Passive Foreign Investment Company (PFIC) Under U.S. Tax Law

A Passive Foreign Investment Company (PFIC) is a foreign corporation that generates passive income or holds assets producing such income.

A PFIC should meet at least one of the following two tests each year:

• Income Test: At least 75% of the company’s gross income should be passive. This includes income from sources such as interest, dividends, royalties, rents, or capital gains.
• Asset Test: At least 50% of the company’s assets should be used to produce passive income.

U.S. investors who hold shares in a PFIC should understand PFIC tax rules to comply with U.S. tax law.