Overview of PFIC Rules – U.S. Tax Implications on Domestic Real Estate Investors in Offshore Funds

In this article for the Real Estate Fund Intelligence, Ashalata Shettigar provides an overview of PFIC rules, exceptions from PFIC rules and useful tax structuring strategies.

This is an extract from REFI US, August 26, 2020. The whole publication is available at https://refi.global/us/business-strategy/overview-of-pfic-rules-u-s-tax-implications-on-domestic-real-estate-investors-in-offshore-funds/.

"It is common to see capital flow across the borders in the search of higher return on investments in a free ow global economy and over the years, there has been an increasing trend of U.S outbound investments to a whopping 5.96 trillion U.S. dollars in 2019 from 1.32 trillion U.S. dollars in the year 2000¹. This topic is of particular importance to real estate investment management companies.

The Passive Foreign Investment Company rules were enacted in 1986 to discourage U.S. investors from investing in offshore funds that do not have a similar tax regime to the U.S. Why is the PFIC regime so daunting for U.S. investors? Let’s take a deeper dive into the U.S. tax laws to better understand."

Footnote:

1: Source: BEA, Direct Investment Position Data of U.S. abroad 2000-2019, published July 2020