Dual citizen (USA/Germany), residing in Germany.
I thought I was doing something great for my US-citizen child and set up a German Junior-Depot (Custodial account as called in USA). I liked the idea of them having some starting capital when they are 18, being tax exempt on capital gains, dividends, interests, as well as being able to teach them how passive income works. I thus opened an account and purchased an EU based ETF with a 25€ monthly payment.
Now good news/bad news situation: Good news I read about PFIC (Passive Foreign Income Company) challenges now when the account has been active for only 6 months, bad news, I am now faced with a form 8621 for the 2021 tax year. 2020 the account didn't have any gains, nor did it fail the De minimis Exception of $25k account value (at least that's how I understand the law).
So the way I see it, I best close the ETF immediately and go through the trouble of filling the 8621 form for that $10 gain (or wait, hope the stock market loses money, and if the fund loses money, can ignore the ETF ever having been purchased). I would assume I could continue with the ETF and it would remain tax free, due to my child's threshold, however I would be causing myself unnecessary bureaucratic challenge and likely fill out the form incorrectly.
So question #1: Please correct any miss information above.
Now I face the challenge of wanting to still leave my child with a tax exempt starting capital. I cannot open a US custodial account, as it's governed by state law and we don't have a US address. Therefore, I cannot purchase a US based ETF - I don't think DE brokers offer them either. Furthermore, if I buy individual stocks, I risk losing money, as I am putting all eggs in one nest.
So question #2: Does anyone have any good ideas for investment opportunities that aren't classified as PFIC, nor do they involve purchase of individual stocks, but could still allow me to get my child started with passive earned income?
Q#3: Also, just to confirm, as this PFIC regulation through me off and really caused for concern, the US doesn't care if I invest in a US stock on the Frankfurt exchange, right? It's only these ETF's that are EU company funds, that have the major challenge with high tax rates and form 8621?
Help on this would be much appreciated and hopefully there is some helpful information in here, for anyone looking into something similar.