GILTI Tax: What It Means for US Expats with Foreign Businesses

GILTI — Global Intangible Low-Taxed Income — is a provision of the 2017 Tax Cuts and Jobs Act that taxes US shareholders of Controlled Foreign Corporations (CFCs) on certain CFC income above a minimum return threshold, even if that income is never distributed. GILTI was originally designed to target large multinationals parking intellectual property income in low-tax countries, but it also applies to individual expats who own foreign companies. Corporations get a 50% deduction on GILTI and can apply foreign tax credits, significantly reducing the bite; individuals don't automatically get those same benefits unless they make a Section 962 election, which elects to be taxed as a corporation for this purpose. The effective GILTI rate for individuals can be as high as 37%, making it a serious issue for expats running profitable local businesses. If you own a foreign company earning more than a routine return on its assets, talk to a tax professional about your GILTI exposure.