GILTI is now NCTI: what changed for Americans who own a foreign company

The short version

If you own part of a non-US company, you may already know GILTI: the rule that puts a share of the company's profits on your personal US return every year, whether or not the company distributes a cent. That rule still exists. It has a new name and a different calculation.

• The name changed. GILTI, global intangible low-taxed income, is now net CFC tested income, or NCTI. Same section of the law (IRC section 951A), new heading.
• The tangible-asset break is gone. This is the change that actually costs money, and it is a repeal, not a rename.
• The company-level deduction shrank and the foreign tax credit improved, which pull in opposite directions.
• Timing: tax years beginning after 31 December 2025. A calendar-year filer's 2025 return still says GILTI. The 2026 return, filed in 2027, says NCTI.

Companion terminology, in case you meet it: the export-side deduction that used to be FDII is now foreign-derived deduction eligible income, or FDDEI. That one matters to US corporations that export, not usually to an individual abroad.

Does this even apply to you?

Two tests have to be met before any of this is your problem.

• You are a US shareholder: you own 10 percent or more of the foreign company by vote or value, counting shares attributed to you from a spouse, from other entities, and through the constructive-ownership rules.
• The company is a controlled foreign corporation: US shareholders together own more than 50 percent of it, again by vote or value.

A solo founder who owns 100 percent of a company abroad meets both without thinking about it. Two Americans who each own 30 percent of a company also meet both, because the test aggregates them. An American holding 5 percent of a large local employer meets neither.

If the company is not a corporation for US purposes, this regime does not reach it. A single-member entity that you have treated as disregarded, or that is disregarded by default, is taxed to you directly instead. Which box your company sits in is a question of the entity classification rules and any Form 8832 election, and it is worth settling before anything else, because the answer changes the whole analysis.

What the calculation looks like now

In plain steps, at the company level:

1. Start with the company's gross income and take out the categories the statute excludes, including Subpart F income and income already excluded as high taxed.
2. Subtract the deductions properly allocable to what is left. The result is tested income (or a tested loss).
3. Add up your share of tested income across every CFC you own, subtract your share of tested losses, and the excess is your net CFC tested income.

Step 3 is where the change bites. Under the old rule there was a fourth step: you reduced the total by 10 percent of the company's qualified business asset investment, a deemed return on its tangible property. Congress struck that. The provision doing it is headed "Repeal of tax-free deemed return on foreign investments", which is about as plain as drafting gets.

That repeal is also the reason the name changed. The old label described a return on intangibles, which only made sense while a slice of the tangible return was carved out first. With the carve-out gone, the rule simply taxes the company's net tested income as such, and the word "intangible" no longer described anything. The rename follows the arithmetic rather than the other way round.

So a company holding real equipment, vehicles, or fit-out used to shield a slice of its profit from the inclusion, and no longer does. If your business is asset-heavy, your inclusion goes up even though your profit did not. If you run a consultancy from a laptop, you had almost no shield to lose, and the repeal costs you close to nothing.

The part most summaries get wrong

You will read that the deduction against this income is 40 percent, down from 50, and that the foreign tax credit is now 90 percent, up from 80. The first is right. The second is a shorthand that overstates the credit: section 960(d)(1) applies the 90 percent to the product of the shareholder's inclusion percentage and the aggregate tested foreign income taxes, not to the foreign taxes themselves. That inclusion percentage is net CFC tested income over the aggregate of tested income, so a tested loss anywhere in the group pulls it below 100 percent and cuts the credit with it. And neither figure is automatically about you.

Both provisions are addressed to a domestic corporation: section 250(a)(1) allows its deduction "in the case of a domestic corporation", and section 960(d)(1) gives its deemed-paid credit to "any domestic corporation". They are corporate reliefs. An individual who owns a CFC directly is not a domestic corporation, and by default gets neither the deduction nor the deemed-paid credit. The inclusion lands on a personal return at ordinary rates, with no credit for the foreign corporate tax the company already paid.

