Investing in Foreign REITs: Tax Implications for US Expats

A foreign real estate investment trust that is not organized or treated as a US REIT almost certainly qualifies as a Passive Foreign Investment Company (PFIC), meaning its distributions and gains are subject to the PFIC tax rules rather than the favorable REIT dividend treatment available in the US. The PFIC rules can cause foreign REIT distributions to be taxed at ordinary income rates plus an interest charge, rather than as qualified dividends at the lower capital gains rates. US REIT dividends qualify for favorable tax treatment; foreign REIT dividends generally do not, even if the foreign REIT is publicly traded and widely held. US expats looking for international real estate exposure in a tax-efficient way are generally better served by US-domiciled ETFs and mutual funds that hold foreign real estate stocks, which avoids the PFIC classification entirely. Any foreign REIT holdings that do not route through a US fund must be disclosed on Form 8938 if the value exceeds the applicable threshold, and you must file Form 8621 annually for each PFIC position.