GILTI

What Is Global Intangible Low‑Taxed Income (GILTI)?

Global Intangible Low‑Taxed Income, or GILTI, is a special U.S. tax rule introduced in 2018. It applies to profits that U.S. shareholders earn from their foreign companies (even if those profits stay overseas). Its goal is to prevent low-tax countries from becoming hidden tax havens. In 2025, the One Big Beautiful Bill Act changed the name to Net CFC Tested Income (NCTI) with some slight changes to the rules.

How Does GILTI / NCTI Work?

GILTI or NCTI taxes U.S. owners of a controlled foreign corporation (CFC) on their share of the company’s active foreign income. What does that mean?

• If you, as a U.S. citizen, own over 10% of a foreign corporation, and over 50% is owned by U.S. people, the IRS treats it as a CFC. 
• Each year, you calculated a “normal return”  (10%) based on your CFC’s tangible assets. The NCTI rules got rid of this reduction of CFC income starting for 2025 onwards. 
• Any income above that “normal return” was considered GILTI and taxed now (even if you don’t distribute the money to the shareholders). Again, starting with 2025, NCTI looks at the total income regardless of tangible assets. 

What is exempt from GILTI / NCTI?

There are two main exceptions to NCTI.  The first is Subpart F income.  The second is corporate income that pays 90% or more of the highest U.S. corporate tax rate (currently 21%) to a foreign government.  As an example, if the corporation is paying the full Israeli corporate tax rate of 23% on its annual income, the corporation would not be subject to NCTI. 

What is the GILTI / NCTI Tax Rate?

GILTI isn’t taxed at the same rate as regular income. U.S. corporations get a 50% deduction on GILTI, effectively reducing the rate to 10.5%.

For individuals, things are more complex. Filing under Section 962 lets U.S. shareholders use the corporate rate. Without it, GILTI / NCTI is taxed as ordinary income, with no deduction, so up to 37% depending on your bracket.

GILTI vs Subpar F Income

Both GILTI  and Subpart F are designed to prevent the deferral of tax on foreign earnings. However, they apply in different ways and target different types of income.

Subpart F primarily focuses on passive and easily shifted income, such as:

• Foreign personal holding company income (e.g., interest, dividends, royalties, rent) 
• Insurance income 
• Foreign base company income (FBCI), including sales and services 
• Certain related-party transactions 

This income is taxed at the full U.S. corporate rate of 21%, regardless of whether it is distributed to U.S. shareholders.

Meanwhile, GILTI targets active business income that doesn’t pay enough foreign corporate tax. It aims to capture income from intangible assets like software or IP that might otherwise escape U.S. taxation. GILTI excludes:

• Subpart F income 
• Income effectively connected with a U.S. trade or business 
• Certain related-party dividends 
• Foreign oil and gas extraction income 

GILTI rules obligate you to pay U.S. tax on foreign corporate profits, even if you don’t bring the money home, and the process is complicated. If you need further international tax consulting, contact Philip Stein & Associates today.