GILTI Planning Strategies: What U.S. Businesses With Foreign Operations Need to Know After the One Big Beautiful Bill Act

When a U.S. business opens a subsidiary abroad, planning usually begins with entity formation and payroll setup. It less often begins with the tax consequence that will shape the venture: how the United States taxes income earned inside that foreign entity each year, whether or not a dividend is ever paid home.

That regime has also recently changed. The One Big Beautiful Bill Act (OBBBA) rewrote the framework formerly known as global intangible low-taxed income (GILTI) for tax years beginning after December 31, 2025, and several of the planning techniques available under the 2017 Tax Cuts and Jobs Act version no longer exist in the same form. Lincoln PLLC advises businesses across the country on international tax matters as they expand into foreign markets, and this question frequently arises before a transaction is signed. Below, we explain what the anti-deferral regime looks like today, how the inclusion is calculated at a high level, and which planning opportunities remain once a business has formed a controlled foreign corporation (CFC).

What Was GILTI, and What Replaced It

Under Internal Revenue Code Section 951A, a United States shareholder of one or more CFCs must include in gross income each year an amount determined by reference to its pro rata share of each CFC’s tested income or tested loss. Before OBBBA, this inclusion was labeled GILTI. Effective for tax years beginning after December 31, 2025, OBBBA renamed the regime net CFC tested income (NCTI) and removed one of its central mechanics. The change is not cosmetic. Under the prior rules, a shareholder could exclude from the inclusion a deemed 10 percent return on the CFC’s qualified business asset investment (QBAI), generally its depreciable tangible property, reduced by certain interest expense. That exclusion is repealed for tax years beginning after December 31, 2025. Every dollar of net tested income is now subject to inclusion, regardless of how asset-intensive the foreign operation is.

Timing is a frequent source of error. Planning materials written before 2025 that frame GILTI planning strategies around QBAI describe a mechanic that has been repealed for tax years beginning after December 31, 2025. Structures, models, and prior-year analyses built around maximizing QBAI should be revisited before the next return is filed.

How the Inclusion Is Calculated Today

At a high level, a U.S. shareholder’s NCTI inclusion starts with each CFC’s tested income, which is the CFC’s gross income, excluding items such as effectively connected income, subpart F income, income excluded under the high-tax exception, related-party dividends, and foreign oil and gas extraction income, reduced by properly allocable deductions. Tested income and tested losses are then netted across all of the shareholder’s CFCs to arrive at net CFC tested income under Section 951A. Because the QBAI offset has been repealed, this net figure now flows through to the inclusion in full.

The next layer is Section 250. For tax years beginning before January 1, 2026, a domestic corporation could deduct 50 percent of its GILTI inclusion (including the related Section 78 gross-up), producing an effective federal rate of 10.5 percent. Under OBBBA, that deduction drops to 40 percent for tax years beginning after December 31, 2025, pushing the effective corporate rate on NCTI to approximately 12.6 percent before foreign tax credits. OBBBA also increased the deemed-paid foreign tax credit under Section 960(d) from 80 percent to 90 percent of the foreign income taxes attributable to tested income, and limited the expenses allocated to this foreign tax credit category, which together soften the rate increase for businesses operating in moderately taxed jurisdictions. Individual U.S. shareholders of a CFC are not entitled to the Section 250 deduction or to deemed-paid foreign tax credits. Without a valid Section 962 election, an individual’s inclusion is taxed at ordinary income rates of up to 37 percent, with no offsetting deduction or credit for the CFC’s foreign taxes.

Where Planning Still Matters

With QBAI repealed, the remaining planning opportunities are tied primarily to entity structure and elections rather than asset composition. The Section 962 election permits an individual U.S. shareholder to be taxed on the inclusion at corporate rates as if the individual were a domestic corporation, with access to the Section 250 deduction and deemed-paid foreign tax credits that would otherwise be unavailable. Whether that election is beneficial depends on the shareholder’s overall rate profile and on the treatment of a later distribution, since under Section 962(d) a distribution of earnings attributable to amounts included under the election is taxable to the extent it exceeds the tax paid at inclusion. That interaction should be modeled before the election is made rather than after.

Holding structure choice is the other major planning consideration, and it looks different depending on which entity the business already has in place. A corporation weighing whether an S election still makes sense once a foreign subsidiary enters the picture faces a different set of considerations than one operating through a C corporation. An S corporation may own stock of a CFC without jeopardizing its election, but for NCTI purposes it is generally treated like a partnership, so the inclusion flows through to its shareholders, who, as individuals, are not entitled to the Section 250 deduction or deemed-paid foreign tax credits absent a Section 962 election. A foreign subsidiary also cannot be a qualified subchapter S subsidiary. A business layering a foreign acquisition onto an existing structure raises the same holding structure questions from the other direction, since the acquiring entity determines who bears the NCTI inclusion going forward. These questions are best addressed before the foreign entity is formed, when the structure can still be adjusted, rather than after the first NCTI inclusion appears on a return.

Why Early International Tax Analysis Matters

A foreign subsidiary can substantially change a business’s U.S. tax profile. The NCTI rules interact with foreign tax credit limitations, previously taxed earnings and profits ordering rules, and Section 986(c) currency gain or loss in ways that are difficult to model correctly, particularly so soon after OBBBA’s changes took effect.

OBBBA also limited the deductions that are allocated to NCTI for foreign tax credit limitation purposes, and the Treasury Department and the IRS issued proposed regulations on how these deductions get allocated in September 2026, with comments due by November 10, 2026. This remains an evolving area of law.

Working With Lincoln PLLC on Foreign Structuring Questions

Lincoln PLLC focuses on this kind of work. Erik Lincoln is both an attorney and a CPA, and the firm has advised for years on partnership tax, international tax, and the corporate transactions that accompany a business’s expansion across borders. When a foreign subsidiary raises a question that goes beyond compliance, from Section 962 elections to how a holding structure affects foreign tax credit access, we coordinate with the business’s existing accountants and advisors so that everyone works from the same assumptions.

If your business is considering a foreign subsidiary, already operates one, or faces an NCTI inclusion that differs from prior years, the structure is best reviewed before it is set rather than unwound afterward. Please submit an inquiry through our contact form to discuss how the current rules apply to your specific situation.

Erik Lincoln is a founding member of Lincoln. In addition to being an attorney he is also a CPA. Erik has consistently been recognized as one of the top attorneys in North Carolina, by Business North Carolina.