GILTI Is Gone: What the 2026 Tax Law Change Means for Your Foreign Corporation

If you own a controlled foreign corporation, the rules changed significantly in 2026 - and not in a small, technical way. The One Big Beautiful Bill Act repealed GILTI, one of the most complex and consequential anti-deferral provisions in the U.S. tax code. What replaced it is simpler, broader, and in many cases, more expensive.

Here's what you need to understand about the old rules, what changed, and what your options look like going forward.

The Problem GILTI Was Trying to Solve

To understand why GILTI existed in the first place, you have to understand how foreign corporations are generally taxed - or more precisely, how they weren't.

When a U.S. person owns a foreign corporation, the general rule is a two-level tax system. The corporation pays tax in its home country, and the U.S. shareholder doesn't owe U.S. tax on those earnings until money actually comes out - as a dividend or through a sale. That deferred treatment was the foundational rule for decades.

The IRS took issue with that deferral because it created a powerful incentive for large multinational corporations to park profits offshore. If a company like Apple or Google earned billions through a subsidiary in a low-tax jurisdiction, there was no urgency to bring that money back to the U.S. - doing so triggered a tax bill. Leaving it outside the U.S. and reinvesting through the foreign entity was simply more profitable.

When the Tax Cuts and Jobs Act passed in 2017, Congress tried to change that calculus. The carrot was a one-time repatriation opportunity that let large corporations bring offshore profits back at a reduced rate. The stick was GILTI - Global Intangible Low-Taxed Income - which imposed current-year U.S. taxation on certain earnings of controlled foreign corporations, whether the money came out or not.

The 2026 Repeal: What the New Rule Actually Says

GILTI was built around a proxy for intangible income. The logic went like this: if a foreign corporation owns tangible assets - real buildings, physical equipment, real property - those assets generate a "normal" return that shouldn't be subject to anti-deferral rules. Congress set that deemed return at 10% of the corporation's qualified business asset investment, or QBAI. Any earnings above that threshold were treated as attributable to intangible assets and subject to current U.S. taxation under GILTI.

In practice, this meant a foreign corporation owning a $300,000 rental property could shield up to $30,000 of annual income from GILTI. Anything above that was pulled into the U.S. tax base in the current year. For service-based controlled foreign corporations - consultancies, agencies, professional firms - there was rarely any tangible asset base to speak of, so almost everything was subject to GILTI.

As of 2026, that framework no longer exists. The One Big Beautiful Bill Act did away with the GILTI calculation entirely. What replaced it is a straightforward rule: all net income earned by a controlled foreign corporation is currently taxable to the U.S. shareholder, regardless of whether a distribution was made.

There's no more deemed return. No QBAI calculation. No intangible income proxy. If your CFC earns income, you pick it up in the U.S. today.

Who Gets Hit Hardest

The removal of GILTI's tangible asset shelter is a meaningful change for anyone who had structured around that exemption - particularly U.S. owners of foreign real estate held in a corporate entity.

Under the old rules, a foreign hotel, apartment building, or commercial property with significant asset value could generate substantial income without triggering GILTI. The physical assets provided a natural buffer. Under the new rules, there is no buffer. The income is taxable to the U.S. shareholder in the year it's earned.

For service-based CFCs, the practical difference is smaller - those businesses were already subject to GILTI in most cases. But for clients who structured foreign real estate investments specifically to take advantage of the tangible asset exclusion, this is a structural problem that needs to be addressed before returns are filed for 2026.

The High-Tax Exception: The Only Way Out

Congress did preserve one mechanism for avoiding current-year inclusion of CFC income, and it's important to understand exactly how it works.

Under the high-tax exception, if a controlled foreign corporation is paying corporate tax in its home jurisdiction at a rate of at least 18.9% - which equals 90% of the current U.S. corporate rate of 21% - the earnings of that CFC are not subject to current U.S. taxation. The old deferral rule applies, and the U.S. shareholder doesn't owe tax until a distribution is made.

This exception is meaningful if you're operating in a jurisdiction with a reasonably high corporate tax rate. France, Germany, the United Kingdom, Japan - many developed countries have corporate rates that would meet this threshold. But if your CFC is in a jurisdiction with low or no corporate tax - the Cayman Islands, Bermuda, Panama, or even countries like Ireland or Hungary where rates fall below 18.9% - the high-tax exception won't save you. You'll be picking up that income in the U.S. currently.

Your Options: Section 962 and Check-the-Box

For U.S. shareholders who are individuals rather than corporations, the new rules create a layered problem. Individuals don't get access to certain foreign tax credits the way a domestic corporation would. But there are two planning tools worth evaluating.

The first is a Section 962 election. This election allows an individual U.S. shareholder to be treated as a domestic corporation for purposes of the CFC anti-deferral rules (i.e., income inclusion without a distribution of earnings). The practical benefit is access to foreign tax credits - meaning the taxes paid by the foreign corporation in its home jurisdiction can offset the U.S. tax due on that income. Without the 962 election, individual shareholders often end up with no credit mechanism and face double taxation on the same earnings. The election adds complexity to the return, but for clients in higher-tax foreign jurisdictions, it can meaningfully reduce the U.S. tax bill.

Another option is a check-the-box election. If the foreign corporation is eligible - not all are; certain entity types are treated as per se corporations for U.S. purposes - you can elect to treat it as a disregarded entity or partnership for U.S. tax purposes. This converts the foreign corporation into a flow-through from the U.S. perspective, which eliminates the CFC framework entirely. The income and expenses flow directly onto the U.S. return, and foreign taxes paid are generally creditable. For clients who own foreign real estate in an SRL or similar entity type, a check-the-box election may be the cleanest solution available - and it's one that should have been considered at the time of setup.

It's worth noting that not all entities are eligible for this election. Some foreign entity types - including certain SAs in Latin America - are classified as per se corporations under U.S. tax rules and cannot make a check-the-box election. If you're locked into one of those structures, the 962 election or a restructuring conversation becomes more important.

What to Do Before You File for 2026

The window to act is now. If you own a controlled foreign corporation and haven't reviewed your structure in light of these changes, your 2026 return could carry a tax liability that looks nothing like prior years - and there's limited room to fix it retroactively.

A few questions worth asking immediately: What jurisdiction is your CFC in, and what is the effective corporate tax rate? Does it qualify for the high-tax exception? What type of entity is it, and is it eligible for a check-the-box election? Have you evaluated whether a Section 962 election would reduce your U.S. tax exposure?

These are not questions with universal answers. The right structure depends on what the CFC does, where it operates, what assets it holds, and what your long-term goals are. But the one universal answer is this: the rules aren't the same as they were in 2025, and a structure that made sense last year may need to be revisited today.