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

Start here: Your 2025 return, and what to do about 2026

Two questions come first: does the new law apply to the return you are filing now, and what should you do before it applies?

On the first: no. Every operative change in this package carries the same effective date, taxable years beginning after December 31, 2025. A calendar-year 2025 return is computed the old way, including the tangible-asset reduction that has since been repealed, and the 2026 return filed in 2027 is the first computed the new way. Two provisions in the same act run on their own clocks: the rule on sales of intangible and depreciable property applies to dispositions after June 16, 2025, and a 10 percent credit disallowance for foreign taxes on distributions of earnings already taxed under section 951A applies to such taxes paid or accrued after June 28, 2025.

On the second, start with a diagnosis. Establish four things:

• whether your company is a controlled foreign corporation at all;
• how it is classified for US purposes;
• how much of your current inclusion is sheltered by tangible assets that will stop sheltering it;
• what effective rate of foreign tax it actually bears.

Companion terminology: the export-side deduction that used to be foreign-derived intangible income (FDII) is now foreign-derived deduction eligible income (FDDEI). Both matter to US corporations that export, not usually to an individual abroad, so this article does not cover them.

Who is affected by the new law

Two separate tests have to be met, one about you and one about the company. It is easy to check your own percentage and forget that other people's shares count.

Test one: Are you a US shareholder

You are a US shareholder of a foreign corporation if you own 10 percent or more of it, measured either by voting power or by value, whichever is reached first. Ownership here is not read off your share certificate: it is measured under the direct and indirect ownership rules and the constructive attribution rules, so shares held by related parties can be counted as yours. A spouse's holding, or one inside a partnership, trust or company you are connected to, can push you over a line you thought you were nowhere near.

Test two: Is the company a controlled foreign corporation

A foreign corporation is a CFC if more than 50 percent of it, again by vote or by value, is owned by US shareholders on any day during the taxable year. Note the aggregation: the test is not whether any one American controls the company, but whether the 10 percent owners added together clear half.

Own 100 percent of a company abroad and you meet both tests without thinking. Own 30 percent alongside two other Americans holding 30 percent each, and the company is a CFC and all three of you are caught, even though none of you controls anything. Own 8 percent of a large foreign employer and you fail the first test, so the regime does not touch you.

The question underneath both: Is it even a corporation for US tax purposes

None of this applies unless your business is a corporation for US tax purposes. That is a US classification question, decided by the entity classification rules and any election you filed on Form 8832, not by what the company is called locally.

The mismatch is common. A single-member company abroad that is disregarded for US purposes, by default or by election, is not a CFC: its results are yours as they arise, with no inclusion mechanics and none of the elections below. The same entity can be a full taxpaying corporation in its own country, and neither country cares what the other thinks. If you never consciously made that election, the default rules made it for you. Settle it before you compute anything.

How the calculation works now

The mechanics have two levels: things happen inside the company first, then they are added up at your level. For each CFC:

1. Start with the company's gross income for the year, computed under US tax principles rather than local accounting.
2. Take out the categories the statute excludes from tested income, among them income left out under an elective high-tax exception.
3. Subtract the deductions properly allocable to what is left, including foreign income tax. A positive result is tested income, a negative result a tested loss.

At your level, as the shareholder:

1. Take your share of tested income from every CFC you own, and subtract your share of tested losses.
2. The excess is your net CFC tested income, and you include it in gross income for the year. No distribution is required and none is assumed.
3. Then apply whatever reliefs you are entitled to, a short list for an individual.

Through the 2025 tax year there was one more step in between, and it is the step that has gone. You reduced the total by a deemed return on the company's tangible property: 10 percent of its qualified business asset investment, adjusted downward for net interest expense. Only profit above that deemed return became an inclusion, and that shelter is what the repeal removed. From 2026 there is no such reduction, and the whole of your net tested income is the inclusion.

Why the name changed: This is a repeal, not a rebrand

The rename follows the arithmetic rather than the other way round, and the calculation change is the expensive part.

