Don’t purchase foreign investment funds (PFICs)

We commonly discover that our clients own non-U.S. investment funds – such as Swiss “Fonds” and other foreign-issued funds (ETF, SICAV and the like) – in their custodial, 3rd Pillar, or pension holding (Freizügigkeitskonto) account.

For U.S tax purposes such funds are called PFICs (Passive Foreign Investment Company) and are taxed at a punitive tax rate while you hold them and when you sell them.
Also, we are obliged to complete detailed reporting forms each year for every single PFIC you own.

The after-tax cost of these foreign funds always makes them a bad investment. If you hold foreign corporate shares and other securities directly, rather than bundled into a foreign fund, you will avoid PFIC tax and may benefit from preferential U.S. tax rates on dividends and long-term capital gains.

Also, be sure to instruct your financial advisor not to purchase PFICs on your behalf.