GILTI Tax Explained for US Shareholders of Foreign Companies

You may have heard about the Global Intangible Low-taxed Income (GILTI) tax if you own stock in a foreign corporation. It is often cited in discussions of international tax planning because it targets income earned by foreign companies that might otherwise slip through U.S. tax nets. In essence, GILTI forces you, as a U.S. shareholder, to include a portion of your foreign corporation’s income on your U.S. tax return each year. While this can create significant reporting obligations, it also opens doors to strategic planning so you can minimize your tax bill in a compliant manner.

Understand What GILTI is

GILTI tax explained simply: it is a mechanism introduced by the 2017 Tax Cuts and Jobs Act to prevent U.S. persons from shifting profits to low-tax jurisdictions (Thomson Reuters). Originally designed to capture income from intangible assets like patents and licenses, the scope has widened. GILTI can apply to multiple types of earnings that exceed a routine return on your foreign corporation’s tangible assets.

Under GILTI, you report certain foreign income on your own U.S. tax return, regardless of whether it is actually distributed. This can come as a surprise because traditional corporate structures would normally allow earned profits to remain offshore without immediate U.S. tax obligations. By aiming at these traditionally deferred earnings, GILTI curbs tax sheltering opportunities and encourages repatriation.

Identify Who is Affected

You are subject to GILTI rules if you meet two primary tests. First, you must be a “United States shareholder,” which generally means owning 10 percent or more of a foreign corporation’s voting power or total value. Second, your foreign corporation must qualify as a Controlled Foreign Corporation (CFC). A CFC is a foreign corporation with more than 50 percent of its stock owned (by vote or value) by U.S. shareholders (PBMares).

Notably, corporations are not the only subscribers to GILTI. Partnerships, S corporations, and individual shareholders who hold at least 10 percent of a CFC can also be pulled into the net. It is essential to keep these ownership thresholds in mind. If your foreign holdings cross them, you are likely required to include GILTI in your taxable income every year.

Calculate Your GILTI

Calculating GILTI can feel intricate. You start by determining “tested income,” which is essentially the foreign corporation’s net income for the year. From this amount, rules allow you to subtract what the tax code deems a routine return on tangible assets. Generally, that routine return is 10 percent of your foreign corporation’s Qualified Business Asset Investment (QBAI), such as machinery or business equipment used in foreign operations (Thomson Reuters).

Anything above that 10 percent threshold is treated as GILTI. Then you account for interest expense and certain deductions tied to foreign earnings. The final figure is what you include in your U.S. income tax return. Many taxpayers use Form 8992 to calculate and report their GILTI inclusion. Each step demands meticulous recordkeeping of your CFC’s income, assets, and expenses to ensure your calculation aligns with the Internal Revenue Code.

Maximize Deductions and Credits

Once you figure out your inclusion amount, you can often reduce your overall GILTI burden with a few strategies. If you are a C corporation, for example, you may take a deduction on 50 percent of your GILTI through 2025, and then 37.5 percent from 2026 onward (RSM US LLP). With that deduction, your effective GILTI tax rate usually falls below the regular corporate rate, though it still adds a layer of tax complexity.

In addition to the deduction, you can claim an indirect foreign tax credit—up to 80 percent of the foreign taxes paid on that income (RSM US LLP). These credits have their own limitations and cannot be applied to other forms of U.S. income, but they do offset a portion of your GILTI liability. If your foreign corporation is in a high-tax jurisdiction (18.9 percent or more), then you may qualify for a high-tax exemption that effectively removes that income from GILTI (Thomson Reuters).

Prepare for 2026 Changes

Starting in your 2026 tax year, the One Big Beautiful Bill Act (OBBBA) renames GILTI as net CFC tested income (NCTI). The legislation also eliminates the net deemed tangible income return (NDTIR), which is the 10 percent QBAI deduction (PBMares). Without that QBAI deduction, there will be a broader pool of potentially taxable income for U.S. shareholders.

At the same time, the effective corporate rate for GILTI rises to around 12.6 percent, though the exact rate depends on other elements of current law (Thomson Reuters). This increased taxation highlights the importance of forward planning. Because some elements of QBAI deductions vanish, your foreign corporation’s tangible assets may no longer shield you from U.S. tax to the same extent. If you are an individual shareholder, you are also in line for potential rate hikes, because your GILTI is taxed at your personal income tax bracket.

Steps to Stay Compliant

Planning ahead is the best way to avoid surprises.

1. Speak with a cross-border tax advisor: The calculation, reporting obligations, and potential planning strategies can be complex. A professional can help you structure holdings efficiently and stay on top of legislative changes.
2. Monitor your ownership thresholds: If you see your stake in foreign entities creeping up, evaluate whether you inadvertently crossed the 10 percent line that triggers GILTI.
3. Gather foreign data early: Reconciling a year’s worth of foreign financials can be cumbersome, so consider building an internal system to track net income, depreciation, and local taxes as they happen.
4. Map out 2026 scenarios: You might explore restructuring or reevaluating your overseas operations to anticipate the QBAI deduction loss.

By taking these steps, you can better align your corporate structures to future changes and mitigate your tax exposure. If you are a U.S. entrepreneur with global reach, consider additional aspects such as the Foreign-Derived Deduction Eligible Income (FDDEI), formerly FDII, particularly if you export goods or services. Integrated planning can pay dividends in the form of minimized tax liability and seamless reporting.

Conclusion

While GILTI once seemed to target only intangible-heavy, large multinationals, today it is a fixture for many business owners with cross-border footprints. The rules requiring you to include foreign earnings in your personal or corporate tax base can appear complicated, but they do not have to become a tangled web if you prepare properly. The upcoming shift to NCTI and elimination of the QBAI deduction further emphasizes how forward-looking you should be.

By setting up efficient reporting processes, leveraging available deductions, and monitoring changes in legislation, you put yourself in a stronger position to manage GILTI effectively. Most importantly, you should collaborate closely with a qualified cross-border tax advisor to ensure you navigate these regulations without unnecessary risk. At the end of the day, understanding GILTI is about safeguarding your global business interests, observing U.S. tax obligations, and optimizing your wealth architecture across multiple jurisdictions.

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