I am interested in buying ECAS for my portfolio, but am having trouble finding out the tax ramifications of owning it for a US resident. From ECAS’s website, they expect the company will be classified by the US as a PFIC (Passive Foreign Investment Company). My understanding is that this status will create a US tax approaching 40% for distributions to US individuals and a perhaps a lot of record keeping. My conclusion is that it would probably not be wise to hold it in a regular taxable account. Consequently, I am considering holding it in an IRA account.
Does anyone know if there would be any foreign taxes withheld for a US resident owning ECAS and, if so, how much? I realize foreign taxes withheld for a stock in an IRA are likely to be lost and not able to offset any US taxes. ECAS is incorporated in Guernsey (Channel Islands off of UK). As far as I can tell, Guernsey does not withhold taxes. I have contacted my brokers and ECAS and ACAS, but everyone claims ignorance (ACAS stated it is against SEC rules for them to comment). Any tax guys or ECAS owners out there that can help out?
First of all, I am not a tax accountant. If ECAS is a PFIC, I would not buy it unless it is in a tax deferred account. The tax complexities are enormous, and the penalties for doing it wrong are just as large. You may even have trouble finding a tax accountant who really [I mean really] understands it. I forget the forms involved and some of the tax jargon, and I'm not prepared for the pain of researching it again. But basically you have a choice of marking the investment to market at the end of each year and paying ordinary tax rates on the unrealized gain, or completing some intimidating tax forms every year to defer the tax. You're way past 1040 land if you choose to do this, and you may want to talk to your tax accountant ahead of time to get a cost estimate for the extra work.
I hope you are not talking ACAS, lots differnt as an answere.
OK any foreigh stock owned by a US resident will be taxed, if the foreign country has income taxes, and it will be deducted from dividends. On the 1040 tax form, you get a tax credit, not deduction, for any foreign taxes paid. Therefore the tax thought is pretty much nil.
For all with foreign investments that one line on the 1040 is not hard to fill in. Takes probably a second or so. A two dollar tax credit then becomes a $120 per minute salary.