I think, as an American citizen, you have to file a tax return in the USA no matter where you live. I came across this in my research re PFIC. If you live in Europe, I would avoid buying a mutual fund in Europe which would qualify as a PFIC. The reporting of a PFIC in the USA, and the sale of it eventually is major work and costs a lot of money. The PFIC came about because the US wanted to discourage people from investing overseas and hiding money. When you sell a PFIC you pay a huge penalty tax. The tax return each year in itself is expensive because of it. You will need someone to prepare that PFIC calculation for you. The ant calculating the PFIC will tell you where to enter what in your tax return. Of course, you have to report all of your foreign assets on form 8938 to the IRS and do a FATCA report. Anyone moving from a European country to the USA, you better sell your PFIC before you get to the USA. It is a nightmare having a foreign PFIC and filing a tax return in the USA. If you want to invest as an American in a mutual fund, it is better to do so in the USA. You safe a lot of money. I have been dealing with a PFIC in a European country for years living in the USA. I know when I sell it, the IRS will take almost 50 % of the money, the highest tax coupled with penalties and interest. I did not know about PFICS and learned about it too late.

 

I agree with Anin99's advice, try to invest your 15K in something which is not a PFIC. Maybe in an ordinary European bank . Or an American mutual fund/ETF.

PFIC is distict from FATCA. FATCA reqires all US citizens to report their foreign assets (subject to applicable minimums) on the FBAR form and perhaps the Form 8938 (again if applicable). That's relatively easy.

A beginner should deal with PFIC's by avoiding having them. If you recently got one, you might want to discreetly get rid of it. HTH.

 

In the 2010 timeframe I did extensive PFIC calculations on small s in the UK my wife owned. They are incredibly complex as they are supposed to punish you. You have to take the gains from a sale for example and distribute them over the time you held the fund. Tax them at the maximal tax rate for each year (not your tax rate, the highest possible). You then cast the tax forward with interest compounded daily. Dividends are split into two buckets and one of the buckets gets treated the same was as sales (excess distributions).
I had thousands of pages of tax returns for this since dividends were reinvested over time and each lot has its own form (8621). I had to write a computer program to actually fill out the forms to avoid paying data entry fees. Just read the OMB guess at how long it says you need to understand 8621.
I took advantage of an IRS temp reg to reduce the burden somewhat and the IRS itted to me that they had no s/w to check my return. They said they did back of the envelope calcs to see if it looked right and then accepted it.
Avoid PFICs at all cost. If you have them then it's going to be hard to find people who can do them.

 

Sorry, I have not been her for a while. Yes, agree again , do not invest in foreign mutual fund, if you inherited one overseas sell it. If you have one or keep one, when you sell it the IRS will tax the highest tax with penalties. It will be over 40 %, almost half your money will be gone. Plus the cost of doing that tax return . Obama wanted to stop people (rich people) from investing overseas, so in 2014 this whole PFIC thing was created and FATCA. It was meant for the ultra-rich. But the end result was that the little people, who perhaps inherited something from their parents overseas, were really punished. Low-income earners do not have $2000 top pay to some ant (foreign tax return fees) to do their taxes. I live in the USA, born somewhere else, I inherited small amount of money in Mutual fund. I di not know about PFIC. Now I do PFIC every year. For those of you who have calculated the PFIC yourself ,just to let you know, there is a program which you can buy or use that computes your PFIC. No need to calculate yourself. It will give you the right numbers to put into your tax return. (google Form 8621) ants use it . Sadly, I personally have written my money off. As soon as I sell this fund overseas the IRS will take about half of the money. The sad thing is, I do not have a lot of money, so it is hard for me. The ultra rich probably never pay a dime, as they have lawyers to do their tax and ways to deal with it,

 

Obama wanted to stop people (rich people) from investing overseas, so in 2014 this whole PFIC thing was created and FATCA. ...

Not quite. Both are (of course) bad tax laws. Obama signed FATCA into law in 2010. However, PFIC is a much older US tax trap, ed in 1986. Described drily by Wikipedia:

For purposes of income tax in the United States, U.S. persons owning shares of a ive foreign investment company (PFIC) may choose between (i) current taxation on the income of the PFIC or (ii) deferral of such income subject to a deemed tax and interest regime. The provision was enacted as part of the Tax Reform Act of 1986 as a way of placing owners of offshore investment funds on a similar footing to owners of U.S. investment funds (regulated investment companies).

As for "... on a similar footing to owners of U.S. investment funds". Yeah, right. Even its least worst instantiation, annual tax on unrealized gains at ordinary income tax rates, is far from "similar" to normal US capital gains tax rules.

 

Thank you for explaining this to me about the PFIC. I thought this "calculation" of the PFIC (18 pages of computer outprint) was new, as well as the interest and penalties each year. Each year I pay penalty tax and interest on that mutual fund. I assumed I will pay this also in addition to maximal tax rate at the end when I sell it, only that time on entire sum of money.

 

Each year I pay penalty tax and interest on that mutual fund. I assumed I will pay this also in addition to maximal tax rate at the end when I sell it, only that time on entire sum of money.

It sounds like you're describing the "section 1291" tax treatment. This is the worst of the three ways that PFIC can operate, and unfortunately it's also the default where you don't elect any other, which is exactly what happens when you have no clue for years that this nasty and well hidden PFIC tax trap even exists.

The least worst is QEF - that one is more or less equivalent to holding a US domiciled fund - but very few non-US domiciled funds offer the information required for that; mostly just a handful of Canadian funds. So in practice, "mark to market" nearly always comes out as the slightly lesser of the two available evils.

Assuming you will remain a US resident/citizen, you might simply be better off selling this thing now, taking the immediate (and unpleasant) tax hit, and then reinvesting the remaining proceeds in something that is US domiciled. It'll likely hurt, but the damage from holding this in the past can't be undone, and at least you'll escape even more damage in future.