GILTI is now “NCTI”: what the 2026 changes mean if you own a foreign company
It isn’t just a rename. For foreign-company tax years beginning after 2025, the 10% asset exemption is gone, the deduction shrinks from 50% to 40%, and the foreign tax credit gets more generous. Whether you come out ahead depends on where your company operates and how you own it.
If you own 10% or more of a foreign company that US shareholders control, the US taxes your share of its profit every year, whether or not it pays you a dime. For eight years that regime was called global intangible low-taxed income, or GILTI. The One Big Beautiful Bill Act (Pub. L. 119-21, signed July 4, 2025) renamed it net CFC tested income (NCTI) and rewrote the math behind it. Treasury has since issued proposed rules in August and September 2026 that fill in some of the details.
2. No more 10% return on tangible assets: the QBAI deduction is gone, so asset-heavy foreign companies lose the shelter.
3. Smaller deduction: §250 gives a 40% deduction (was 50%). That makes the top corporate rate 12.6%, not 10.5%.
4. Better credit: 90% of foreign taxes are creditable (was 80%), and interest and R&D are no longer allocated against this income.
5. New CFC rules: downward attribution is back (§958(b)(4)) and a new §951B reaches some foreign-controlled groups.
What changed, and who it affects
The amendments apply to taxable years of foreign corporations beginning after December 31, 2025. For a calendar-year foreign company that means 2026. A company with a different year-end switches at the start of its first year that begins in 2026, so a June 30 fiscal-year company stays on the old rules until July 1, 2026.
| Item | Before (GILTI) | After (NCTI) |
|---|---|---|
| Inclusion | Tested income minus 10% of foreign tangible assets (QBAI) | Net tested income, with no asset-based reduction (§951A) |
| §250 deduction (corporations) | 50% (scheduled to fall to 37.5% after 2025) | 40% (§250(a)(1)(B)) |
| Top corporate rate on the inclusion | 10.5% (13.125% once the old deduction dropped) | 12.6% (21% × 60%) |
| Deemed-paid foreign tax credit | 80% of foreign tax | 90% (§960(d)(1)) |
| Interest and R&D allocated to this income | Yes, under the §861 rules, shrinking the credit limit | No (§904(b)(5)) |
| Export-side deduction (FDII) | FDII, 37.5% | Renamed FDDEI, 33.34% |
Note the 12.6%: the deduction would have fallen to 37.5% anyway under the pre-2025 schedule, taking the rate to 13.125%. The new law is a smaller rise than that, but it is still a rise from 10.5%.
The most important question is who holds the shares. The §250 deduction and the deemed-paid credit are corporate benefits.
- Domestic C corporation: includes NCTI plus the §78 gross-up, takes the 40% deduction, pays tax at 21% on the rest, and credits 90% of the foreign tax. If the foreign rate is high enough, the US residual is zero.
- Individual, no election: includes the NCTI at ordinary rates (up to 37%), with no §250 deduction and no credit for the foreign tax paid by the CFC. This is where double taxation bites hardest.
- Individual with a §962 election: taxed on the inclusion as if a domestic corporation (§962(a)), with the §250 deduction allowed (Treas. Reg. §1.962-1(b)(1)(i)(B)(3)) and credit for deemed-paid taxes. The catch: a later actual distribution is taxed to the extent it exceeds the US tax already paid on the inclusion (§962(d)).
NCTI sits in its own foreign tax credit “basket” (§904(d)(1)(A)), which has three consequences that matter even more under the new law.
- No carryover. Section 904(c) does not apply to taxes on this basket, so unused credits in a low-US-tax year cannot be carried to another year.
- Cleaner limit. Under §904(b)(5), no interest expense or R&D is allocated to the basket, other deductions only if “directly allocable,” and the §250 deduction and related state tax are allocated to it. Reallocated deductions land on US-source income instead.
- Higher break-even. Before expense allocation, the 12.6% US tax is fully offset only when foreign tax reaches 14% of pre-tax profit (12.6% ÷ 90%), versus 13.125% under the old 10.5% and 80%. Below that a US residual remains, and foreign rates above 14% generate credits you can’t use.
There are two further wrinkles. New §960(d)(4) disallows 10% of foreign taxes on previously taxed amounts distributed later, and the §78 gross-up is still computed on 100% of the foreign taxes, without the 90% credit percentage. And the high-tax exclusion election (Reg. §1.951A-2(c)(7)) still exists in the regulations we reviewed, for income taxed abroad at more than 90% of the top §11 rate, or 18.9%.
OBBBA also changed who counts as a shareholder of a CFC, for taxable years of foreign corporations beginning after 2025.
- Downward attribution restored (§958(b)(4)). The 2017 repeal is reversed: stock owned by a foreign person is no longer attributed down to a US person. A US subsidiary of a foreign parent stops being treated as owning the parent’s other foreign subsidiaries.
