GILTI tax: Global Intangible Low-Taxed Income meaning, calculation, and examples

GILTI stands for global intangible low-taxed income. Despite the name, it is not limited to intangible income – it reaches most active business profits of a controlled foreign corporation (CFC). This guide explains GILTI as it applies to tax years through 2025. For tax years beginning after December 31, 2025, GILTI is replaced by net CFC tested income – see NCTI tax (IRC 951A) for the 2026 rules.

You have GILTI exposure if you are a US shareholder (10% or more) of a foreign corporation that is a CFC – meaning US shareholders who each own 10% or more together hold more than 50%.

At a glance:

• Who is affected: US shareholders who own 10% or more – by vote or value – of a CFC
• Key threshold: The CFC must be more than 50% owned – by vote or value – by US shareholders
• Primary forms: Form 8992 for the GILTI calculation, Form 5471 filing requirements for CFC information reporting, and Form 8993 for the §250 deduction
• Effective corporate rate: 10.5% (tax years through 2025)
• Effective date: Tax years beginning after December 31, 2025

Example: You are a US citizen living in Singapore and own 100% of a local consulting firm incorporated there.

The firm earns $200,000 in net profit. Under GILTI rules, the full $200,000 is tested income – and the full $200,000 of tested income is included on your US return. As an individual without a Section 962 election, you pay ordinary rates on it and get no Section 250 deduction.

What is GILTI? Meaning and definition

The GILTI tax definition in plain terms: it is a minimum tax on the active earnings of foreign corporations controlled by US shareholders.

Congress introduced Global Intangible Low-Taxed Income under the Tax Cuts and Jobs Act in 2017. The name was misleading from the start – the tax reaches all types of CFC income, not just income from intangible assets.

For tax years through 2025, GILTI excludes a 10% deemed return on the CFC’s tangible business assets, called qualified business asset investment (QBAI). Only profit above that return is taxed.

Most CFC earnings left after deductions count as tested income, except the categories listed below.

What counts as tested income:

• Active business profits of the CFC – sales, services, and licensing income
• Rental and royalty income not already classified as Subpart F income
• Gains from the sale of business assets

What does not count:

• Subpart F income – excluded from tested income to prevent double inclusion
• Income effectively connected with a US trade or business
• Dividends received from related CFCs
• Foreign oil and gas extraction income

The GILTI income inclusion amount is calculated on Form 8992 and reported as part of your total income on Form 1040 or Form 1120.

GILTI after 2025: the switch to NCTI

For tax years beginning after December 31, 2025, the One Big Beautiful Bill Act replaces GILTI with net CFC tested income (NCTI). The 10% QBAI exclusion disappears, the corporate Section 250 deduction drops from 50% to 40%, and creditable foreign taxes rise from 80% to 90%. Your tax year 2025 return – filed in 2026 – still uses the GILTI rules on this page. For the new calculation, rate, and examples, see our guide to the NCTI rules for 2026.

Who is subject to the GILTI tax?

The US GILTI rules apply to every US shareholder of a controlled foreign corporation.

Two tests determine whether you are in scope.

NOTE! Through 2025, you include GILTI only if you own the stock on the last day of the CFC’s tax year.

• Test 1 – US shareholder status: You own 10% or more of the CFC’s total voting power or value. Ownership includes direct, indirect, and constructive ownership under IRC §958.
• Test 2 – CFC status: The foreign corporation is more than 50% owned – by vote or value – by its US shareholders, meaning those who each meet the 10% threshold above.

The inclusion applies to these taxpayer types:

 

Am I subject to GILTI if I own 10% of a foreign company?

Owning 10% makes you a US shareholder – but GILTI applies only if the foreign company is also a CFC, meaning more than 50% US-shareholder-owned. If you own 10% or more and US shareholders who each own at least 10% – including you – together own more than 50%, then yes.

If total US shareholder ownership is 50% or below, the company is not a CFC, and GILTI does not apply – though PFIC vs CFC may still reach your investment.

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GILTI for individual US taxpayers

The GILTI tax for individuals works differently than for corporations – and usually costs more.

A C corporation receives the §250 deduction automatically, bringing its effective GILTI rate to 12.6% (2026). An individual who owns a CFC directly does not receive the §250 deduction at all – the full GILTI inclusion is taxed at ordinary income rates, up to 37%.