The provision doing the work strikes two subsections of section 951A outright, the one containing the net deemed tangible income return and the one defining qualified business asset investment, and redesignates what is left. Congress captioned it "Repeal of tax-free deemed return on foreign investments".

Delete that carve-out and the old label stops describing anything. It asserted the rule targeted a return on intangibles, which was only ever true because a slice of the tangible return came out first. With nothing subtracted, the rule taxes net tested income as such, so the statute now calls it net CFC tested income.

The consequence sorts owners into two groups. If your company owns real depreciable property, a slice of your profit used to be shielded and is not any more, so your inclusion rises even though the business did nothing different from last year. If you run a consultancy from a laptop, you had almost no shield to lose. Look at last year's Form 8992 rather than guessing which group you are in.

The two reliefs are corporate reliefs

Two numbers changed: the deduction fell to 40 percent and the foreign tax credit rose to 90 percent.

The section 250 deduction

Section 250 allows a deduction equal to 40 percent of the net CFC tested income amount included in gross income, plus 40 percent of the associated section 78 gross-up, for tax years beginning after 2025. The old figure was 50 percent.

The gating words at the front of that provision are the ones that matter to you: it applies "in the case of a domestic corporation". An individual who owns shares in a CFC is not a domestic corporation and does not get it by default. A limitation also survived the change: where the export income and the tested income amount together exceed taxable income, the deduction is capped.

The section 960 deemed-paid credit

The shorthand misleads here. It is not 90 percent of the foreign taxes your company paid. Section 960(d)(1) deems the shareholder to have paid foreign income taxes equal to 90 percent of the product of the inclusion percentage and the aggregate tested foreign income taxes paid or accrued by the CFCs. That percentage is net CFC tested income divided by the aggregate of tested income.

If every company you own is profitable, that fraction is 100 percent and the shorthand happens to be right. If any company has a tested loss, the fraction drops below 100 percent and the credit drops in proportion, so the loss reduces your inclusion, which helps, and reduces the credit against the tax on what remains, which does not. The old percentage here was 80, so this leg of the change moves in your favor.

Like the deduction, the credit is addressed to a domestic corporation. A separate rule denies a credit for 10 percent of foreign income taxes on distributions of earnings already taxed under section 951A, and it runs on its own clock: foreign taxes paid or accrued after June 28, 2025.

So the default position for an American who owns a foreign company personally is worse than the headline rates suggest. The inclusion lands on a personal return at ordinary graduated rates topping out at 37 percent, with no deduction and no credit for the corporate tax already paid abroad.

The section 962 election: How an individual reaches the corporate reliefs

Section 962 is the bridge. An electing individual has the tax on the inclusion computed, in place of the ordinary individual calculation, as the amount that would be imposed under section 11 if the amounts had been received by a domestic corporation. That opens corporate rate treatment and, through it, the deduction and the deemed-paid credit otherwise closed to you.

The arithmetic before credits is simple. The corporate rate is 21 percent. Apply it to the 60 percent that survives a 40 percent deduction and the effective rate on the inclusion is 12.6 percent. Under the old 50 percent deduction the same arithmetic gave 10.5 percent. The deduction change therefore costs an electing individual about two points before any credit, and the improved credit gives some of it back.

The election is neither free nor permanent. It is made year by year, and it creates a second layer of tax later. When the company distributes the earnings taxed to you under the election, the distribution can be taxable again to the extent it exceeds the tax you already paid at corporate rates. So it is a comparison across the whole life of the money, not a switch you flip because this year's number looks better. It looks very different for an owner who leaves profits in the company than for one who takes everything out each year.

A worked example, 2025 and 2026

Round numbers, one company, to show where the change bites. You are a US citizen abroad owning 100 percent of a calendar-year foreign operating company. It earns $500,000 before local tax, pays local corporate tax at 10 percent, so $50,000, leaving tested income of $450,000. It owns $1,000,000 of depreciable equipment, has no net interest expense, and distributes nothing. You own no other foreign company.

