Have you felt “GILTI” about deferring taxes in your International investment or business?… Probably not, because that may have been one of the many reasons you set up that international company. If you’re not feeling GILTI about it (which you shouldn’t), you may be feeling it, in a financial way, come 2018 tax time!
“GILTI” is a new category of income inclusion that was created with the Tax Cuts and Jobs Act. It stands for Global Intangible Low-Taxed Income and affects U.S. shareholders of a controlled foreign corporation (CFC). “Low-taxed” and “Intangible income” can be deceiving, so don’t let the name fool you. Keep reading.
Although the name says, “intangible income,” the GILTI provisions include any type of income that exceeds a normal return on net tangible assets. Of course, this always sounds simple, BUT it probably should go without saying, there is a complex calculation to be made here to identify what the normal return would or should be. We will spare you the calculation details because that is not what we want you to take away from this blog.
The important pieces of GILTI that we want you, the business owners and shareholders, to take away and be aware of are:
- Other than for C Corporations, the 50% deduction and deemed paid foreign tax credit are not available.
- If your company has little to no assets, such as a service provider, then you will have a significantly higher percentage of income subject to the GILTI inclusion
- The deduction to offset GILTI is only available to C Corporations (This relates to FDII, which you can find in another blog by clicking here.)
- Foreign Tax Credits are available for C Corporations only, BUT excess foreign taxes paid cannot be carried forward or backwards under the new tax reform AND cannot offset another source of foreign income. Use it or lose it scenario.
Along with a lot of other areas of the new tax reform bill (TCJA), guidance is still coming out, so please consult with a tax professional that specializes in this area for the most recent updates and planning of your tax situation.
Chris Morrison, CPA, MAFM