Regulated Investment Company or RIC is an investment trust that does not need to pay federal income taxes for distributing capital gains, dividends or interest. The individuals receiving the distributions are taxed. This eliminates double taxation – paying tax at both corporate and individual levels. A regulated investment company can be a mutual fund trust, a unit investment trust (UIT) or real estate investment trust (REIT).
To qualify as a regulated investment company, an investment trust should satisfy certain standards.
- The company should receive at least 90% of its income from its investments – as interest, dividends and capital gains.
- The company should distribute at least 90% of its income to its shareholders.
- The company should have a minimum diversification of assets.
- If the company also needs to avoid the 4% excise tax, it should distribute at least 98% of its income.
Regulated investment companies qualify for the tax exemption as per IRS regulation M. They can be open-ended or closed-ended; meaning the number of shares is either varying or fixed respectively. If the investment company operates in more than one country or invest the money in foreign markets, then they need to sign (multiple) agreements to prevent double taxation.
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