PFIC Portugal: Investing in Funds as an American Living There

A PFIC, a passive foreign investment company, is a foreign corporation that meets one of two tests set out in the IRS instructions: 75 percent or more of its gross income is passive income, or at least 50 percent of its average assets produce or are held to produce passive income. A U.S. person who owns shares of one, directly or indirectly, files Form 8621 with the tax return when one of five situations in the instructions applies, and this does not stop at the border: it applies to an American living in Portugal as much as to one in Ohio.

This article stays with what the IRS pages say. It does not tell you that a particular Portuguese fund is or is not a PFIC, because the pages we read do not say so, and it is not tax advice. For the overview of the US return from Portugal, start with our guide to US taxes for Americans in Portugal.

What we read, and what the date of this guide refers to

We read the pages named at the end on 19 October 2026. The date of this guide, 8 December 2025, is the date printed on the current Instructions for Form 8621 (Rev. December 2025), the most recent change to the rules text we cite. The IRS “About Form 8621” page was last reviewed on 30 March 2026 and says “None at this time” under recent developments. The Form 8938 instructions we also read show a last reviewed date of 30 April 2026.

We did not find a separate IRS explainer page on PFICs. We used the form page and the instructions, which are the primary text. The IRS regulations they refer to (such as section 1.1297-1 and 1.1295-3) were not opened for this article, so where the instructions send you to a regulation, we only say that they do.

Who has to file Form 8621?

The IRS “About Form 8621” page says a U.S. person that is a direct or indirect shareholder of a PFIC files Form 8621 if they:

• receive certain direct or indirect distributions from a PFIC
• recognize a gain on a direct or indirect disposition of PFIC stock
• are reporting information with respect to a QEF or section 1296 mark-to-market election
• are making an election reportable in Part II of the form
• are required to file an annual report under section 1298(f)

The instructions repeat these as “five circumstances” and add that a separate Form 8621 must be filed for each PFIC in which stock is held directly or indirectly. A single form per PFIC can cover the annual report (Part I), the elections in Part II and the income or gain parts, and spouses filing a joint return may file a single Form 8621 for a PFIC in which each owns an interest.

“U.S. person” is the same category as for the other international forms. If you are a U.S. citizen or green card holder, the rules apply to you wherever you live. A Briton with no U.S. status is not a U.S. person for this purpose. A Briton who is also a U.S. citizen or green card holder is. Our guide to FBAR and Form 8938 for Portuguese accounts explains how those reports sit next to this one.

What makes a foreign fund or company a PFIC?

The instructions say a foreign corporation is a PFIC if it meets either test.

Three details from the instructions matter for how the tests are applied:

• Look-thru rule: the foreign corporation is treated as if it directly held its proportionate share of the assets and directly received its proportionate share of the income of any corporation in which it owns at least 25 percent of the stock (by value).
• Basis for the asset test: a corporation that is not publicly traded and is a controlled foreign corporation must use adjusted basis, and publicly traded foreign corporations must use fair market value.
• Indirect ownership: a U.S. person is generally an indirect shareholder if they are a 50 percent or more shareholder of a foreign corporation that is not a PFIC and that directly or indirectly owns PFIC stock, a shareholder of a PFIC that itself owns another PFIC, or an owner of a pass-through entity that owns PFIC stock.

Whether a particular Portuguese fund meets these tests is a factual question about that fund. The instructions refer to “stock”, “shares” and “foreign corporation”, and the pages we read do not mention mutual funds or ETFs by name, so we do not say how a Portuguese fund vehicle is classified. The fund’s own documents, the PFIC Annual Information Statement mentioned below, or a tax professional are where that answer comes from.

When and where is Form 8621 filed?

The instructions say to attach Form 8621 to the shareholder’s tax return and file both by the due date, including extensions, at the Internal Revenue Service Center where the tax return is required to be filed. If you are not required to file an income tax return for the year, file Form 8621 directly with the Internal Revenue Service Center, Ogden, UT 84201-0201.

For an American in Portugal that means the same return and the same deadlines as the rest of the return. Our guide to filing US taxes from abroad and the deadlines covers the automatic extension for those living abroad.

Which exceptions do the instructions list?

The instructions give exceptions in two places: for who is treated as a shareholder at all, and for completing Part I, the annual summary.

Stock held through certain accounts. A U.S. person that owns stock of a PFIC through certain tax-exempt organizations or accounts is not treated as a shareholder of the PFIC. The list includes an individual retirement plan or annuity as defined in section 7701(a)(37), plans under sections 403(b) and 457(b), organizations described in section 401(a), 501(c) and 501(d), qualified tuition programs under sections 529 and 530, and qualified ABLE programs under section 529A.

Part I exceptions for section 1291 funds. A shareholder is not required to complete Part I for a specific section 1291 fund if both conditions hold:

The instructions list further exceptions for particular holders (certain trust and estate beneficiaries, arrangements treated as a foreign pension fund under a U.S. income tax treaty, tax-exempt organizations), which we do not go through.

These exceptions are about Part I. They sit next to the five filing circumstances above: an excess distribution, a gain on a sale or an election still triggers a Form 8621. A borderline holding is a question for your preparer.

What are the three ways PFIC income is taxed?

