GILTI in 2026: What U.S. Owners of Foreign Companies Need to Know

For many U.S. taxpayers with international business operations, few areas of the tax law are as misunderstood-or as impactful-as the Global Intangible Low-Taxed Income (GILTI) regime. Introduced as part of the Tax Cuts and Jobs Act (TCJA) in 2017, GILTI fundamentally changed the way the United States taxes foreign earnings by requiring many U.S. shareholders of foreign corporations to recognize income long before those profits are distributed.

While GILTI was originally intended to discourage multinational corporations from shifting profits to low-tax jurisdictions, its reach extends well beyond large public companies. Today, thousands of closely held businesses, family-owned companies, expatriates, and entrepreneurs with foreign corporations find themselves subject to these complex rules.

Beginning in 2026, significant legislative changes further modify the GILTI regime, making it even more important for taxpayers with international operations to understand how these rules apply and whether their existing structures remain tax-efficient.

What Is GILTI?

Global Intangible Low-Taxed Income, commonly referred to as GILTI, is a category of income that requires certain U.S. shareholders of controlled foreign corporations (CFCs) to include a portion of the foreign corporation’s earnings on their U.S. tax returns each year, even if those earnings are never distributed.

In simple terms, GILTI reduces the ability of U.S. taxpayers to defer U.S. taxation by retaining profits inside foreign corporations. Before the enactment of the TCJA, many foreign corporate earnings generally were not subject to current U.S. taxation until they were repatriated as dividends. GILTI significantly changed that result by requiring current inclusion of certain foreign earnings.

Despite its name, GILTI does not apply only to income generated from intangible assets. The calculation is based on a statutory formula and may capture many types of active business income earned by a foreign corporation.

Why Was GILTI Enacted?

Congress enacted GILTI to discourage the movement of valuable business operations and intellectual property to jurisdictions with low corporate income tax rates.

Before 2018, multinational businesses could often defer U.S. tax by holding profits inside foreign subsidiaries located in favorable tax jurisdictions. Policymakers believed this created an incentive to shift profits-and sometimes entire business operations-outside the United States.

GILTI was designed to reduce that incentive by ensuring that a significant portion of a foreign corporation’s earnings would be subject to current U.S. taxation, even if those profits remained overseas.

Although the rules were primarily aimed at large multinational corporations, the statutory framework applies equally to many smaller privately owned foreign corporations.

Who Does GILTI Apply To?

GILTI applies to certain U.S. shareholders of a Controlled Foreign Corporation (CFC).

A foreign corporation is generally classified as a CFC if more than 50 percent of its stock, measured by vote or value, is owned directly, indirectly, or constructively by U.S. shareholders.

A U.S. shareholder for this purpose generally includes a U.S. person who owns at least 10 percent of the corporation’s voting power or value.

As a result, GILTI frequently affects:

• S. citizens living abroad who own local operating companies.
• Entrepreneurs who establish foreign corporations to conduct international business.
• Family-owned multinational businesses.
• S. investors with significant ownership interests in foreign corporations.
• Corporate groups with international subsidiaries.

Many taxpayers are surprised to discover that operating through a corporation in their country of residence-a common business practice throughout much of the world-may trigger complex U.S. international tax rules even when the corporation conducts all of its activities outside the United States.

How Is GILTI Calculated?

The GILTI computation is one of the most technically challenging calculations in the Internal Revenue Code.

Broadly speaking, the calculation begins with the controlled foreign corporation’s tested income and tested losses. Various adjustments are then made under the statute to determine the amount ultimately included by the U.S. shareholder.

Historically, one important component of the calculation was the Qualified Business Asset Investment (QBAI) exclusion, which generally reduced GILTI by providing a deemed return on certain tangible business assets used in the foreign business.

The resulting GILTI inclusion is then reported by the U.S. shareholder, with the ultimate tax consequences depending on whether the shareholder is an individual, an S corporation, a partnership, or a C corporation.

Because numerous elections, foreign tax credits, expense allocation rules, and entity classification decisions can affect the calculation, GILTI planning often requires coordination between U.S. and foreign tax advisors.

What Changed Beginning in 2026?

Beginning with tax years after 2025, Congress made several important changes to the GILTI regime.