The bridge is the section 962 election. It asks that your inclusion be taxed as if you were a domestic corporation, which lets you reach the corporate rate, the deduction and the credit. It is an annual election with real consequences later, when the money is actually distributed to you, so it is a calculation rather than a default answer. For a shareholder who does elect, the arithmetic moved against them: 21 percent applied to the 60 percent that survives a 40 percent deduction is 12.6 percent, where the old 50 percent deduction produced 10.5 percent, both before any credit. The better credit offsets part of that.

If your company already pays substantial local tax

This is the most common version of the question, and the answer is often the most useful thing on this page. There is an elective high-tax exclusion: tested income that has borne foreign tax at an effective rate above 90 percent of the US corporate rate can be left out of tested income altogether. With the corporate rate at 21 percent, that threshold works out to an effective foreign rate above 18.9 percent. Note "above": a rate landing exactly on the threshold does not qualify.

One caution about that number, because it is widely muddled. The figure above is the threshold for the exclusion: the effective foreign rate your company's income has to clear to be eligible. It is not a break-even point at which foreign tax credits happen to cancel a US bill. Those are different calculations that produce different numbers, and a page quoting one while describing the other is telling you something untrue. If you meet a percentage in this area, check which of the two it is.

The Act did not touch this exclusion. It is still elective, it is made at the company level across all of a CFC's income that qualifies, and the effective rate is computed under the regulations rather than read off a local tax return. A company in a country with a headline rate comfortably above the threshold is a good candidate. A company in a low-tax or territorial jurisdiction, which is the usual reason people incorporate where they do, is not.

Subpart F and NCTI are different things

Both put company profits on your return without a distribution, so they get conflated. Subpart F catches particular kinds of income, broadly passive and mobile income such as interest, dividends, rents, royalties and certain related-party sales. NCTI catches most of what is left after those exclusions, which for a normal operating business is the ordinary trading profit. Income taken by Subpart F is excluded from tested income, so the same dollar is not counted twice.

Three situations that come up constantly

You hold the company through a US S corporation or partnership. The inclusion reaches you through the entity's reporting, on a Schedule K-1, but under the aggregate approach of the section 951A regulations it is determined at your level as the shareholder rather than at the entity's. The reliefs do not travel automatically: the deduction and the section 962 election behave differently for a pass-through owner than for someone holding shares directly, and this is a place where a general answer is worth less than a specific one.

The company lost money, or made nothing. A tested loss reduces your total across all the CFCs you own, and if the total is not positive there is no inclusion for that year. Two things still bite: the information return is due regardless, and a distribution in a later year can carry its own consequences where it is paid out of earnings already taxed to you. A quiet year is not automatically a year with nothing to do.

You are wondering about basis. An inclusion you have actually paid tax on increases your basis in the shares, and a later distribution of those same earnings reduces it again. The purpose is to stop the same profit being taxed twice, once on inclusion and once on sale or distribution. Getting the basis right matters most at exit, and it depends on records kept year by year, which is the argument for keeping them.

The forms

• Form 5471 reports the company itself. It is the return with the penalty regime attached, and it is required whether or not there is an inclusion. See our Form 5471 guide for who files and what a missed year costs.
• Form 8992 computes the inclusion.
• Form 8993 claims the deduction, and is only in play where the deduction is available, which for an individual means a section 962 election.

A dormant company is still a filing question. If the company exists and you meet a category, the information return is due even in a year with no income and therefore no inclusion. The penalty for not filing does not care that the answer would have been zero.

What is worth doing before your first NCTI year

None of this is advice about your situation, and the useful moves depend on facts we do not have. In general terms, the things worth knowing before the first affected return are: whether your company is a CFC at all, how your entity is classified for US purposes, whether its foreign effective rate is anywhere near the high-tax threshold, whether a section 962 election helps or hurts across the whole life of the money, and whether any tangible-asset shield you were relying on has just disappeared.

The honest answer to "is renouncing the only way out of this" is no, and anyone leading with that is selling something. Most owners deal with this through classification, elections and credits.

What this page deliberately leaves out

This is written for an individual who owns a company abroad. It does not cover corporate shareholders filing their own corporate return, the FDDEI export deduction, the transition-tax history left over from the 2017 Act, or the interest-expense allocation mechanics. Those are real and they are somebody's problem, just not usually the reader of this page.