GILTI - now officially renamed Net CFC Tested Income (NCTI) by OBBBA (P.L. 119-21) - is a minimum tax on the foreign earnings of US shareholders in controlled foreign corporations. Created by the Tax Cuts and Jobs Act (TCJA) in 2017, GILTI applies to income not tied to physical assets abroad. OBBBA made the regime permanent, renamed it, eliminated the QBAI exemption, and reduced the §250 deduction to 40% permanently. This page uses "GILTI" throughout for searchability; the governing code section remains IRC §951A.
Effective for tax years beginning after December 31, 2025, OBBBA P.L. 119-21 renamed GILTI (Global Intangible Low-Taxed Income) to NCTI (Net CFC Tested Income). The §250 deduction for C-corporations was permanently reduced from 50% to 40%, producing an effective US tax rate of 12.6% (21% corporate rate × 60% net inclusion). For taxable years beginning after December 31, 2025 (P.L. 119-21, §70323(c)), the computation changes: net CFC tested income is tested income less tested loss, with no reduction for a deemed tangible income return (QBAI and DTIR are repealed). The rename, the 40% deduction, the 90% deemed-paid credit, and the QBAI repeal are the primary OBBBA modifications to this regime.
This page uses NCTI for tax years beginning after December 31, 2025. References to GILTI refer to the pre-OBBBA regime or the underlying IRC §951A statute (which retains the GILTI label in the code).
GILTI applies to any US shareholder - a US person who owns 10% or more of a Controlled Foreign Corporation (CFC). A CFC is a foreign corporation where US shareholders collectively own more than 50% of the stock by vote or value. IRC §957.
This includes US individuals, C-corporations, S-corporations, and partnerships that own CFC stock. The GILTI rules apply whether you are a large multinational or a US person who owns a small foreign company.
In plain terms (tax years beginning before 2026): if your CFCs earn more than a 10% return on their physical assets (machinery, buildings, equipment), the excess is GILTI and must be included in your US income. Companies with heavy capital investment in physical assets abroad have low or no GILTI. Service businesses and IP-heavy businesses - which have little tangible property relative to income - typically have high GILTI exposure.
CFC income that was subject to an effective foreign tax rate greater than 90% of the US corporate rate can be excluded from GILTI. For 2026 with a 21% US corporate rate, this means foreign income taxed at an effective rate greater than 18.9% may be excluded. The election is made annually and, for a CFC that is a member of a CFC group, applies to all CFCs in the CFC group. Treas. Reg. §1.951A-2(c)(7)(viii).
Income already included in the US shareholder's gross income under Subpart F (IRC §951) is excluded from GILTI tested income. No double taxation between Subpart F and GILTI.
An individual US shareholder can elect to be treated as a corporation for purposes of GILTI. This allows access to the IRC §250 deduction and foreign tax credits on GILTI inclusions. The trade-off: actual distributions from the CFC are then subject to a second level of tax as if they were corporate dividends. The §962 election is made annually. It is particularly valuable when the effective foreign tax rate is moderate and the individual faces high US marginal rates. IRC §962.
Foreign taxes paid by CFCs can offset GILTI liability, subject to limitations. The GILTI foreign tax credit basket is separate from the general foreign tax credit basket. The haircut on foreign taxes creditable against GILTI/NCTI is 20% (80% creditable) for tax years beginning before 2026 and 10% (90% creditable) for tax years beginning after December 31, 2025. IRC §960(d)(1). Foreign taxes in excess of the GILTI inclusion cannot be carried forward in the GILTI basket.
| Feature | Subpart F (IRC §951) | GILTI (IRC §951A) |
|---|---|---|
| Type of income | Passive, base-eroding, and other specified income | All CFC tested income (before 2026: only income above a 10% return on tangible assets) |
| Threshold | No threshold - dollar one is included | Before 2026: 10% × QBAI is exempt; only excess is included. From 2026: no QBAI exemption |
| Foreign tax credits | 100% creditability | 80% creditability through 2025; 90% creditability for 2026+ (NCTI) |
| §250 deduction (corporations) | Not applicable | 50% deduction (reduced to 40% permanently under OBBBA for tax years beginning after 2025) |
| Individual treatment | Included as ordinary income | Ordinary income unless §962 election made |
| Form | Form 5471, Schedule I | Form 8992 |
A US shareholder owns 100% of a foreign tech service company (CFC) with $1,000,000 of net income and $200,000 of depreciable tangible property (QBAI = $200,000).
Tax year beginning before 2026: NDTIR = 10% × $200,000 = $20,000. GILTI inclusion = $1,000,000 - $20,000 = $980,000. For a tax year beginning after December 31, 2025, there is no NDTIR: the NCTI inclusion is $1,000,000, the corporate §250 deduction is 40% × $1,000,000 = $400,000, taxable NCTI is $600,000, and tax at 21% is $126,000 before foreign tax credits (90% of tested foreign income taxes creditable); an individual without a §962 election would include $1,000,000 and pay up to 37% = $370,000.
For a C-corporation shareholder: GILTI of $980,000, §250 deduction of $490,000 (50%), taxable GILTI = $490,000, tax at 21% = $102,900, less 80% of foreign taxes paid.
For an individual shareholder without §962 election: $980,000 included as ordinary income, taxed at up to 37% = $362,600 - with no §250 deduction and limited foreign tax credit availability. The §962 election could reduce this substantially.