PFIC (Passive Foreign Investment Company)

A US tax classification that traps American investors in foreign pooled investments such as non-US mutual funds, ETFs, money-market funds, and some offshore holding companies. A foreign corporation is a PFIC if 75%+ of its income is passive or 50%+ of its assets produce passive income. US persons holding PFIC shares face punitive tax on excess distributions and gains, compounded interest on deferred tax, and onerous annual IRS Form 8621 reporting. The practical consequence: US expats should almost never hold foreign-registered funds, even locally marketed 'retirement' products — US-domiciled index funds in a US brokerage remain the default recommendation.