Global Intangible Low Taxed Income (GILTI)
GILTI, or global intangible low-taxed income, is a type of income earned abroad by US-controlled foreign corporations (CFCs) that receives preferential tax treatment under the US tax code.
The US tax on GILTI is intended to prevent erosion of the US tax base by discouraging multinational corporations from shifting profits from the US to foreign jurisdictions with lower tax rates, such as intellectual property (IP) rights.
Before the enactment of the Tax Cuts and Jobs Act (TCJA) in 2017, U.S. businesses and individuals were subject to U.S. income taxes on their worldwide income. But, income earned by the foreign subsidiaries of U.S. corporations was subject to tax only when repatriated to the United States as dividends. The TCJA changed the tax rules for multinational corporations by generally exempting the earnings of foreign subsidiaries’ active businesses from U.S. corporate taxation, even if repatriated.
GILTI is generally defined as foreign income earned by CFCs from intangible assets such as intellectual property, trademarks, and patents. CFCs are foreign corporations in which U.S. shareholders own more than 50% of the vote or value. Each shareholder owns 10% or more of the CFC.
CFC shareholders who own 10% or more of a CFC are subject to GILTI tax, which generally ranges from 10.5% (half of the current regular corporate tax rate of 21%) to 13.125%.
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