GILTI tax (NCTI): Global Intangible Low Taxed Income definition, calculation, and example

The GILTI tax – Global Intangible Low-Taxed Income – is a US minimum tax on the active earnings of foreign corporations controlled by US shareholders.

The One Big Beautiful Bill Act renamed GILTI to “net CFC tested income” (NCTI) for tax years beginning after December 31, 2025, broadened the taxable base, and raised the effective rate. Most taxpayers and practitioners still use the GILTI label, and so does this guide.

If you own 10% or more of a controlled foreign corporation, GILTI likely applies to you. This GILTI overview covers who is subject to the inclusion, how the calculation works, what changed under the new law, and how to reduce or eliminate the tax.

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 for CFC information reporting, and Form 8993 for the §250 deduction
• Effective corporate rate: 12.6% (2026)
• 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 a portion flows through to your US return as an inclusion, regardless of whether you distribute any cash to yourself.

What is GILTI?

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.

The OBBBA formally renamed GILTI to “net CFC tested income” beginning in tax year 2026. The mechanical change matters: the QBAI/NDTIR carve-out that previously reduced tested income by a deemed 10% return on tangible assets is now repealed.

Every dollar of CFC earnings above ordinary and necessary business deductions is potentially subject to the inclusion.

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.

TCJA and GILTI: What changed for tax year 2026

The OBBBA made five structural changes to the US GILTI regime that take effect for tax years beginning after December 31, 2025.

Before and after: TCJA-era GILTI vs. 2026 rules

 

The OBBBA broadened the tax base and raised the rate simultaneously. The lower §250 deduction increases the portion of CFC earnings subject to US tax, while the repeal of the QBAI carve-out eliminates the prior safe harbor for capital-intensive businesses.

The higher FTC cap partially offsets this – shareholders can now credit 90% of foreign taxes paid against their GILTI liability, up from 80%. The law also repealed the “last day of the CFC’s tax year” ownership rule.

For tax years beginning after December 31, 2025, a US shareholder who owns CFC stock at any point during the year must include its pro rata share for the period it held the stock, even if it sold out before year-end.

Under the original TCJA GILTI framework, a US corporation with a CFC in a 13% jurisdiction owed little or no residual US tax.

Under the 2026 GILTI tax provisions, the same corporation faces a residual liability unless the foreign rate exceeds approximately 14%.

Does this apply to my 2025 return?

No. If you are filing a 2025 return during the 2026 filing season, the pre-OBBBA GILTI rules still apply – 50% §250 deduction, 80% FTC cap, and the QBAI reduction. The new rules apply only to tax years beginning after December 31, 2025.

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! For CFC tax years beginning after December 31, 2025, you no longer need to hold stock on the last day of the CFC’s tax year to have an inclusion. You include a pro rata share based on how long you actually held the stock during the year, even if you sold before year-end.

• 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% and other US shareholders 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 rules 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, owns 100% of a UK marketing consultancy – a CFC. The company earns £120,000 in tested income. UK corporation tax applies a 25% main rate above £250,000 of profit, with marginal relief between £50,000 and £250,000 – at £120,000, that works out to an effective rate of roughly 23–24%, not the full 25%.

• 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.

GILTI vs. Subpart F income

Understanding GILTI and Subpart F income is essential because both create current US tax on CFC earnings – but they target different types of income and follow different mechanics.

 

Rule of thumb: Subpart F applies first. If CFC income falls into a Subpart F category, it is taxed under those rules and excluded from tested income. GILTI then picks up the residual active business profits that Subpart F did not reach.

US shareholders who hold PFIC vs. CFC structures face a different set of reporting and tax rules depending on which classification applies.