Same business, same profit, same foreign tax, and the US bill moves from about $9,700 to about $18,000. The old shield was never worth its face value, because the same reduction that cut the inclusion also cut the credit against the tax on what was left. The larger credit does not come close to offsetting the tangible-asset repeal and the smaller deduction together. If you run a consultancy from a laptop, the two years converge, because you had almost no shield to lose and there was nothing for the repeal to take away.

What a tested loss does to the same example

Add a second foreign company that loses $150,000 in 2026. Your net CFC tested income falls to $300,000, which reduces the inclusion. But the inclusion percentage is now $300,000 over $450,000 of aggregate tested income, about 66.7 percent, and it cuts both the gross-up and the credit. The gross-up falls to 66.7 percent of $50,000, about $33,333, so the base is about $333,333. The 40 percent deduction is about $133,333, leaving $200,000 to tax at 21 percent, which is $42,000. The deemed-paid credit falls to 90 percent of 66.7 percent of $50,000, about $30,000, so you owe about $12,000. The loss helps on one side of the ledger and hurts on the other, which is exactly what "90 percent of your foreign taxes are creditable" hides.

These figures illustrate stated assumptions, not a projection for any real company. Expense allocation, the separate credit basket, currency, mismatched tax years and the taxable-income limitation on the deduction all move real numbers around.

If your company already pays substantial local tax

If your company already pays corporation tax at home, a UK Ltd for example, you might expect no US tax on the same profits. That can be right, but only by election, and only above a threshold that is higher than most owners expect.

The regulations allow tested income to be left out of the calculation entirely when it was subject to an effective rate of foreign tax greater than 90 percent of the maximum rate specified in section 11. The statutory exception behind it uses the same standard. With the corporate rate at 21 percent, 90 percent of it is 18.9 percent, so the effective foreign rate has to be above 18.9 percent. The threshold is written as a percentage of the corporate rate rather than as a fixed number, so it moves if the corporate rate ever moves. And it says greater than, not at least, so income taxed at exactly the threshold does not qualify.

Two things people get wrong about it. It is elective, so paying high foreign tax excludes nothing by itself; somebody has to make the election. It is measured on the effective rate actually borne, computed under the regulations, so local incentives and allowances can pull a company below a threshold its statutory rate clears comfortably. The rename package did not touch any of this: the exclusion and its threshold survived the act unchanged.

The trap: A threshold is not a break-even rate

Two different percentages are easy to confuse here.

The first is the exclusion threshold above. It answers one question: is this income eligible to be left out of tested income at all?

The second is a break-even rate, answering a different question: at what foreign rate do the deemed-paid credits roughly cancel the US tax on an inclusion that is fully computed? That is arithmetic, not a rule. Divide the effective rate on the inclusion by the creditable fraction. From 2026 that is 12.6 divided by 0.90, which is 14 percent. Under the old rates it was 10.5 divided by 0.80, which is 13.125 percent. It is a simplification, assuming the election has been made, an inclusion percentage of 100 percent, and no expenses allocated against the inclusion basket.

These are different calculations that produce different numbers. A figure in the 13 to 14 percent range is a break-even rate, not the exclusion threshold. Whenever you meet a percentage here, establish which of the two it is.

Which way this goes usually follows from where the company sits. A company in a country with a headline rate comfortably above the threshold is a candidate for the exclusion. 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: Two rules, one form

Both regimes tax you on company profits without a distribution, which is why they are easily confused. They aim at different income.

Subpart F catches specified categories: broadly passive and mobile income such as interest, dividends, rents, royalties, certain insurance income and certain related-party sales income. It applies regardless of the foreign tax rate, subject to its own elective high-tax exception, and it is computed company by company.

The section 951A inclusion catches most of what is left once those categories are removed, which for a trading business is the ordinary operating profit, and it is computed by aggregating across all your CFCs at your level.

If your company has both an operating business and a portfolio of investments, expect both regimes to apply to different slices of the same year, computed on different bases.

