.

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Is a foreign bank a PFIC?

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.

Is a hedge fund a PFIC?

Most offshore hedge funds organised as corporations will meet both test and be considered a PFIC, and due to PFIC Rules, US individuals generally do not invest in offshore corporations that hold investments in securities.