Key points covered in this article:

  • The One Big Beautiful Bill Act (OBBBA) redefines Global Intangible Low-Taxed Income (GILTI) as Net CFC Tested Income (NCTI).
  • The Foreign-Derived Intangible Income (FDII) deduction calculation has changed and is now renamed the Foreign-Derived Deduction Eligible Income (FDDEI).
  • The changes to GILTI (now NCTI) and FDII (now FDDEI) become effective in 2026 and will significantly change the tax planning for multinational businesses.

OBBBA’s impact on GILTI and FDII

This landmark piece of legislation was passed on July 4, 2025 and makes several important and permanent updates to provisions first established under the 2017 Tax Cuts and Jobs Act (TCJA). While many of the core elements of the GILTI and FDII regimes are preserved, there are significant changes that will alter the planning strategies for companies with cross-border activities.

The overriding goal for both GILTI and FDII is to encourage companies to keep their business activities in the U.S.  GILTI is the “stick” while FDII is the “carrot”.

GILTI (now NCTI) is designed to discourage U.S. companies from moving business activities to low-taxed foreign jurisdictions.  Meanwhile, FDII (now FDDEI) provides incentives for U.S. companies to stay in the U.S. and export overseas. The OBBBA changed the calculations effective in 2026 to strengthen the deterrents under NCTI and enhance the incentives under FDDEI.

The following summarizes the most important revisions coming down the pike and what companies can do to prepare before they become law.

From GILTI to NCTI

The OBBBA updates Global Intangible Low-Taxed Income (GILTI) to Net CFC Tested Income (NCTI). The “stick” aspect of GILTI (now NCTI) is that U.S. persons may need to pull in foreign income to be taxed in the U.S. even before they get a cash distribution through their ownership of a certain foreign corporations (CFCs).

Under the TCJA, GILTI allowed a deduction equal to 10 percent of a Controlled Foreign Corporation’s (CFC’s) Qualified Business Asset Investment (QBAI), which represents its net tangible assets, such as machinery and buildings. Essentially, it sheltered a “normal” return on tangible assets and left the remaining “intangible” income to be taxed.

The new calculation under NCTI rules, however, eliminates the 10 percent QBAI deduction altogether. This change widens the aperture to pull in more income subject to anti-deferral tax.

Anyone who owns at least 10 percent of a CFC may be subject to GILTI (now NCTI). A CFC is generally a foreign corporation which is more than 50 percent by vote or value owned by U.S. shareholders that each own at least 10 percent. Generally, a CFC is a U.S. controlled, closely held foreign corporation.

For example, a foreign corporation that is owned by 11 U.S. shareholders equally at 9.09 percent each is not considered a CFC. However, if a foreign corporation is owned by six U.S. shareholders who each hold a 10 percent share and one foreign shareholder owns 40 percent, the company would be considered a CFC.

From FDII to FDDEI

The OBBBA also made changes to the Foreign-Derived Intangible Income (FDII) deduction, renaming it to the Foreign-Derived Deduction Eligible Income deduction (FDDEI). The “carrot” under FDII (now FDDEI) is a reduced U.S. effective tax rate on certain export stream of revenue.
Similar to the NCTI change, the FDDEI calculation also eliminates the 10 percent QBAI deduction, and therefore expands the pool of export income eligible for incentive. While the effective tax rate on eligible export income goes up slightly from 13.125 percent to 14 percent, higher export net income means a larger FDDEI deduction and tax savings.

Next steps in planning for international tax changes

While most of these changes go into effect in 2026, planning needs to start well before then. Reviewing global ownership structures and cross-border transactions will reveal where new compliance hurdles need to be addressed and where potential planning opportunities could improve the company’s tax position.

Companies that take time now to understand these changes and build strategies around them will be better positioned at the start of the year.

Our team is here to help get you ready. Contact Lynn Eller, CPA, APCIT, Tax Partner and International Tax Leader with PBMares.