The instructions describe the default regime and two elections.

An excess distribution is the part of a distribution from a section 1291 fund in the current year that is greater than 125 percent of the average distributions on the stock during the 3 preceding tax years. The instructions state that the entire amount of gain from the disposition of a section 1291 fund is treated as an excess distribution.

How does the QEF election work?

A PFIC is a QEF if a U.S. person who is a direct or indirect shareholder elects under section 1295(b) to treat it that way and complies with the requirements of section 1295(a)(2). Points from the instructions:

• A separate election must be made for each PFIC the shareholder wants to treat as a QEF.
• Generally, the shareholder must make the election by the due date, including extensions, of the return for the first tax year to which it applies.
• The election is made on Form 8621 by checking box A in Part II, completing Part III with the information from the PFIC Annual Information Statement, and attaching the form to a timely filed return.
• For each year the election applies, the PFIC must give shareholders a PFIC Annual Information Statement with the shareholder’s pro rata share of ordinary earnings and net capital gain, or enough information to calculate it.
• The shareholder must keep copies of all Forms 8621, attachments and statements. The instructions say failure to produce them at the IRS’s request may result in invalidation or termination of the election.
• A shareholder of a QEF may make Election B to extend the time for paying tax on undistributed earnings, with interest imposed on the deferred tax.

The instructions also describe a retroactive election, allowed only with a protective statement filed earlier or with IRS consent, and a deemed sale election (D) for a shareholder who makes the QEF election after the first year of the holding period and, where the PFIC is also a controlled foreign corporation, a deemed dividend election (E).

How does the mark-to-market election work?

A shareholder of a PFIC may elect to mark to market under section 1296 if the stock is “marketable stock”. The instructions define it as PFIC stock regularly traded on a national securities exchange registered with the SEC, on the national market system established under section 11A of the Securities Exchange Act of 1934, or on a foreign securities exchange that is regulated or supervised by a governmental authority of the country where the market is located and has the characteristics described in Regulations section 1.1296-2(c)(1)(ii). Certain PFICs described in Regulations section 1.1296-2(d) are excluded.

The election is made by the due date, including extensions, of the return for the year in which the stock is marked to market, by checking box C in Part II and completing Part IV or Part V. Once made, it applies to all later years unless it is revoked or terminated. If the election is made in a year other than the first year the shareholder holds the stock and no QEF election is in effect, the instructions say the stock is treated as sold at fair market value on the last day of that tax year, with the gain treated as an excess distribution subject to section 1291.

Does Form 8938 replace Form 8621?

No. The Form 8938 instructions say that a specified individual who reports all specified foreign financial assets on a timely filed Form 8621 (or 3520, 3520-A, 5471 or 8865) does not have to report them on Form 8938, and completes Part IV only. Where the asset is reported on Form 8938 as well, the Form 8621 instructions include a box to check, “Excepted Specified Foreign Financial Assets Reported”, and the number of Forms 8621 goes on line 4 of Part IV of Form 8938. The value of assets on Form 8621 also counts towards the Form 8938 reporting threshold.

The FBAR is a separate report to FinCEN and these pages do not cover it. Read FBAR and Form 8938 for Portuguese accounts next.

What does Portugal require for foreign investment income?

The Portal das Finanças says residents in Portugal must declare in Portugal all income obtained in Portugal and abroad. With the Modelo 3 IRS return, foreign income goes in Annex J, whose tables include capital income such as interest and dividends and capital gains from the sale of shares, and a table identifying all deposit or securities accounts held with a financial institution outside Portugal, even if they produced no income. Annex J asks for gross income before foreign tax, and tax paid in the source country is taken into account as a credit for international double taxation. The return is filed from 1 April to 30 June of the year after the income.

Jointly held accounts: each holder declares the income in proportion to their share, and spouses who file jointly fill in two Annexes J if the account belongs to both. For how Portuguese tax residence is decided, see Portuguese tax residence for Americans and Britons.

The Portuguese pages we read concern foreign income. They do not say how the AT treats an investment fund based in Portugal, and we do not describe it here. For tax relief between the two countries, our guides to the foreign tax credit and exclusion and the US-Portugal tax treaty cover what we read. The practical question of keeping US brokerage accounts while you live abroad is in keeping US and UK accounts.

Practical points before you buy a fund

These follow from the pages above and are not individual advice:

1. Ask the fund for its tax documents. The QEF election depends on a PFIC Annual Information Statement, and the instructions require you to keep it.
2. Count your total PFIC holdings at year end, because the 25,000 and 50,000 dollar tests add them together.
3. Keep records of purchase dates and distributions. The excess distribution rules look back three years and allocate over the whole holding period.
4. Decide on a QEF election by the due date of the first year it applies. A later election needs the extra steps the instructions describe.
5. Retirement accounts are treated differently: stock held through an IRA is outside the shareholder definition (see IRAs and 401(k)s while you live in Portugal).

Pages read on 19 October 2026: About Form 8621 (irs.gov, reviewed 30 March 2026); Instructions for Form 8621, Rev. December 2025; Instructions for Form 8938 (irs.gov, reviewed 30 April 2026); Portal das Finanças, “Rendimentos obtidos no Estrangeiro” and the FAQ “Rendimentos no Estrangeiro”.