US & Global Business
PFIC (Passive Foreign Investment Company) — Meaning
A US tax category that makes Indian mutual funds expensive for US citizens and residents to hold.
What is PFIC (Passive Foreign Investment Company)?
Under US tax law, a non-US company or fund whose income or assets are mainly passive is a Passive Foreign Investment Company. Indian mutual funds usually qualify. US persons holding them face punitive taxation on gains and certain distributions — highest-rate tax plus an interest charge — unless special elections are made, and must file Form 8621 for each fund. NRIs in the US and US citizens in India often restructure Indian investments to avoid PFICs.
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More US & Global Business terms
FBAR (FinCEN Form 114)
A US report of foreign financial accounts when their total exceeds USD 10,000 at any time in the year.
Form 5472
A US information return for foreign-owned single-member LLCs and corporations — $25,000 penalty if missed.
EIN (Employer Identification Number)
The US federal tax ID for a company, obtainable by foreign owners without an SSN or ITIN.
ITIN (Individual Taxpayer Identification Number)
A US tax ID for individuals who must file US taxes but aren't eligible for an SSN.
POEM (Place of Effective Management)
The test that can make a foreign company tax-resident in India if it is effectively managed from India.