Perhaps the most noticeable change is that Global Intangible Low-Taxed Income (GILTI) has been renamed “Net CFC Tested Income” (NCTI) under the revised statutory framework. Although many practitioners will likely continue to use the term “GILTI” for years to come, taxpayers should expect to see the new terminology increasingly used in tax guidance and professional discussions.

The legislation also modified the computation by eliminating the Qualified Business Asset Investment (QBAI) exclusion. Under prior law, taxpayers generally benefited from a deemed return on qualifying tangible business assets before determining their GILTI inclusion. Beginning in 2026, that exclusion is removed, meaning a larger portion of a controlled foreign corporation’s tested income may be subject to current U.S. taxation.

In addition, the deduction available under Internal Revenue Code Section 250 was reduced. Prior to 2026, eligible corporate taxpayers generally received a 50 percent deduction with respect to GILTI. Beginning in 2026, the deduction is reduced to 40 percent, increasing the effective U.S. tax rate on qualifying income for C corporations.

The foreign tax credit rules applicable to GILTI were also revised as part of the broader legislative changes. These modifications can significantly affect the amount of foreign tax credits available to offset U.S. tax, particularly for multinational businesses operating in higher-tax jurisdictions.

Collectively, these changes generally increase the potential U.S. tax burden associated with foreign corporate earnings and may warrant a review of existing international structures.

Individuals Versus Corporate Shareholders

One of the most important planning considerations is whether the U.S. shareholder is an individual or a C corporation.

Corporate shareholders generally benefit from the Section 250 deduction and indirect foreign tax credits, although those benefits were reduced beginning in 2026.

Individual shareholders, however, generally do not receive those benefits automatically. Depending on the circumstances, an individual may face a significantly higher effective tax rate on GILTI inclusions than a similarly situated corporate shareholder.

In some situations, taxpayers may consider making an election under Internal Revenue Code Section 962, which allows certain individual shareholders to be taxed in a manner similar to a domestic corporation for specific international tax purposes. While a Section 962 election can produce substantial tax savings in the right circumstances, it also introduces additional complexity and may affect the taxation of future distributions. The election should therefore be evaluated carefully each year based on the taxpayer’s overall facts and objectives.

State Tax Considerations

Federal treatment is only part of the analysis.

One of the most frequently overlooked aspects of GILTI planning is that states do not treat GILTI uniformly. Some states conform closely to the federal rules, while others exclude all or part of GILTI from taxable income. Certain states permit deductions similar to the federal Section 250 deduction, while others do not. Still others have decoupled from portions of the federal international tax provisions altogether.

As a result, the state income tax consequences of GILTI can vary significantly depending on where the taxpayer resides or conducts business. A structure that is efficient for federal purposes may produce very different results at the state level.

Because state conformity rules continue to evolve, taxpayers should evaluate both federal and state tax consequences when planning international operations.

Why Planning Matters

GILTI is not simply a compliance exercise. It is often one of the most important considerations when structuring international business operations.

Decisions regarding entity selection, ownership structure, foreign tax credit planning, check-the-box elections, transfer pricing, and earnings distribution policies can all affect the ultimate U.S. tax liability.

For many closely held businesses, annual planning opportunities exist that can reduce the impact of GILTI while ensuring continued compliance with increasingly complex international tax rules.

Waiting until the tax return is being prepared often limits those opportunities. Reviewing international structures before year-end generally provides the greatest flexibility to implement meaningful planning strategies.

Conclusion

Although originally enacted to address perceived profit shifting by large multinational corporations, GILTI has become a routine consideration for many privately owned international businesses and U.S. citizens living abroad. The rules are highly technical, and the legislative changes effective in 2026-including the elimination of the QBAI exclusion, the reduction of the Section 250 deduction, and the transition to the new Net CFC Tested Income terminology-make careful planning even more important.

Taxpayers with ownership interests in foreign corporations should periodically review their international structures to determine whether they remain tax-efficient under the revised rules. Because federal and state treatment may differ significantly, and because planning opportunities often depend on facts established before year-end, proactive advice can help minimize unexpected tax liabilities while ensuring compliance with one of the most complex areas of the U.S. international tax system.

Talk With a Cross-Border Tax Advisor

Benchmark International Tax Partners can help you assess how these rules may apply to your circumstances and identify practical next steps. Contact the team to discuss your tax position and planning priorities.