Global Intangible Low-Taxed Income (GILTI)

IRC 951A was enacted with the Tax Cuts and Jobs Act of 2017 (TCJA), which reformed the U.S. system for taxing international corporate income. GILTI was one of several new laws designed with the goal to make U.S. businesses more competitive while also protecting domestic jobs.

Under Republican leadership will GILTI change?

Under TCJA the GILTI regime will not expire; rather the tax rate is set to increase in 2026 from 10.5% to 13.125%.  Donald Trump has proposed to make the provisions of the TCJA permanent, which would presumably include the GILTI regime in its current form including this tax increase.

Who is subject to GILTI?

The GILTI regime applies to a broad swath of taxpayers in any industry. More specifically, it applies to 10% U.S. shareholders in a controlled foreign corporation as defined under IRC 957(a). These U.S. shareholders may be individuals, corporations, or pass-through entities. Further, despite the name, the GILTI income inclusion is not limited to earnings from “intangible” assets.

How is GILTI calculated?

Calculating the tax on GILTI is somewhat complex. However, generally, GILTI pulls income from certain foreign corporations into a U.S. shareholder’s tax return even before the foreign earnings are distributed.

There are 4 general parts to the GILTI calculation:

1. The specified 10% U.S. shareholder aggregates its pro-rata share of income from all of its foreign affiliates. This income from all countries, whether low or high-taxed, is blended.  In other words, this is not a country-by-country calculation.
2. From this income, 10% of depreciable foreign assets are deducted, resulting in a “deemed tangible income return.” This provides relief for income related to foreign affiliates with large fixed asset investments.
3. The U.S. corporate shareholder effective tax rate on GILTI income is half of the normal corporate tax rate (10.5% instead of 21%). With tax years starting in 2026 the effective rate on GILTI is scheduled to increase to 13.125%.
4. The U.S. corporate shareholder may also claim a foreign tax credit under IRC 960 for 80% of the foreign tax paid that is allocated to the GILTI income.

How can we help?

Post-election, it continues to be important to understand the GILTI calculation and how it specifically interacts with your foreign corporate investments. The PBMares International Tax Team is prepared to assist in maximizing tax planning as we continue navigate the developing changes.