Individuals also face a disadvantage on foreign tax credits. Without a §962 election, an individual generally cannot claim indirect – or deemed-paid – foreign tax credits for taxes the CFC paid to its local government.

The individual is limited to direct credits – typically available only if the individual personally paid foreign tax on the income, which is uncommon for CFC earnings.

Decision tree: do you have a GILTI inclusion?

1. Do you own 10% or more – by vote or value – of a foreign corporation? → If no, GILTI does not apply.
2. Is that corporation a CFC – more than 50% US-shareholder-owned? → If no, GILTI does not apply; check PFIC rules.
3. Does the CFC have positive tested income – net earnings after deductions, excluding Subpart F? → If no, no current inclusion.
4. Have you made a §962 election? → If yes, you are taxed at corporate rates at 12.6% effective, with access to 90% deemed-paid FTCs. If no, you are taxed at individual rates up to 37%, with limited FTC relief.

Example: Sarah, a US citizen in London

Sarah owns 100% of a UK marketing consultancy. In tax year 2025 the company earns £120,000 (about $150,000) in profit before UK tax. With marginal relief, UK corporation tax is £28,050 (about $35,000) – an effective rate of 23.4%. That leaves tested income of about $115,000. The consultancy has almost no tangible assets, so its QBAI exclusion is close to zero.

 

Without the election, Sarah pays up to $42,550 of US tax on profits the UK has already taxed at 23.4% – a combined rate above 50%. With a Section 962 election, the 80% credit for UK tax fully covers the US tax, because the UK rate is above the roughly 13.1% breakeven. The trade-off: when the company later distributes these earnings, Sarah pays tax on the dividend. Under the US–UK tax treaty it can qualify for the 15–20% qualified dividend rate. For Sarah, the Section 962 election is the key planning decision.

Figures converted at $1.25 per £1 and rounded.

• Without §962: Sarah includes the full amount at up to 37%. She cannot claim the UK corporate tax as a deemed-paid credit. Her effective rate on this income may exceed 37%.
• With §962: Sarah is taxed at 12.6% effective. She claims 90% of the UK tax as a deemed-paid credit. Because her effective UK rate of roughly 23–24% still exceeds the 14% breakeven rate, her US GILTI liability is zero – but she may owe additional tax when she distributes the earnings.

For most individual expat CFC owners, the §962 election is the critical planning decision.

How GILTI interacts with Subpart F income

Subpart F applies first: income that falls into a Subpart F category is taxed under IRC 951 and removed from tested income. GILTI then reaches most of the CFC’s remaining active profit. The two regimes use different foreign tax credit baskets and are reported in different places – Subpart F on Form 5471 Schedule I, GILTI on Form 8992. For a side-by-side comparison of rates, credits, and planning, see Subpart F vs GILTI.

How does GILTI work?

The GILTI inclusion flows from CFC-level earnings to US shareholder-level tax in a defined sequence.

• Step 1 – Calculate tested income at the CFC level. Start with the CFC’s gross income, subtract allocable deductions, and remove any income that qualifies as Subpart F, ECI, or another statutory exclusion. The result is the CFC’s tested income – or tested loss, if deductions exceed income.
• Step 2 – Aggregate across all CFCs. If you own interests in multiple CFCs, combine all tested income and tested loss amounts. Tested losses from one CFC reduce tested income from another – but only within the same tax year. There is no carryforward of tested losses.
• Step 3 – Subtract the net deemed tangible income return – 10% of the CFCs’ QBAI, reduced by certain interest expense. The result is your GILTI inclusion.
• Step 4 – Apply the deduction. C corporations and Section 962 electors deduct 50% of the inclusion under Section 250.
• Step 5 – Claim deemed-paid foreign tax credits. They can credit 80% of the foreign taxes attributable to the inclusion, in a separate GILTI basket with no carryforward or carryback.
• Step 6 – Report on your return. The final inclusion appears on Form 8992 and carries to your income tax return. Each CFC’s tested income and tested loss is first reported on its Form 5471, Schedule I-1, and then aggregated on Form 8992.