More than one company: Aggregation cuts both ways

If you own several CFCs, the inclusion is not computed separately for each. Your shares of tested income and tested loss are combined at your level and the net is the inclusion. A loss in one company reduces the tax on profit in another, which is the opposite of how Subpart F works.

Two qualifications. Aggregation that reduces your inclusion also reduces your deemed-paid credit, because the inclusion percentage is net CFC tested income over aggregate tested income. And through 2025 the tangible-asset reduction was aggregated too, so an asset-heavy company could shelter income earned by an asset-light one; that shelter goes with the repeal.

The corollary for anyone planning a new venture abroad: whether the activity sits inside an existing company, a separate company, or a branch changes the aggregation math, so model it before incorporation rather than after.

The forms, and what a missed one costs

• Form 5471 reports the foreign corporation itself: income statement, balance sheet, ownership, and the schedules that compute tested income. One form per company per year, due whether or not there is any inclusion or any tax. See our Form 5471 guide for the filing categories.
• Form 8992 is where the shareholder-level calculation happens: it combines, across all your CFCs, your share of each one's tested income or tested loss into the inclusion that flows to your return.
• Form 8993 claims the section 250 deduction, so it is only in play where that deduction is available, which for an individual means a section 962 election.

Form 5471 carries the penalty regime, which is why a dormant company is still a live problem. Section 6038 imposes $10,000 for each annual accounting period for which the information is not furnished, so one company and four missed years is $40,000 before anything else happens. If the failure runs more than 90 days after the IRS mails notice of it, a further $10,000 accrues for each 30-day period or part of one, and that increase is capped at $50,000, so $60,000 in total per form-year. Foreign tax credits are reduced as well, by 10 percent to start and by another 5 percent for each 3-month period the failure continues past the same 90 days. Section 6038(c)(2) caps that reduction, for each missed form, at the greater of $10,000 or the company's income for the period, and section 6038(c)(3) then reduces it by the dollar penalty already imposed for the same period, so it can be zero. And the limitations period on the return the information relates to does not expire until three years after you furnish it, so a paperwork lapse holds the whole return open, unless the failure was due to reasonable cause and not willful neglect, in which case that extension reaches only the items related to the missing information.

None of that depends on the company having made money. The penalty for not filing does not care that the inclusion would have been zero. If you have missed years, there are three routes back:

• the Streamlined Filing Compliance Procedures, where the conduct was non-willful and the IRS has not opened a civil examination of any of your years or a criminal investigation;
• the Delinquent International Information Return Submission Procedures, which are open where the underlying income was reported and you are not under civil examination or criminal investigation and have not been contacted by the IRS about the delinquent returns;
• the Criminal Investigation Voluntary Disclosure Practice, where willfulness is a real risk.

They are not interchangeable, and the choice is made before anything is filed.

Three common situations

You hold the company through a US partnership or S corporation

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 owner rather than at the entity's. The reliefs do not travel automatically with it: whether the section 250 deduction is available, and how a section 962 election interacts with the pass-through, depends on the structure. An answer written for someone holding shares directly can be wrong for a pass-through owner, so a general answer here is worth less than a specific one.

The company made nothing, or lost money

A tested loss reduces your aggregate, and if the aggregate is not positive there is no inclusion that year. Two things still bite. The information return is due regardless. And a later distribution out of earnings already taxed to you carries its own rules, including a credit disallowance on the foreign taxes attaching to those distributions. A quiet year is a year with less tax, not automatically a year with nothing to do.

What an inclusion does to your basis in the shares

An amount you have included and paid tax on increases your basis in the shares, and a later distribution of those same earnings reduces it again. The mechanism stops a single dollar of company profit being taxed once on inclusion and again on distribution or sale. It works only if the records exist, which is the argument for keeping a running schedule of inclusions, previously taxed earnings and basis rather than reconstructing one at exit.

Things worth evaluating before your first NCTI year

Stated as questions to answer, not as recommendations. What is right depends on facts specific to you, and on the tax law of the country your company sits in, which can undo a US-optimal move in one stroke.

