Basics

In the 2017 Tax Cuts and Jobs Act (TCJA), Congress included a new minimum tax on United States companies’ foreign income known as global intangible low-taxed income (GILTI). The new tax is often viewed as a global minimum tax, and despite what the acronym implies, it subjects U.S.-headquartered companies to tax at a headline rate of 10.5% on almost all foreign earnings in the year they are earned. The tax does not apply to foreign-headquartered companies. GILTI replaced the former “deferral system,” where companies were taxed when they brought earnings onshore to the U.S. Many companies avoided doing so because of the high tax rates that would be incurred with repatriation.

GILTI was implemented in the 2017 TCJA to help pay for the general corporate income tax rate reduction from 35% to 21%. It also provided a disincentive for U.S. firms to move their assets and profits to countries with lower tax rates. The GILTI tax rate is equal to the U.S. corporate tax rate, but companies can deduct up to 50% of their foreign income for GILTI calculations, resulting in an effective rate of at least 10.5%. Along with much of the TCJA set to expire in 2026, the 50% deduction will drop to 37.5%, resulting in a GILTI headline rate of 13.125%. While the general corporate tax rate of 21% will not expire, if lawmakers do not maintain the 50% deduction in their next tax bill, the headline GILTI rate could jump even higher.