What are Passive Foreign Investment Companies (PFICs)?

PFIC (Passive Foreign Investment Companies) are non-U.S. based companies that either (i) generate 75% of gross income from “passive income” sources or (ii) use 50% of the company’s assets to generate “passive income.” In general, most investors want to avoid PFICs because the IRS taxes gains from these investments at the ordinary income tax rate, as opposed to the lower capital gains tax rate.