• Entity classification. Is the company a corporation for US purposes, and is that what you would choose today? A check-the-box election changes which regime applies rather than optimizing within it, so it is the largest lever and carries the most consequences elsewhere.
• Your exposure to the repeal. Pull last year's tangible-asset reduction off the return. That figure is the increase in your base before anything else changes.
• Effective foreign rate. Not the headline rate. Compute what the company actually bore and see how far it sits from the 18.9 percent threshold.
• The section 962 comparison. Model it over the life of the money, including the later distribution, not one year in isolation.
• Timing. Mismatched company and shareholder tax years, and when foreign tax is paid or accrued, can lose credits that were otherwise available.
• Group structure. If you own or plan to own more than one company, the aggregation math and its effect on the inclusion percentage belong in the decision.

Not on that list: restructuring because the acronym changed. The numbers before and after, in both countries, are the reason or they are not.

Common questions

Does NCTI apply to the 2025 tax return I am filing now?

No. The changes apply to taxable years beginning after December 31, 2025, so a calendar-year 2025 return is still computed under the old rules, including the tangible-asset reduction. The first return that uses net CFC tested income is the 2026 return, filed in 2027. If your company has a non-calendar tax year the transition is more involved and worth checking specifically.

Has GILTI been abolished?

No. The same section of the code still requires the same annual inclusion; it has a new name and a changed computation. The inclusion is still made whether or not the company distributes anything. What was repealed is the deemed return on tangible assets that used to reduce the amount, not the regime itself.

What is the real difference between GILTI and NCTI?

The rename follows the arithmetic. Congress struck the subsections containing the net deemed tangible income return and the definition of qualified business asset investment, so nothing is subtracted for tangible property any more. Once that carve-out is gone the rule no longer isolates a return on intangibles, and the statute simply calls the amount what it computes: net CFC tested income. The deduction rate and the deemed-paid credit percentage changed at the same time.

I own a dormant foreign company. Does any of this matter?

The inclusion does not, because a company with no tested income produces no inclusion. The filing does. Form 5471 is still required for a dormant or loss-making corporation, and the penalty for missing it is not scaled to the company's size or profit. A corporation that meets the dormant-corporation conditions in Rev. Proc. 92-70 can use the summary procedure in the form's instructions and file only page 1 with the required statement, which satisfies sections 6038 and 6046, but the obligation is the same and so is the penalty for skipping it. Dormant companies are one of the most common sources of a large penalty exposure built up over several quiet years.

My company already pays high tax abroad. Does that solve it?

Possibly, but only through an election, and only above a specific threshold. Tested income subject to an effective foreign rate greater than 90 percent of the US corporate rate, which is above 18.9 percent while that rate is 21 percent, can be elected out of the calculation. The test uses the effective rate the company actually bore rather than the country's headline rate, so local incentives and allowances can disqualify income that looks high-taxed on paper.

My company is a corporation abroad but disregarded in the US. Which rules apply?

The US answer governs your US return, and the two countries are allowed to disagree permanently. If the entity is disregarded for US purposes, whether by default or by a Form 8832 election, it is not a controlled foreign corporation and there is no inclusion; its results are yours directly. If it is a corporation for US purposes, the inclusion rules apply no matter how the local system treats it. Establish which US classification actually applies before computing anything, because everything else depends on it.

I pay myself a salary. Is the retained profit still taxed to me?

Yes. Salary you draw is compensation income, taxed to you when paid and generally deductible by the company, which reduces its tested income. Whatever profit is left in the company after that is still picked up by the annual inclusion. Paying yourself does not defer the rest, and leaving profits in the company to reinvest does not defer them either.

What does it cost to get Form 5471 wrong?

