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 …

Are stocks PFIC?

Exchange Trade Funds (ETFs) listed on a Canadian stock exchange are generally PFICs; however, ETFs listed on a U.S. stock exchange that are set up as U.S. domestic entities are not. Accordingly, if you are a U.S. person speak to your tax advisor before investing in a segregated fund.

Are ETFs considered PFICs?

If you pay attention you will notice that foreign funds and ETFs generally meet both PFIC tests: most of their income are passive and most of their assets generate passive income. Therefore, they are PFICs for tax purposes.

What makes up a passive foreign investment company?

At least 75% of the corporation’s gross income is “passive” —that is, derived investments or other sources not related to regular business operations. At least 50% of the company’s assets are investments, which produce income in the form of earned interest, dividends or capital gains.

What makes a foreign investment company a PFIC?

A foreign corporation is a deemed passive foreign investment company (PFIC) if 75% or more of its gross income is from non-business operational activities (the income test), or at least 50% of its …

What are the tax consequences of investing in a foreign company?

Before investing in foreign equities, U.S. taxpayers should consider the tax consequences that may apply to them. Foreign investments by U.S. taxpayers can be subject to the punitive tax consequences of investments in passive foreign investment companies (PFICs).

What kind of passive income is included in PFIC?

For purposes of PFIC determination, passive income is foreign personal holding company income (FPHCI) as defined in Sec. 954 (c). Principal forms of FPHCI are interest, rents, royalties, capital gains, currency gains, and dividends (Sec. 954 (c)). Active banking and insurance income, as defined by Secs.