Investopedia

Continue to Site »

Passive Foreign Investment Company - PFIC

Filed Under » ,
Dictionary Says

Definition of 'Passive Foreign Investment Company - PFIC'

A foreign-based corporation that has one of the following attributes:

1. At least 75% of the corporation's income is considered "passive", which is based on investments rather than standard operating business.

2. At least 50% of the company's assets are investments that produce interest, dividends and/or capital gains

PFICs include foreign-based mutual funds, partnerships and other pooled investment vehicles that have at least one U.S. shareholder. Most investors in PFICs must pay income tax on all distributions and appreciated share values, regardless of whether capital gains tax rates would normally apply.
Investopedia Says

Investopedia explains 'Passive Foreign Investment Company - PFIC'

PFICs are subject to complicated and strict tax guidelines by the Internal Revenue Service (IRS), which covers treatment of these investments in Sections 1291 through 1297 of the income tax code. Both the PFIC and the shareholder must keep accurate records of all transactions, including share basis, dividends and any undistributed income earned by the company.

The strict guidelines are set up to discourage ownership of PFICs by U.S. investors. PFIC shares won't even receive a step-up in cost basis as is the case with nearly all other marketable, appreciable assets. An option that investors have is to seek qualification of a PFIC investment as a qualified electing fund (QEF). This may reduce the tax rate on certain transactions but also forces the investor to pay taxes even on income earned by the foreign company that is not distributed to shareholders.

Articles Of Interest

  1.

    An Evaluation Of Emerging Markets

    Get the full story on this asset class before you write it off as too risky.

  2. Getting Into International Investing

    Diversifying can mean not only investing in various asset classes but also venturing beyond domestic exchanges.

  3. Broadening The Borders Of Your Portfolio

    Find out what type of international fund might suit your needs, in order to gain exposure to foreign markets.

  4. Women: Invest In Your Financial Literacy

    Learning about money may seem intimidating, but it's not as hard as it looks.

  5. 4 Behavioral Biases And How To Avoid Them

    Here are four common common behavioral biases for traders and how to minimize their effects on your portoflio.

  6. Mutual Fund Ratings: Crucial or Insignificant?

    Mutual fund ratings can help investors, but they have their drawbacks as well.

  7. Multi-Asset Funds Or Your Own Mix?

    The underlying concept of mixed funds is very appealing. Discover if you're better off with professional management or creating a mixed fund of your own.

  8. Exploring Non-Dollar Currencies For Forex Trading

    Learn how investments in foreign currencies can diversify your portfolio.

  9. Emerging Markets' Environmental Commitment

    Most people think of the industrial and developed world as leaders when it comes to green technologies and environmental stewardship. After moving past their high-growth stages, many developed ...

  10. A Look Into Foreign Direct Investment Trends

    Foreign direct investments play an increasingly important role in countries as an indicator for a healthy economy in terms of economic growth and long-term capital movement.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  2. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  3. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  4. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  5. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  6. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
Trading Center