GILTI calculation: formula and example

A GILTI calculation for tax year 2026 follows this sequence.

Start with your CFC’s net earnings after deductions, subtract any Subpart F income, apply the 40% §250 deduction if eligible, and offset with deemed-paid foreign tax credits capped at 90%.

The GILTI formula for a corporate shareholder is:

• GILTI inclusion = net tested income − (10% × QBAI)
• Taxable GILTI (corporations and 962 electors) = inclusion × 50%
• Tentative US tax = taxable GILTI × 21%
• Deemed-paid credit = 80% × inclusion percentage × foreign taxes on tested income
• Residual US tax = tentative tax − deemed-paid credit

Calculation example:

 

From 2026, NCTI raises the corporate rate to 12.6% and the breakeven foreign rate to about 14% – see NCTI tax (IRC 951A).

GILTI tax rate

The GILTI tax rate depends on the taxpayer’s structure and elections.

Rate table: effective GILTI rates for tax year 2026

 

NOTE! NIIT doesn’t apply automatically to the inclusion year. Absent a §1.1411-10(g) election, the 3.8% NIIT generally applies only when the CFC’s earnings are actually distributed, not when the GILTI inclusion first hits your return.

The effective GILTI rate is not the same for every taxpayer. C corporations and §962 electors pay the lowest rate – 12.6% before credits.

Individuals without a §962 election generally report the inclusion at ordinary income tax rates of up to 37%. NIIT treatment is separate and depends on the CFC rules, prior elections, and the treatment of later distributions; the 3.8% NIIT should not simply be added to every GILTI inclusion.

The breakeven foreign tax rate is approximately 14%. At that rate, the 90% deemed-paid FTC fully offsets the 12.6% US GILTI tax, leaving zero residual US liability.

If your CFC’s jurisdiction taxes at 14% or above, the practical GILTI US tax on that income is zero for corporate and §962-electing shareholders.

Below 14%, a residual US tax remains. A CFC in a 0% jurisdiction, for example, triggers the full 10.5% rate with no FTC offset.

High-tax exception: when GILTI does not apply

The high-tax exception can eliminate the GILTI inclusion entirely for CFCs operating in jurisdictions with effective tax rates above 18.9%.

The threshold is calculated as 90% of the maximum US corporate rate: 90% × 21% = 18.9%. If a CFC’s tested unit has an effective foreign tax rate above 18.9%, the shareholder may elect to exclude that income from tested income altogether.

Checklist – does the high-tax exception apply?

• The CFC’s tested unit must be subject to a foreign effective tax rate exceeding 18.9%
• The controlling domestic shareholder must make the election by attaching the required statement to a timely filed original return or an eligible amended return and providing the required notices. Form 8992 and the relevant Form 5471 schedules reflect the resulting exclusion, but Form 8992 alone does not make the election.
• The election must be applied consistently across all CFCs in the same CFC group (generally, CFCs under more than 50% common ownership) for the tax year. Unrelated CFCs outside that group can be elected separately.

How the election works:

The high-tax exception operates through tested-unit grouping and effective-tax-rate mechanics under Treasury Regulation §1.951A-2(c)(7). Each tested unit – which can be the CFC itself, a branch, or a disregarded entity – is evaluated separately.

This is not a simple country-by-country test: a CFC with operations in multiple jurisdictions may have some tested units that qualify and others that do not.

Example: A US shareholder owns a CFC incorporated in Germany. The CFC pays German corporate tax at an effective rate of 30%. Since 30% exceeds 18.9%, the shareholder elects the high-tax exception, and the CFC’s tested income is excluded from the GILTI calculation entirely.

If the same CFC had a branch in Ireland taxed at 12.5%, the Irish branch would be treated as a separate tested unit. The Irish branch income would remain in the GILTI base because 12.5% is below 18.9%.

The GILTI high-tax exception has additional nuances around multi-entity structures and partial exclusions that may apply if your CFC operates through branches or disregarded entities.

GILTI foreign tax credit limitation

The GILTI foreign tax credit is subject to specific limitations that differ from the general foreign tax credit rules.

How the FTC limitation works for GILTI:

Only 80% of the foreign taxes deemed paid on GILTI are creditable – the other 20% is lost. The remaining 10% is a permanent cost – it cannot be credited, deducted, or carried to another year.

