I have non-U.S. investments in mutual funds, are these taxed the same as U.S. funds?
In short, no. An investment in a foreign mutual fund is classified as a Passive Foreign Investment Company, or PFIC. PFICs are taxed through a much more complex system with much stricter rules than U.S. mutual funds or exchange traded funds.
It’s important to also note that any pooled investment that is registered outside of the U.S. would qualify as a Passive Foreign Investment Company. Therefore, in addition to foreign-based mutual funds, foreign unit trusts, and even some investments in foreign pension plans may also be considered PFICs.
In fact, investing in foreign mutual funds can sometimes be costlier than any economic benefit you might gain. It’s important to talk to an H&R Block Expat Tax Advisor to make sure you’re handling foreign investments in the best way possible.
Have more questions about foreign mutual funds? Ready to file? No matter how complicated your U.S. tax return is, there’s an Expat Tax Expert ready to help. Get started with Virtual Expat Tax Preparation from H&R Block.