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In this video, we will take up two questions from NRIs related to PFIC
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Browndoginthehouse asks how to deal with PFIC applicable for US based citizens staying in India which prevents mutual fund investments
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There is also some confusion related to debt mutual funds
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Crunchingnumber has also asked us about how to manage PFIC for US based NRIs in India
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We need to first understand what is a PFIC? PFIC is Passive Foreign Investment Company
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The first condition laid down by the IRS in the US is that 75% of the corporation鈥檚 gross income is passive
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The first condition laid down by the IRS in the US is that 75% of the corporation鈥檚 gross income is passive
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This means income other than that from company鈥檚 regular operations
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The second condition at least 50% of company's asset is in investments that produce income from earned interest, dividends or capital gains
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This means that all foreign mutual funds, partnerships and other pool investment vehicles having at least one US shareholder is termed as PFIC
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Debt fund or mutual funds will qualify under PFIC
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This doesn't mean that they can't invest, The implication is that there are higher taxes
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If there is a US diversified equity fund that is investing in the US and another US diversified equity fund investing in markets outside the US
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Income from the offshore mutual fund will be higher but because of compliance issues mutual funds don't allow US nationals to invest in their funds
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There is no bar, it is the rules which are complicated
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Covering the PFIC complications in one video will be fair. It is better to consult a qualified tax advisor
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You need to find out the implication of the foreign investment that you are planning
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As per the IRS in January 2017, dividends, interest, royalties, rents, annuities, gains from property sale that gives to dividends and interest
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...and a long list of other items will all come under PFIC
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A money market fund bank account can be a PFIC unlike a simple bank savings account
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These aspects have become more important after FATCA came into being
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The difference between a person staying in the US and in India is the quantum of funds above which he has to apply in his annual returns