Section 6038 charges $10,000 for each annual accounting period for which the information is not furnished, per company. If the failure runs more than 90 days after the IRS mails notice of it, another $10,000 accrues for each 30-day period or part of one, and that increase is capped at $50,000, so $60,000 in total per form-year. Foreign tax credits are cut by 10 percent, rising by another 5 percent for each 3-month period the failure continues past those same 90 days, capped for each missed form at the greater of $10,000 or the company's income for the period, and section 6038(c)(3) then reduces that credit cut by the dollar penalty already imposed for the same period, so it can be zero. And the limitations period on the return the information relates to does not expire until three years after you furnish it, which is often the more serious consequence; where the failure was due to reasonable cause and not willful neglect, that extension reaches only the items related to the missing information. The three catch-up routes are set out above.

Can this apply if I own less than half the company?

Yes. Your own stake only has to reach 10 percent by vote or value for you to be a US shareholder. Whether the company is a controlled foreign corporation is a separate test, measured by adding up all the US shareholders, so three Americans holding 30 percent each between them make the company a CFC and all three are caught. Attribution from related parties can also push a stake over 10 percent that does not look like it on paper.

Can a loss in one of my companies reduce the inclusion from another?

Yes. The calculation nets your share of each controlled foreign corporation's tested income against your share of every tested loss, so a loss in one directly reduces the amount included. Be aware of the side effect: the same netting lowers your inclusion percentage, which lowers the deemed-paid foreign tax credit in the same proportion. Whether the netting leaves you better off depends on how much foreign tax the profitable company paid.

I hold my CFC through a US partnership or S corporation. What changes?

It reaches you through the entity's reporting on a Schedule K-1, but it is determined at your level as the owner rather than at the entity's. The reliefs behave differently than they do for a direct shareholder: the availability of the section 250 deduction and the mechanics of a section 962 election both depend on the structure. Advice written for someone who owns shares directly can be wrong for a pass-through owner, so this is worth confirming for your specific chain of ownership.

Can I owe US tax in a year my company earned nothing?

Not from this inclusion, which is zero when there is no positive net tested income. You can still owe tax that year from a distribution, from Subpart F income in a year with no operating profit, or from the interaction of foreign currency movements with previously taxed earnings. And the filing obligation is unaffected by the company having made nothing.

Does an inclusion change my basis in the shares?

Yes. An amount you include and pay tax on increases your basis in the stock, and a later distribution of those same previously taxed earnings reduces it again. The mechanism exists so the same profit is not taxed twice, once on inclusion and once on sale or distribution. It only works if you keep a running record of inclusions and distributions, which is much easier to maintain year by year than to reconstruct when you sell.

Should I restructure my company because of this change?

Not because of the rename. Work through the evaluation questions above, and restructure only if the numbers before and after justify it in both countries, since a US improvement can be paid for several times over locally.

Which forms report all this?

Form 5471 reports the foreign corporation itself, one per company per year. Form 8992 computes the shareholder-level inclusion by combining tested income and tested loss across your companies. Form 8993 claims the section 250 deduction where it is available, which for an individual means a section 962 election has been made. All of them attach to your income tax return, along with the election statement if you make one.

Is renouncing US citizenship the only way out?

No, and anyone leading with that answer is selling something. Expatriation is a permanent immigration decision with its own tax regime, including a possible exit tax, and it does nothing about years that are already open. Most owners deal with this through entity classification, the high-tax exclusion, a section 962 election and foreign tax credits, none of which involves giving up a passport.

What this page does not cover

This is written for an individual who owns a company abroad. Several adjacent topics are left out on purpose.

• Corporate shareholders. A US corporation filing its own Form 1120 has the deduction and the credit directly, with consolidated-group and expense-allocation questions that do not arise for an individual.
• The export-side deduction. Foreign-derived deduction eligible income belongs to a US corporation's own export income, not to a CFC's owner.
• The 2017 transition tax. The one-time inclusion on accumulated earnings and its installment mechanics are not part of this regime.
• Interest expense allocation. Allocating a shareholder's own interest expense against the inclusion basket, and the netting of tested interest, are specialized.
• Non-calendar tax years and transition mechanics. Companies whose tax years straddle the effective date need specific handling.
• Guidance issued after enactment. Notices and proposed regulations interpreting the amended provisions are not summarized here; the statute is, and the provisions quoted on this page are collected on our expat tax facts page.