GILTI

What is GILTI?

GILTI is a tax applied to the revenue of non-U.S. companies that U.S. corporations and citizens control. These foreign companies, also known as controlled foreign corporations (CFCs), must be more than 50% owned by U.S. persons, and the U.S. shareholders must each own at least 10% of any stock in the CFC. The tax specifically targets income from intellectual property (IP) such as copyrights, licenses, patents, and trademarks and is intended to discourage CFCs from using questionable tax strategies to shelter those assets.

GILTI was included in the 2017 Tax Cuts and Jobs Act (TCJA) because Congress detected a tax gap in potential tax revenues from U.S. citizens or corporations that own stock in foreign subsidiaries of U.S. companies — CFCs. Part of that tax gap came from CFCs sheltering IP in low- or no-tax jurisdictions. To fill that gap, the TCJA implemented the global intangible low-taxed income tax, better known by its acronym, GILTI.

As a result, the GILTI tax-rate spread is between 10.5% and 13.125%, ensuring at least a 10.5% minimum tax on foreign income and countering the tax advantage gained by strategically relocating IP assets in more tax-friendly locales.

The One Big Beautiful Bill Act (OBBBA) revised GILTI rules for tax years beginning after December 31, 2025. See the discussion below for more details.

What is the purpose of GILTI?

The rationale for the GILTI tax is to maintain the U.S. tax base by discouraging multinational corporations from housing intangible assets in low- or zero-tax rate jurisdictions, which was a way for CFCs to shelter income from intangible assets passed to U.S. shareholders.

In practice, the GILTI tax functions as a kind of global minimum tax.This tax help the U.S. government assess taxes on U.S. shareholders of foreign subsidiaries of U.S. corporations, whether these taxes come from income derived from intangibles or other sources of CFC income. GILTI provisions do not specifically define what a CFC’s intangible assets are. Instead, the value of a CFC’s intangible assets is calculated by assuming a 10% return on its normal assets, and any return over that 10% threshold is considered income from intangible assets.

What are the limitations of GILTI?

The GILTI tax is intended to ensure that mobile income from intellectual property does not evade taxation, but there are limitations to the GILTI regime. Typically, when calculating tax obligations, credits for paid foreign taxes must be factored into the GILTI burden. However, according to GILTI, foreign tax credits cannot exceed 80% of their worth, which increases the GILTI tax rate. The so-called “high-tax exemption” also applies if income from a CFC is already being taxed at a rate of at least 18.9%, which is 90% of the U.S. corporate tax rate of 21%. In this case, that income is not subject to GILTI.

What is the tax rate of GILTI?

For corporate shareholders, the GILTI tax rate ranges between the lowest rate of 10.5% to the maximum rate of 13.125%. Thanks to the OBBBA, the effective GILTI rate for corporations in 2026 will increase from 10.5% to 12.6%. 

For individual shareholders, the tax rate for GILTI is based on the individual’s income tax bracket, which means the rate can range from 10% to 37%.

How do you calculate GILTI?

Technically speaking, the formula for calculating GILTI for the 2025 tax year is:

Net CFC-tested income – (10% x qualified business asset investment (QBAI) – interest expense) = GILTI

Here, “CFC-tested income” is calculated by subtracting any income connected to U.S. trade or business, or income that would otherwise be counted as subpart F income, from the company’s gross income.

Other income that can be subtracted includes:

• Income excluded from subpart F because it is already taxed at a higher rate
• Related-party dividends
• Foreign oil and gas extraction income

QBAI, in this formula, is the collective pool of a company’s tangible or fixed assets. These assets are used to compute a CFC's tangible return on assets, which are, in turn, used to calculate the return on intangible assets, subject to GILTI.

“Interest expense” refers to business expenses associated with the various assets used to determine QBAI.

When all of this is calculated, a U.S. corporation that owns 10% or more of stock in a CFC will pay from 10.5% to 13.125% in GILTI or receive a tax refund. U.S. citizens who hold at least 10% or more of a CFC’s stock will be taxed at individual U.S. tax rates ranging from 10% to 37%, depending on the individual's tax bracket by state.

What is the difference between subpart F income and GILTI Income?

While subpart F income overlaps with GILTI income, the main difference between subpart F and GILTI income has to do with what subpart F includes vs. what GILTI excludes:

Subpart F income includes:

• Foreign earnings and profits from sales, services, insurance, or stock holdings
• Income a CFC earns from dividends and interest, royalties, annuities, and rent
• Foreign-based company income (FBCI)

GILTI income comes from IP assets such as patents, licenses, and trademarks but excludes:

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

The tax rates for subpart F and GILTI are different as well. The subpart F income tax rate is 21% for corporations, and the GILTI income tax rate for corporations is between 10.5% and 13.125%.

Who is subject to GILTI tax rules?

The GILTI rules apply to U.S. citizens or corporations who, directly or indirectly, own 10% or more of the voting power of all types of stock shares in the CFC. These entities must pay annual taxes on any income the CFC earns on intangible assets, even if the income has not yet been distributed to the shareholder. Note, however, that even though the GILTI tax is assessed on undistributed income, the tax is not levied again once the GILTI income has been distributed to the shareholder. In any case, relevant U.S. shareholders of a CFC must report their share of GILTI in their gross income for any given tax year.

How do you report GILTI?

To report GILTI inclusion amounts, U.S. corporations and individual shareholders will use IRS Form 8992, “U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI).” But to register ownership in a CFC with the IRS, they must also file Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations.” The filing deadline for these forms is the same as the taxpayer’s regular tax-return deadline, including extensions.

Is there a loss carryover for GILTI?

There is no effective way to carry over GILTI losses in one taxable year to offset GILTI income in another taxable year. However, an individual taxpayer may choose to make a Section 962 election, which means that the individual receives tax treatment as if they own a CFC through an imaginary domestic — U.S. — corporation.

For instance, if the individual’s GILTI would otherwise have been taxed at 37%, a Section 962 election allows them to be taxed at the 21% corporate tax rate instead. The taxpayer may then apply a 50% deduction — Section 250 — along with the 80% foreign tax credit to reduce the GILTI tax burden if their state allows it. However, the taxpayer should consult a foreign-tax planning specialist to ensure that the 962 election does not increase, rather than reduce, their tax burden.

How did the OBBBA change the GILTI rules?

For tax years beginning after December 31, 2025, the term “GILTI” is no longer used. Instead, the rules reference net CFC tested income, or NCTI. This reflects a computational change in which net deemed tangible income return, or NDTIR, is no longer considered. The OBBBA made additional changes to the GILTI rules starting in 2026, including:

• The effective rate for corporations increases from 10.5% to 12.6%.
• The Section 250 deduction, which applied to GILTI, is reduced from 50% to a permanent rate of 40%. This is the primary reason why the effective rate is lower for 2026.
• The foreign tax credit that can be applied to NCTI is increasing from 80% to 90%.
• QBAI, which is 10% of a qualified business asset investment, is eliminated from the NCTI calculation.

Which states include a GILTI deduction?

Most states do not tax GILTI for corporate income tax purposes and, therefore, do not offer a deduction. Given that the OBBBA changes the GILTI rules starting in 2026, states will need to examine their conformity to the Internal Revenue Code (IRC) and any decoupling provisions. For more information on a particular state’s conformity to the GILTI rules, including the OBBBA’s adoption of a NCTI calculation, see the State Charts tool on Checkpoint, available in CoCounsel Tax.

This information was last updated on 10/20/2025.