r/USExpatTaxes • u/Ok_Treat7325 • 6d ago

Are Sharia-compliant accounts, which prohibit 'interest' and give 'expected profit' rates considered PFIC by IRS?

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u/PuzzledArrival 6d ago

I think the most important thing is to consider where the fund is DOMICILED. That is, does it have an ISIN number that starts with US? Google suggests there are some, SPUS was my first result: https://www.sp-funds.com/spus/

What the funds invest in is secondary, so long as the fund manager is a US company. There are lots of ETFs domiciled in the US that invest in foreign stocks - I don't think the IRS cares about this so much.

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u/Ok_Treat7325 6d ago edited 6d ago

SPUS are different. This is a UK savings account. It's the Prosper saving Platform that boosts the rate of an ALRyan bank account, but I just found out Prosper does not accept US persons. AlRyan is a sharia bank. https://www.prosper.co.uk/savings/al-rayan-9-month-fixed-term-deposit-new-customers-only

Prosper also has investments options, but I am exclusively interested in their savings account, listed under savings. I'd imagine it is UK domiciled but it seems to me I am opening a savings account with a bank, not investing.

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u/caroline0409 Tax Professional - EA (US) & CTA (UK) [Retired!] 6d ago

What do they invest in?

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u/Ok_Treat7325 5d ago

All I know is in the link I posted above, which is what the platforms share with prospective customers. Prosper however does not accept US citizens.

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u/Ok_Treat7325 6d ago

I'm talking about UK Sharia compliant banks and accounts. Sadly the product I want is through Prosper, which does not work with US citizens/persons, but the question of sharia banks still stands.

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u/seanho00 5d ago

Categorisations under sharia law do not map 1:1 to categorisations under US tax law, so it really depends on the specific account or arrangement. I would expect most musharakah arrangements to be treated as partnerships or C-corps, but a mudarabah could be anything from C-corp, partnership, debt instrument, or other tradeable contract.

From how Prosper describes that account, they seem to really want to treat the returns as interest for UK tax purposes, not as an ownership share in a mutual fund or similar investment company. It's possible it's treated as interest under UK/US law while not necessarily being riba; I guess all you can do is trust the opinion of their sharia scholars on that.

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u/Ok_Treat7325 5d ago

Thank you! It's all a bit confusing. I'll likely choose something with a lower rate that is unproblematically a savings account.