For many US business owners operating overseas, changes to international tax rules can significantly affect how foreign company income is taxed. One of the biggest changes coming into focus is the transition from the Global Intangible Low-Taxed Income (GILTI) regime to the Net Controlled Foreign Income (NCTI) framework.

Understanding the differences between GILTI and NCTI is important for US shareholders of foreign corporations, particularly those who own companies in countries such as the UK, Australia, Canada, or other high-tax jurisdictions.

While NCTI is designed to replace GILTI under recent tax changes, the transition may affect how foreign business profits are calculated, how foreign tax credits work, and what planning strategies may be available.

What Is GILTI?

GILTI, introduced under the Tax Cuts and Jobs Act (TCJA), was designed to prevent US taxpayers from shifting profits into foreign companies to take advantage of lower tax rates.

Under the GILTI rules, certain US shareholders of Controlled Foreign Corporations (CFCs) may need to include a portion of the foreign company’s income on their US tax return each year, even if the income has not been distributed.

This means a US person who owns a foreign corporation may face US tax on the company’s earnings before receiving any money personally.

GILTI calculations generally consider:

• The foreign corporation’s tested income
• Qualified Business Asset Investment (QBAI)
• Foreign taxes paid
• Available foreign tax credits

The goal was to discourage multinational businesses from accumulating profits offshore without US taxation.

What Is NCTI?

NCTI, or Net Controlled Foreign Income, is the replacement framework for GILTI introduced under recent international tax changes.

The transition from GILTI to NCTI changes several important parts of how foreign corporation income is calculated and taxed.

While the overall purpose remains similar — taxing certain foreign company income of US shareholders — the calculation method and available benefits are different.

For US expats who own foreign businesses, understanding NCTI is important because the new rules may change their annual US tax obligations.

Key Differences Between GILTI and NCTI

The biggest differences between GILTI and NCTI relate to asset-based deductions, foreign tax credits, and the calculation of taxable income.

1. QBAI Deduction Removed

One major change is the removal of the Qualified Business Asset Investment (QBAI) deduction.

Under GILTI, taxpayers could generally reduce their taxable GILTI amount by allowing a return on certain tangible foreign business assets.

This meant businesses with significant physical assets, such as factories, equipment, or property, could potentially reduce their GILTI exposure.

Under NCTI, this tangible asset return is removed. As a result, some businesses that previously benefited from QBAI may see a higher amount of income subject to US taxation.

2. Changes to the Section 250 Deduction

Another important difference involves the Section 250 deduction.

Under GILTI, certain US corporate shareholders could claim a deduction to reduce the effective US tax rate on foreign income.

Under NCTI, the Section 250 deduction percentage is reduced, meaning some taxpayers may have a higher effective tax rate compared with previous rules.

The exact impact depends on factors such as the taxpayer’s structure, income level, and whether they are eligible for other deductions or credits.

3. Foreign Tax Credit Treatment Changes

Foreign tax credits are a major consideration for US taxpayers with foreign businesses.

Under GILTI, foreign tax credits were generally limited, with taxpayers unable to use all foreign taxes paid to offset US tax.

NCTI changes how foreign tax credits are calculated and may increase the percentage of foreign taxes that can be credited against US tax liabilities.

For businesses operating in higher-tax countries, this could help reduce double taxation concerns.

How Does NCTI Affect US Expats With Foreign Companies?

Many US expats operate businesses overseas through foreign corporations. Examples include:

• A US citizen owning a UK limited company
• A US entrepreneur operating an Australian Pty Ltd
• A US shareholder of a foreign consulting business

For these individuals, NCTI may affect how much income is reported annually on their US tax return.

The impact depends on several factors, including:

• The country where the company operates
• Corporate tax rates in that country
• Amount of foreign taxes paid
• Ownership percentage
• Whether income is distributed or retained

A business owner in a high-tax country may experience different results compared with someone operating in a low-tax jurisdiction.

What Planning Considerations Should Businesses Review?

The move from GILTI to NCTI makes proactive planning more important.

US shareholders of foreign corporations should review:

Business Structure

Some structures that worked well under GILTI may produce different results under NCTI. Reviewing whether the current corporate structure remains tax-efficient is important.

Foreign Tax Credit Strategy

Because foreign tax credit rules play a major role in avoiding double taxation, businesses should analyze whether foreign taxes paid will continue to offset US tax liabilities effectively.

Timing of Income and Distributions

The timing of retaining profits versus distributing income may also become more important. Businesses should evaluate whether keeping earnings offshore creates additional US tax consequences.

Compliance Requirements

US owners of foreign corporations may still have significant reporting obligations, including forms such as Form 5471 and other international information returns.

Failing to properly report foreign company ownership can result in substantial penalties.

Preparing for the Transition to NCTI

The move from GILTI to NCTI represents a significant change in the way the US taxes certain foreign corporation income.

While the purpose of preventing offshore profit shifting remains the same, the new rules may create different outcomes depending on the taxpayer’s business structure, location, and foreign tax position.

US expats and business owners with foreign companies should review how these changes affect their current tax strategy. Understanding the differences between GILTI and NCTI can help identify potential risks, improve planning opportunities, and reduce the chance of unexpected US tax liabilities.