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 – Determine the GILTI inclusion. For tax years beginning after December 31, 2025, the GILTI amount equals net tested income with no QBAI reduction. Under the prior GILTI rules, the inclusion was reduced by a deemed 10% return on qualified business asset investment – that reduction is now repealed.
• Step 4 – Apply the §250 deduction. C corporations and §962 electors deduct 40% of the GILTI amount, reducing the taxable inclusion to 60% of net tested income.
• Step 5 – Claim deemed-paid foreign tax credits. Eligible taxpayers credit up to 90% of the foreign income taxes attributable to tested income. These credits fall in the GILTI basket under §904 and cannot be carried forward or back.
• Step 6 – Report on your return. The final inclusion appears on Form 8992 and carries to your income tax return.

GILTI tax calculation

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 CFC tested income (no QBAI reduction)

Taxable amount = GILTI inclusion × (1 − 40% §250 deduction) = GILTI × 60%

Tentative tax = Taxable amount × 21% corporate rate

Final tax = Tentative tax − deemed-paid FTCs (up to 90% of attributable foreign taxes)

Calculation example:

 

The tested income in a GILTI calculation is the starting point – every exclusion, deduction, and credit flows from that number.

Note that qualified interest income under GILTI – interest income that qualifies as tested income rather than Subpart F income – enters the calculation at the CFC level and flows through the same formula above.

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 12.6% rate with no FTC offset.

High-tax exception

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:

For tax year 2026, eligible taxpayers can credit up to 90% of the foreign income taxes deemed paid with respect to tested income. 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.

Worked example:

 

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 receive an automatic 2-month extension to June 15 (2026), with a further extension to October 15 available by filing Form 4868. 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 §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 12.6% 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)

 

The election must be made annually. It applies to all CFCs you hold – you cannot elect §962 for one CFC and not another.

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:

 

The $80,000 salary reduces the GILTI-related US tax by $10,080.

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

The following GILTI tax calculation example scenarios illustrate how GILTI works under different fact patterns. Each example uses tax year 2026 rules.

Example 1: Corporate shareholder in a low-tax jurisdiction

Facts: USCo, a US C corporation, owns 100% of SingCo, a CFC incorporated in Singapore. SingCo earns $1,000,000 in net tested income and pays Singapore corporate tax at 17%.

Calculation:

 

Takeaway: At a 17% foreign rate – above the 14% breakeven – the deemed-paid FTC fully offsets the US GILTI tax. USCo owes no additional US tax on SingCo’s earnings. The $27,000 in excess credits – $153,000 minus $126,000 – is lost because GILTI credits cannot be carried forward.

Example 2: Individual shareholder with and without Section 962

Facts: Maria, a US citizen living in Mexico, owns 100% of MexCo, a CFC. MexCo earns $200,000 in net tested income and pays Mexican corporate tax at 30%.

Side-by-side comparison:

 

Important

The §962 result is not the final tax picture. Because the deemed-paid credit fully offset her tentative US tax, Maria paid $0 tax at the time of the election. When she eventually distributes MexCo’s earnings, §962(d) requires the distribution to be taxed again to the extent it exceeds the tax she actually paid – which was $0.

On $200,000, this could mean tax of up to $74,000 at ordinary rates, or roughly $47,600 if the distribution qualifies for the 20% qualified dividend rate plus the 3.8% NIIT – qualification depends on the CFC being a qualified foreign corporation, typically via a qualifying US tax treaty or stock readily tradable on an established US securities market, not on the tax rate alone.

This example should prompt a review of your full multi-year tax position with a professional.

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Example 3: CFC with high foreign taxes

Facts: Hans, a US citizen, owns 100% of GerCo, a CFC in Germany. GerCo earns $500,000 in net income and pays German combined corporate tax at an effective rate of 30%.

High-tax exception analysis:

 

Why it matters: Without the election, Hans would still calculate a §962 inclusion and claim FTCs – reaching the same $0 result but with more compliance complexity. The high-tax exception is cleaner: it removes the income from the GILTI base before the calculation begins.

The election is not automatic. Hans must make an affirmative election, and the tested-unit analysis must support the conclusion that GerCo’s effective rate exceeds 18.9%. If GerCo had a branch in a low-tax jurisdiction, that branch would be evaluated as a separate tested unit and might not qualify.

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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