- New §951B. It carves out “foreign controlled” US shareholders (US persons owning more than 50% of a foreign corporation, applying §958(b) without paragraph (4)) and the “foreign controlled foreign corporations” they own, so subpart F and §951A can still apply to them. Treasury is directed to issue regulations, and has not finalised them yet.
- Pro rata share when ownership changes. The rules for splitting a CFC’s income among shareholders who bought or sold mid-year were rewritten (§951(a)(2)). The proposed regulations (below) would use daily proration and close the CFC’s tax year when it becomes or stops being a CFC.
For many small owner-managed companies none of this changes anything. It matters if you are selling a stake, bringing in a partner, or sit inside a group with a foreign parent.
Several items are still proposed. Taxpayers can rely on a proposal before it is final only if they follow it in its entirety.
| Item | What it covers | Status (Oct 2026) |
|---|---|---|
| Notice 2025-72 | Transition for repeal of §898(c)(2) (one-month-earlier year for some foreign corporations) | Notice, Dec 2025 (reported) |
| Notice 2025-75 | Transition rule for dividends under old §951(a)(2)(B); statement on Form 5471 | Notice; comments were due Feb 2, 2026 |
| Notice 2025-77 | New §960(d)(4) 10% disallowance; tracking of previously taxed amounts | Notice, Dec 2025 (reported) |
| Notice 2025-78 | §250(b)(3): exclusion of intangible/depreciable property gain from deduction-eligible income | Notice; comments due Feb 2, 2026 |
| REG-115646-25 | Pro rata share of subpart F / tested income; year-closing rules | Proposed, 91 FR 55037 (Aug 26, 2026); comments due Oct 26, 2026; finalisation expected by Jan 4, 2027 |
| REG-117273-25 | Allocating deductions to the §951A category and to deduction-eligible income (§§250, 904(b)(5)) | Proposed, 91 FR 57832 (Sept 11, 2026); comments due Nov 10, 2026 |
The IRS’s own Form 8992 page (last reviewed July 2026) still uses the GILTI name and links the December 2024 instructions, so expect a revised form and instructions.
Try it: old rules vs 2026 rules
Enter a foreign company’s profit and tax rate to compare the same company under the 2025 and 2026 rules. It shows the US tax on the inclusion and the combined foreign-plus-US burden.
| 2025 rules | 2026 rules |
|---|
What the numbers show
- Low-tax, asset-light companies feel it most. A services or IP company with little equipment had almost no QBAI relief anyway, so its rate simply moves from 10.5% to 12.6% on the gross inclusion.
- Asset-heavy companies lose the most relief. The old 10% return on tangible assets reduced the base. That shelter is gone.
- Higher-tax countries are fully absorbed. At foreign rates of 14% or more, the 90% credit wipes out the US residual for a corporate shareholder. Below that, the 2026 residual is larger than the 2025 one.
- Individuals without an election see the biggest gap. There is no deduction and no credit, so the foreign tax and the US tax stack.
How the calculator works (and why the break-even is 14%)
2026. With pre-tax profit P and foreign tax T, tested income is P − T. The §78 gross-up adds T back, so the base is P. The §250 deduction removes 40%, leaving 60% × P taxed at 21%, or 12.6% of P. The credit is 90% of T. The residual is 12.6% × P − 90% × T, and it reaches zero when T/P = 0.126 ÷ 0.9 = 14%.
2025. The inclusion was tested income less 10% of QBAI. The inclusion percentage (inclusion ÷ tested income) scales both the gross-up and the creditable tax. The US tax is 10.5% of inclusion plus gross-up, less 80% of the scaled foreign tax, which reaches zero at 10.5% ÷ 80% = 13.125%, whatever the QBAI.
Individuals. Without an election the US tax is the inclusion times your top rate, with no gross-up and no credit. With a §962 election the corporate formula applies.
Gray area: tools and forms that still say “GILTI”
The IRS’s Form 8992 page still uses the GILTI name and links the December 2024 instructions, and the proposed regulations are not final. Expect line-by-line changes (QBAI lines drop away) and treat anything in your software that still calculates a “net deemed tangible income return” for a 2026 CFC year as out of date.
Common mistakes
- “It isn’t taxed until I take it out.” NCTI is taxed in the year it is earned, whether or not it is distributed.
- Modelling 2026 with last year’s spreadsheet. QBAI relief, the 50% deduction and the 80% credit no longer apply to years beginning after 2025.
- Ignoring the owner type. The same CFC can have very different US tax for a corporation, an individual, and an individual with a §962 election.
- Assuming high foreign tax always helps. Credits in this basket can’t be carried over, and above 14% they’re wasted at a corporate shareholder. Check the high-tax exclusion election.
- Missing Form 5471. The penalty is $10,000 per annual accounting period, rising by $10,000 per 30 days after IRS notice, to a $50,000 maximum on that additional amount, and foreign tax credits can be reduced by 10% or more (§6038(b), (c)).