If you invest through a Mexican bank, you're probably holding a PFIC. The IRS taxes these at punitive rates that can exceed 50% on gains. Here's what you need to know before you lose half your returns.
A Passive Foreign Investment Company (PFIC) is any non-US investment fund where 75%+ of income is passive (dividends, interest, capital gains) or 50%+ of assets produce passive income. This covers virtually every mutual fund, ETF, and managed investment product offered by Mexican banks.
The IRS created PFIC rules to prevent Americans from deferring taxes through foreign funds. The penalty regime is severe: gains are spread across your entire holding period, taxed at the highest marginal rate for each year, plus an interest charge. The effective rate commonly exceeds 50%.
Almost all of them. Fondos de inversión (mutual funds) from BBVA, Banamex/Citibanamex, Santander, Banorte, Scotiabank, HSBC, and Intercam are classified as PFICs. This includes money market funds, bond funds, balanced funds, and equity funds. Even "conservative" peso money market funds that your Mexican banker recommends trigger PFIC reporting.
The guide includes a specific list of common Mexican fund families that are PFICs, so you can check your current holdings.
Under the default "excess distribution" method, PFIC gains are taxed as follows: the gain is allocated across every year you held the fund. Each year's portion is taxed at the highest marginal rate for that year (currently 37% federal), plus an interest charge that compounds from each prior year. The effective rate routinely hits 40-55% on gains held for 5+ years.
There are two elections that can reduce this — the QEF election and the Mark-to-Market election — but both require annual reporting and Mexican funds rarely provide the statements needed for QEF. The guide covers which election works for Mexico and exactly how to file.
The simplest approach: keep your investments in US-based accounts. US mutual funds and ETFs held through US brokerages (Schwab, Fidelity, Vanguard, Interactive Brokers) are not PFICs. You report them normally on your US return.
The complication is that some US brokerages close accounts when you move abroad, and some restrict trading from foreign IP addresses. The guide covers which US brokerages currently work for Americans in Mexico and what to tell your broker about your address situation.
If you already hold PFICs and haven't been reporting them, you have a compliance gap. The guide covers the IRS Streamlined Filing Compliance Procedures, which allow you to catch up on missed PFIC reporting with reduced penalties if you can certify the non-compliance was non-willful. This is time-sensitive — do not wait.
Yes, in most cases. Mexican banks routinely open investment accounts (cuentas de inversión) alongside your checking account and move excess balances into money market fondos. Even if you didn't intentionally invest, if your bank swept cash into a fondo, you may hold a PFIC. Check your statements for any fondo de inversión positions.
If you buy individual Mexican stocks (direct equity positions) through GBM or Kuspit, those are not PFICs — they're direct holdings. But if you buy any fondo or ETF listed on the BMV (Mexican stock exchange), those are PFICs. The guide covers which specific products on Mexican platforms are safe and which trigger PFIC.
Filing Form 8621 for each PFIC typically costs $200-500 per fund per year if you use a CPA. If you hold 3-4 Mexican funds, that's $600-2,000/year in preparation fees alone — on top of the punitive tax rate. This is why avoiding PFICs entirely is almost always the better strategy. Read the full US expat tax guide →
Educational content only — not tax or legal advice. This guide is an orientation document. Tax law is complex and individual situations vary. Always consult a qualified US expat CPA and a licensed local attorney before making financial, visa, or property decisions. Figures are verified as of the date shown and subject to change. Full disclaimer →