The GILTI foreign tax credit falls into a separate §904 basket. Credits in this basket cannot offset US tax on other categories of income, and – unlike general-basket foreign tax credits – they cannot be carried forward or back.

Common mistakes:

• Assuming all foreign taxes are creditable – only income taxes qualifying under §901 count
• Forgetting the separate basket – GILTI credits cannot offset US tax on salary, dividends, or other income
• Overlooking the no-carryforward rule – excess GILTI credits expire in the year they arise

For a broader comparison, the Foreign Tax Credit vs. Foreign Earned Income Exclusion guide breaks down which approach works best.

The general Foreign Tax Credit rules allow carryforward and carryback in other baskets – a key difference from the GILTI basket’s use-it-or-lose-it rule.

Recordkeeping: Maintain CFC financial statements, foreign tax payment documentation, and tested-income calculations for at least six years. Under IRC §6501(e)(1)(A)(ii), the IRS can assess additional tax up to six years after you file if you omit more than $5,000 of gross income attributable to a specified foreign financial asset reportable under §6038D – even if the asset fell below the Form 8938 filing threshold.

Due dates: Form 5471 and Form 8992 are filed with your income tax return. Individuals abroad get an automatic extension to June 15 (June 15, 2026 for tax year 2025). CFC-related filings often require additional US tax forms for expats beyond Form 5471 and Form 8992, depending on your elections and exclusions.

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What forms do you need to file for GILTI?

The forms required depend on your relationship to the CFC and the elections you make.

 

What to keep in your files:

• CFC financial statements – income statement and balance sheet – in US dollars
• Foreign tax payment receipts and withholding certificates
• Tested income and tested loss calculations for each CFC
• §962 election statement, if applicable – must be attached to your return annually
• Documentation of the high-tax exception election, if claimed

The definition of “tested income” determines what appears on Form 8992. If you are unsure whether your CFC income qualifies, start with the Form 8992 instructions.

Section 962 election

The Section 962 election allows an individual US shareholder to be taxed on GILTI at corporate rates instead of individual rates.

Who it helps:

• Individual CFC owners in jurisdictions with foreign tax rates between 14% and 18.9% – the election unlocks deemed-paid FTCs that eliminate or reduce the US GILTI tax
• Owners in 0% jurisdictions – the effective rate drops from up to 37% at individual rates to 10.5% at corporate rates on the GILTI inclusion

Who it may not help:

• Owners planning near-term distributions – §962 creates a “toll charge.” Under IRC §962(d), the distribution is taxed again to the extent it exceeds the US tax actually paid under the election – often $0 – generally at ordinary rates, unless the CFC qualifies as a qualified foreign corporation, typically via a qualifying US tax treaty or stock readily tradable on an established US securities market, in which case the qualified dividend rate may apply.
• Owners with small CFC earnings – the compliance cost of maintaining the election may outweigh the tax savings

Tax comparison: with and without §962 election (tax year 2026)

 

This comparison assumes a 15% foreign tax rate on profit before tax and uses the GILTI rules for tax years through 2025. Example 2 below shows the same $200,000 of income at Mexico’s 30% rate.

GILTI you have already been taxed on becomes previously taxed earnings and profits (PTEP), so it is not taxed again when distributed – except the second layer of tax under a Section 962 election.

How to reduce GILTI: planning options and strategy comparison

Several strategies can reduce or eliminate the GILTI inclusion. No single approach works for every situation – the right choice depends on your ownership structure, CFC jurisdiction, and distribution plans.

Strategy comparison matrix:

 

Best fit:

• CFC in a high-tax country, rate above 18.9%: High-tax exception is the most efficient path – it removes the income from the GILTI base entirely
• CFC in a mid-tax country, 14%–18.9%: §962 election plus deemed-paid FTCs will likely eliminate residual US tax, but plan for the distribution toll charge
• CFC in a 0% or low-tax country, rate below 14%: No single strategy eliminates the tax. Combine §962 with salary compensation and entity restructuring where feasible

Caution: Aggressive compensation arrangements – inflating salary to reduce tested income – can be challenged by the IRS under the reasonable compensation requirement of IRC §162(a)(1). The salary must reflect the fair market value of services actually performed.

