PFIC Checker for US Expats

Passive Foreign Investment Companies (PFICs) are one of the most punitive tax traps for US expats. Check whether your foreign investments qualify as PFICs and understand the three available tax regimes.

What is a PFIC?

A foreign (non-US) corporation is a PFIC if it meets either:

Income Test

75%+ of gross income is passive income (dividends, interest, rent, royalties, capital gains)

Asset Test

50%+ of assets produce (or are held to produce) passive income

Most foreign mutual funds, ETFs, ISAs, unit trusts, offshore bonds and UCITS funds are PFICs.

Check your investments

PFIC analysis

⚠️ Critical for US expats: If you own a PFIC without making an election, the default "excess distribution" regime applies — gains and distributions are taxed at the highest ordinary income rate (37%) PLUS interest charges, treating gains as if spread over your holding period. This is extremely punitive.

Three PFIC regimes

1. Default — Excess Distribution Regime (IRC 1291)

No election made. Excess distributions and gains are taxed at highest ordinary rate (37%) with interest. This is the worst outcome. Applies if no QEF or Mark-to-Market election is made within the first year of ownership.

2. QEF Election (Qualified Electing Fund)

Available if the PFIC provides a "PFIC Annual Information Statement." You annually include your pro-rata share of ordinary income and long-term capital gains. Treated like a US pass-through entity. Most foreign funds do NOT provide the required statement, making this unavailable.

3. Mark-to-Market Election (MTM)

Available for "marketable" PFICs (listed on qualified exchanges). Each year you recognise gain/loss as ordinary income. No capital gains rates — all at ordinary income rates. Form 8621 must be filed annually. Better than default but still less favourable than US funds.

Common PFIC traps for expats

🇬🇧 UK ISAs — The UK tax-free wrapper provides no US tax benefit. All growth in an ISA is fully US-taxable. ISA funds (UCITS) are almost certainly PFICs.

🇬🇧 UK unit trusts / OEICs — Virtually always PFICs. Must elect MTM or QEF in year of acquisition.

🇬🇧 UK pension (SIPP) — May be a foreign trust AND PFIC. Complex rules — specialist advice essential.

🌍 Foreign ETFs — Even "iShares" ETFs domiciled in Ireland/Luxembourg are PFICs for US holders. Use US-listed ETFs instead.

💡 Solution for expats: Use US-domiciled funds (Vanguard, Fidelity US ETFs) or individual stocks to avoid PFIC issues entirely.