Tax implications of holding EWU (or other such UK ETFs) as a US citizen?
What with the Brexit completely murdering UK stocks right now, and having taken to heart the motto "buy when there's blood in the streets", I was thinking of investing some money in the UK, via ETF. My main worry (other than obviously the worry that it won't recover, but I think long-term) is that it will complicate my tax situation too much (I've always filed taxes myself using Turbotax, and would prefer not to have to pay significantly more money next year to hire a professional). For some reason, I can find loads of information on implications of holding US stocks as a UK citizen, but hardly anything on the opposite, being an American citizen holding UK stocks.
From what I can tell, there is an agreement between the two countries such that dividends aren't taxed by the UK, is that still accurate? And does that imply that no special tax forms would be required, or just that nothing would happen as a result of filing them (if the latter, how well do tax software handle them?) And what about when I eventually liquidate some of it - how complicated will that make my life, tax-wise?
Thanks!
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My understanding is that EWU (and EWUS) are both traded on US stock markets (NYSE & BATS), and as such these are not classified as PFIC. However, they do contain PFICs, so iShares takes the responsibility of handling the PFICs they contain and make adjustments in December.
This contains the information about the adjustments made in 2016. www.ishares.com/us/literature/tax-information/pfic-2016.pdf
On page 106 of the statement of the summary information they describe how they handle paying the necessary tax as an expense of the fund. www.ishares.com/us/library/stream-document?stream=reg&product=WEBXGBP&shareClass=NA&documentId=925898~926077~926112~1180071~1242912&iframeUrlOverride=%2Fus%2Fliterature%2Fsai%2Fsai-ishares-trust-8-31.pdf
(I'm not a tax professional)
You will not be able to continue filing with TurboTax if you invest in foreign funds. Form 8261 which is required to report PFIC investments is not included.
Read the form instructions carefully - if you don't feel shocked and scared, you didn't understand what it says. The bottom line is that the American Congress doesn't want you do what you want to do and will punish you dearly.
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