If you are a US citizen living abroad and you have tried to buy a foreign fund, you have probably hit a wall of confusing rules and a tax outcome that punishes you for owning what looked like a normal investment. The US tax code treats foreign investment funds in a way that essentially makes them unusable. Here is what works in 2026 instead.
The PFIC issue in plain English
A Passive Foreign Investment Company (PFIC) is broadly any non-US corporation that derives most of its income from passive sources or holds mostly passive assets. This includes foreign mutual funds, foreign ETFs, some foreign stocks, and some foreign holding companies. The default tax treatment uses excess-distribution rules at your highest marginal rate with interest charges. Election options exist but require US-compliant fund reporting that most foreign funds do not provide.
The math typically results in a tax rate that consumes most of the return. PFICs are functionally a non-starter.
What works instead
Keep a US brokerage account. Charles Schwab International and Interactive Brokers explicitly serve US persons abroad. Open the account before you leave the US, maintain a US address, buy US-listed ETFs (no PFIC since they are US-domiciled).
Use a broker designed for global accounts. Interactive Brokers, Schwab International, Saxo Bank.
Tax-deferred accounts within limits. Traditional IRA, Roth IRA, Solo 401(k), SEP-IRA. The choice of FEIE vs FTC affects whether you have qualifying compensation.
Direct stock investing. Individual stocks are not PFICs. Build a portfolio of US stocks via a US broker.
Real estate. Direct property is not a PFIC issue but adds compliance complexity. Sarah covered Spain mechanics.
What does not work
Do not buy foreign mutual funds through a foreign broker. Do not buy UCITS funds. Do not use a foreign-resident retirement account that holds non-US funds. Do not forget the PFIC reporting form if you have legacy exposure.
Bottom line
US expat investing is genuinely harder than it should be. Workable strategies exist: maintain a US brokerage relationship, buy US-domiciled funds, avoid foreign funds entirely. The most important rule: open the US brokerage account BEFORE you leave the US. Reopening one from abroad is much harder.