These are useful GILTI tips for initial planning, but each strategy has interaction effects that require modeling before implementation.

Salary compensation

Reasonable salary paid by a CFC to a working shareholder reduces the CFC’s tested income – and therefore reduces the GILTI inclusion.

This works because salary is a deductible expense of the CFC. Lower tested income means a lower inclusion for the US shareholder.

Before-and-after example:

 

Simplified: the example uses the GILTI rules for tax years through 2025, assumes no QBAI and no foreign tax, and applies to a corporate shareholder or an individual with a Section 962 election. The $80,000 salary is taxable to the shareholder as wages – but if they live and work abroad, it can qualify for the foreign earned income exclusion (up to $130,000 for 2025).

However, the salary itself creates other tax consequences.

If you are a US citizen working abroad, the salary is subject to US income tax – though it may be offset by the Foreign Earned Income Exclusion, as covered in TFX’s Foreign Tax Credit vs. Foreign Earned Income Exclusion comparison, if you qualify.

Salary paid to a bona fide employee is not generally subject to self-employment tax. Depending on the employer, place of work, and any applicable totalization agreement, the wages may instead be subject to US or foreign social security contributions. Payments for services treated as independent-contractor income may be subject to US self-employment tax.

Salary alone does not remove GILTI exposure. It shifts income from the GILTI bucket – taxed at corporate rates with FTC offset – to the earned-income bucket, taxed at individual rates with different exclusions and credits. The net benefit depends on the interaction between these two regimes.

Examples of GILTI in action

All three examples use the GILTI rules for tax years through 2025. Foreign tax is calculated on profit before tax, and the Section 78 gross-up is included wherever deemed-paid credits are claimed. QBAI is assumed to be zero.

Example 1: Corporate shareholder in a low-tax jurisdiction

USCo, a US C corporation, owns 100% of SingCo in Singapore. SingCo earns $1,000,000 before tax and pays Singapore tax at 17%.

 

Singapore’s 17% rate is above the roughly 13.1% breakeven, so the credit wipes out the US tax. The $31,000 of unused credit cannot be carried to another year.

Example 2: Individual shareholder with and without Section 962

Maria, a US citizen living in Mexico, owns 100% of MexCo. MexCo earns $200,000 before tax and pays Mexican tax at 30%.

 

Important: with a Section 962 election, the $140,000 is taxed again when MexCo distributes it, because no US tax was paid on it under the election. That is about $33,320 at 20% plus 3.8% NIIT if MexCo is a qualified foreign corporation under the US–Mexico treaty, or up to $57,120 at ordinary rates if it is not. Without the election, the same distribution is previously taxed earnings and profits (PTEP) and comes out tax-free.

Example 3: CFC with high foreign taxes

Hans, a US citizen, personally owns 100% of GerCo in Germany. GerCo earns $500,000 before tax and pays German corporate and trade tax of about 30%, or $150,000.

 

Because GerCo’s income is taxed above 18.9%, Hans can exclude it from tested income entirely. The election applies to all of Hans’s CFCs, so he should check that it does not hurt him elsewhere. Without the election and without a Section 962 election, Hans would include $350,000 at individual rates of up to 37% with no credit for the German tax.

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Need help with tax compliance?

GILTI reporting is one of the most complex areas of US international tax. Getting it wrong can mean penalties of $10,000 per form per year – plus interest on underpaid tax.

Consider professional help if:

• You own 10% or more of a foreign corporation and are not sure whether it qualifies as a CFC
• You have not filed Form 5471 or Form 8992 in prior years
• You need to evaluate whether a §962 election, high-tax exception, or entity restructuring makes sense for your situation

If you have unfiled returns, the IRS Streamlined Filing Compliance Procedures may allow you to come into compliance. Taxpayers residing outside the US generally pay no penalty under the Streamlined Foreign Offshore Procedures; taxpayers residing in the US face a 5% miscellaneous offshore penalty under the Streamlined Domestic Offshore Procedures.

You must demonstrate that your failure to file was non-willful.

For returns that are simply late, see what to do if you have never filed.

GILTI rules have changed – make sure your CFC filings reflect the 2026 law.

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