I have a green card. Do I need to file Form 8621 for a Hong Kong mutual fund?

Usually yes. A Hong Kong-domiciled mutual fund is generally a PFIC, and a U.S. tax resident files a separate Form 8621 for each one. If all your PFICs total $25,000 or less ($50,000 joint) at year-end and you had no distribution or sale, you can skip the annual information part for that fund.

How is the gain taxed when I sell a PFIC?

Without a QEF or mark-to-market election, the gain is spread over your holding period. The current-year share is ordinary income; shares allocated to earlier PFIC years are taxed at that year's highest individual rate (37% for 2018–2025) plus interest. A loss on a PFIC does not reduce that gain.

Are Chinese bank wealth-management products PFICs?

It depends on each product's legal form and holdings. Products that are funds in substance may be PFICs; deposit-like or other structures may not be. Review the product documents one by one, and remember the account itself may be reportable on the FBAR and Form 8938.

Is a U.S.-listed China ETF a PFIC?

Generally no. An ETF organized and listed in the U.S. is a U.S. fund even if it holds Chinese stocks. The PFIC rules are aimed at funds organized outside the U.S. and at foreign companies that mainly hold investments.

What happens if I didn't file Form 8621?

Under §6501(c)(8), when required PFIC information isn't furnished, the statute of limitations for that year doesn't close until 3 years after the information is provided; with reasonable cause, only the related items stay open. That return can remain open to adjustment for a long time.

PFIC and Form 8621 for Hong Kong and China Funds

The short answer

U.S. citizens, green card holders and other U.S. tax residents who own Hong Kong or mainland China mutual funds, fund-type wealth-management products, or ETFs listed outside the U.S. usually hold a passive foreign investment company (PFIC) and file Form 8621 for each one. The default "excess distribution" regime spreads gains back over the holding period and taxes them at the highest rate for each prior year, plus interest. A QEF or mark-to-market election can avoid that, but only if conditions are met. If the total value of all your PFICs is $25,000 or less ($50,000 joint) at year-end and you had no distribution or sale, you can skip the annual part; if you must file and don't, the statute of limitations stays open.

Who this applies to

New immigrants who bought funds in China before moving and never sold them. Once you become a green card holder or meet the substantial presence test, those funds are in the U.S. tax net.

Families with Hong Kong brokerage accounts, for example holding an ETF listed in Hong Kong that tracks the Hang Seng Index.

People with bank "wealth-management" products in China: some are funds and may be PFICs; others are deposit-like or have other structures, so each one needs a look at its legal form.

U.S. citizens and green card holders who returned to China to work or retire and keep investing there.

Business owners with foreign companies that mainly hold cash or investments, which can also be PFICs.

What a PFIC is and why Form 8621 is required

A foreign corporation is a PFIC if it meets either the income test or the asset test, and nearly every non-U.S. fund does.

Income test: 75% or more of its gross income is passive (interest, dividends, capital gains and the like).

Asset test: at least 50% of its average assets produce, or are held to produce, passive income.

One form per fund: file a separate Form 8621 for each PFIC with your return, by its due date including extensions.

U.S. ETFs are different: a U.S.-listed ETF investing in Chinese stocks is a U.S. fund, not a PFIC, and shares of an ordinary operating Chinese company generally are not PFICs either. The problem is funds organized outside the U.S.

Three regimes: excess distribution, QEF and mark-to-market

With no election, the excess distribution regime of §1291 applies automatically, and it is the least favorable.

Default: excess distributions (§1291)

Definition: the part of this year's distributions above 125% of the average for the prior 3 years. All gain on a sale is treated as an excess distribution. Distributions in the first year you hold the fund are not excess distributions.

Tax: the excess distribution is spread evenly over the days you held the shares. Amounts allocated to the current year and to pre-PFIC years are ordinary income. Amounts allocated to earlier PFIC years are taxed at the highest individual rate for each of those years (37% for 2018 through 2025), plus an interest charge.

Losses don't help: a loss on selling a PFIC does not reduce the gain subject to §1291.

QEF election (§1295)

How it works: each year you include your share of the fund's ordinary earnings as ordinary income and its net capital gain as long-term capital gain, whether or not anything is distributed.

Catch: the fund must provide a PFIC Annual Information Statement. Hong Kong and mainland retail funds rarely do, so this is often not available.

