PFIC Trap and Financial Planning for US Expats in Brazil: Sponsored

By Shalina Chatlani, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Many United States citizens living overseas are unaware of the potential financial difficulties they could be facing in near future. To help out the Rio-based firm Ipanema Wealth, which is operated by British expatriate Amit Ramnani, offers financial and tax planning considerations.

Expatriates from the United States often find themselves in confusing and costly situations when trying to hold non-U.S. collective or pooled funds, known as PFICs (passive foreign investment companies).

Amit Ramnani explains, “You can fall into the PFIC trap if you invest in a fund which has been recommended by your overseas bank manager or decide to start an offshore savings plan. These innocent actions will result in a higher tax charge.”

The holder of a U.S.-incorporated fund pays the low long‐term capital gains rate of fifteen percent if held for more than a year. Buying a virtually identical fund listed outside the U.S. will result in both income and capital gains being classified as ordinary income and automatically taxed at the top rate of 39.6 percent. In some cases, the total tax on a PFIC investment may rise to above fifty percent.

While most U.S. advisors prefer to recommend U.S.-based solutions, there are more dynamic solutions available outside the U.S. which offer significant investment and currency diversification. “Certain jurisdictions offer IRS-compliant fund platforms and if investors focus on U.S. registered ETFs, direct assets and other recognized assets, they will not have PFIC issues. Be sure to seek professional advice.”

Ramnani continues, “Such fund platforms offer an IRS-compliant reporting format to ensure a smoother dialogue your accountant when preparing your tax return. Bear in mind that your US accountant may still be learning how to apply FATCA rules for international clients. Sometimes paying for additional support is worth it for a lower tax bill and greater peace of mind.”

Disclaimer: Ipanema Wealth provides an advisory service and does not engage in capital markets or the selection of financial instruments. For more information, please submit a specific enquiry via their website here.

* This is a sponsored article for Ipanema Wealth.