Mark-to-market election (§1296)

How it works: each year-end, any increase in value is ordinary income, and decreases are ordinary losses to the extent of prior inclusions.

Catch: the shares must be "marketable stock," such as an ETF regularly traded on a regulated foreign exchange. If you elect late, §1291 can still apply in the first year.

Filing thresholds, the open statute, and FBAR / Form 8938

The small-holding exception covers only the annual information part, and only when there was no distribution or sale.

$25,000 / $50,000 exception: if on the last day of the tax year the total value of all your PFIC stock (including QEF and mark-to-market funds) is $25,000 or less, or $50,000 or less on a joint return, and you had no excess distribution from or sale of that fund, you need not complete Part I for it. A separate $5,000 exception applies to certain indirect holdings.

An exception is not an exemption from tax: it only skips the annual information part. Once there is an excess distribution or a sale, the gain is taxed under the rules above and the form must be completed. The threshold counts all PFICs together, including QEF and mark-to-market funds, not one fund at a time.

The statute stays open: under §6501(c)(8), if required PFIC information isn't furnished, the assessment period for the related return doesn't end until 3 years after the information is provided. With reasonable cause, only the related items stay open. A missing 8621 can leave a whole return exposed.

FBAR: if the foreign bank or brokerage accounts holding the funds, together with your other foreign accounts, exceed $10,000 at any time during the year, file FinCEN Form 114, due April 15 with an automatic extension to October 15.

Form 8938: foreign mutual funds are specified foreign financial assets. A single filer living in the U.S. files when they exceed $50,000 at year-end or $75,000 at any time ($100,000 / $150,000 joint). PFICs reported on a timely Form 8621 don't need to be listed again in detail, but you show the number of 8621s in Part IV of Form 8938.

A simple example

Simplified; interest is not computed precisely and state tax is ignored.

Ms. Zhang became a green card holder in 2019. In January 2022 she put $40,000 into a Hong Kong-domiciled mutual fund, made no election, and sold it in December 2026 for $60,000, a $20,000 gain.

Under §1291 the $20,000 is spread over 2022 through 2026, about $4,000 per year. The 2026 share is ordinary income on her 2026 return. The roughly $16,000 allocated to 2022 through 2025 is taxed at 37%, about $5,920, plus interest running from each of those years.

Had she held a U.S. ETF, the same $20,000 long-term gain at 15% would cost about $3,000. The difference comes from the PFIC rules, not the investment.

Common mistakes

"The fund is in China or Hong Kong, so the U.S. doesn't care." The U.S. taxes worldwide income, and the PFIC rules apply on their own.

"I haven't sold, so there's nothing to report." Above the exception threshold, Form 8621 is due every year even without a distribution or sale.

"My losing fund offsets my winners." A PFIC loss does not reduce §1291 gain.

"Filing the FBAR and Form 8938 covers it." Those are information returns; they don't replace Form 8621 or the tax on the gain.

"I'll just make a QEF election now." A QEF election is generally made in the first year, needs the fund's annual statement, and a late election usually requires extra steps such as a deemed sale.

What to do and when

Now: list every foreign fund, wealth-management product and non-U.S. ETF, with purchase dates, cost, year-end values and distributions.

December 31, 2026: record each fund's year-end value and check it against the $25,000 / $50,000 exception. If you plan to sell, estimate the §1291 tax first.

April 15, 2027: 2026 Form 1040, each Form 8621 and Form 8938 are due (October 15 if the return is extended). The FBAR is due the same day, with an automatic extension to October 15.

Missed prior years: review catch-up options soon, because those years remain open.

How YCL can help

We review each Hong Kong, mainland China and non-U.S. fund for PFIC status, compute §1291 excess distributions and the interest charge, check whether a mark-to-market election is available, and prepare Form 8621.

We coordinate the FBAR and Form 8938 so nothing is duplicated or missed, and for unreported prior years we review the IRS catch-up programs for overseas income and accounts. See PFIC and foreign funds.

For the full process, see our guide: Form 8621 and PFICs. Related: FBAR and Form 8938.

YCL Accounting & Consulting is a multi-state CPA firm serving clients across the U.S. in English and Chinese, led by co-founder Gloria (Chenchen) Liu, CPA. You can start with a free 15-minute consultation.