GILTI is gone. Starting with tax years beginning after December 31, 2025, the regime is called Net CFC Tested Income, or NCTI. The effective US corporate rate on the inclusion rises from 10.5% to 12.6%, the old 10% exclusion for tangible business assets is repealed, and foreign tax credits get more generous. If your 2025 tax model still uses GILTI math, it will give you the wrong answer for 2026.
GILTI vs. NCTI at a glance
| GILTI (through 2025) | NCTI (2026 forward) | |
|---|---|---|
| Full name | Global Intangible Low-Taxed Income | Net CFC Tested Income |
| Law | Section 951A (2017) | Section 951A as amended by the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) |
| Tangible asset exclusion (QBAI) | 10% deemed return on tangible assets excluded | Repealed entirely |
| Section 250 deduction | 50% | 40% |
| Effective corporate rate before credits | 10.5% | 12.6% |
| Foreign tax credit allowed | 80% of foreign taxes paid | 90% of foreign taxes paid |
| Foreign rate that wipes out US tax | About 13.125% | About 14% |
The name change is real, and so are the mechanics
Congress did not just rebrand GILTI. It rebuilt how the inclusion is calculated. The old name said "intangible" because the formula carved out a deemed 10% return on tangible assets like factories and equipment. That carve-out is gone, so the tax now reaches a CFC's full active earnings. The new name drops "intangible" because the concept no longer fits.
Who does this apply to? A US shareholder (generally a US person owning at least 10% of a foreign corporation) of a controlled foreign corporation (a foreign company more than 50% owned by US shareholders). The inclusion hits your US return every year whether or not the foreign company pays you a dividend. That part did not change.
Change 1: the QBAI exclusion is repealed
Under GILTI, you subtracted 10% of the CFC's qualified business asset investment (QBAI) from the inclusion. A company with heavy plant and equipment could shelter a meaningful slice of income. NCTI removes that subtraction completely. All net tested income is now potentially in the base.
This is the change that stings most for capital-intensive businesses. A manufacturer with a large foreign factory loses a shield it relied on for years. Take a simple example: a CFC with $10 million of factory assets used to exclude $1 million from the inclusion each year. That $1 million is now fully in the base. Service businesses with few tangible assets feel almost no difference from this piece.
Change 2: the effective rate goes from 10.5% to 12.6%
The Section 250 deduction drops from 50% to 40% of the inclusion. With the 21% corporate rate, the math is simple: 21% times the 60% that remains taxable equals 12.6%. Under GILTI it was 21% times 50%, or 10.5%. Take a simple example: on $1 million of tested income, that is the difference between $105,000 and $126,000 of US tax before credits.
One warning: the 40% deduction is mainly a corporate benefit. Individual US shareholders who own a CFC directly generally do not get the Section 250 deduction, so their rate on the inclusion can be much higher. A Section 962 election can let a qualifying individual be taxed more like a corporation on this income, but it comes with its own trade-offs and needs individual analysis.
Change 3: foreign tax credits get better
Here is the offset. The deemed-paid foreign tax credit under Section 960(d) rises from 80% to 90% of the foreign taxes tied to the inclusion. And the foreign tax rate at which credits fully erase the US residual tax moves from about 13.125% to about 14%.
In plain terms: if your CFC pays local tax at 14% or more, the improved credit often means little or no extra US tax on the NCTI inclusion. Companies in higher-tax countries may end up roughly where they were, or better. Companies in low-tax countries feel the rate increase most. The better credit and the higher rate pull in opposite directions, which is why your CFC's actual foreign rate matters more than the 12.6% headline.
Change 4: expense allocation rules shift
This one is easy to miss and it changes the foreign tax credit math. Under GILTI, interest expense and R&E expense were allocated against the GILTI basket, which shrank the credit limit. Under NCTI, those expenses are excluded from the basket and allocated to US-source income instead. Only the Section 250 deduction and directly allocable expenses now reduce the basket.
If your model still allocates interest and R&E the old way, your credit limit will be wrong. This is exactly the kind of quiet mechanical change that makes rolling a 2025 spreadsheet forward dangerous. In practice, the new rule helps companies carrying US debt or doing US-based R&D, because those costs no longer shrink the credit limit on foreign earnings.
Two more things to check before you close the books
New Section 951B rules pull certain foreign-controlled foreign corporations and their foreign-controlled US shareholders into the Section 951A system. Most classic structures (US parent with foreign subsidiaries) are unaffected. The groups that should look twice are the ones where a foreign parent sits above the US company, or where ownership chains cross borders in unusual ways. Map the full chain and ask whether the new reach catches any link in it. Guidance is still developing here, so treat this as a flag to review, not a settled answer.
Three smaller 2026 tweaks ride along in the same return. The Subpart F look-through rule is now permanent, which simplifies planning for dividends between CFCs. The Section 163(j) interest-limitation calculation goes back to the more favorable EBITDA-based method, which helps leveraged groups. And the BEAT rate holds at 10.5% for 2026 instead of rising to the scheduled 12.5%. None of these is the headline, but all three sit inside the same 2026 model, so confirm your assumptions on each rather than carrying 2025's numbers forward.
What to do before year-end
Do not roll your 2025 international tax model forward. Rebuild the NCTI calculation from the new base: full tested income with no QBAI subtraction, 40% Section 250 deduction, 90% deemed-paid credits, and the new expense allocation. Then test three things. First, where does your foreign effective rate sit against the new 14% breakeven? Second, does your asset footprint still make sense now that tangible assets buy no exclusion? Third, if an individual owns the CFC, does a Section 962 election change the answer? Companies that run these three checks before year-end will know whether 2026 brings a higher bill, a lower one, or just a different one.
Related reading on wtpadvisors.com
For background on how the old regime worked, see our GILTI tax strategy guide. If you are sorting out whether your foreign company is a CFC in the first place, start with controlled foreign corporation tax. US shareholders should also confirm their Form 5471 compliance is current, since the same ownership data feeds the NCTI calculation. And if the new rules make you rethink where functions and assets sit, our cross-border tax structuring work covers exactly that redesign. Groups also tracking the global minimum tax should read our Pillar Two guide alongside this piece.
Frequently asked questions
Does NCTI apply to my 2025 tax return?
No. NCTI applies to tax years beginning after December 31, 2025. A calendar-year company files 2025 under the old GILTI rules and 2026 under NCTI. The 2026 return is the one you file in 2027.
I am an individual who owns a foreign company. Does the 12.6% rate apply to me?
Generally no. The 12.6% effective rate reflects the corporate Section 250 deduction, which individuals usually cannot claim. Your rate can be higher. A Section 962 election may let you be taxed at corporate rates on the inclusion, but the election has downsides, including on later distributions. Get advice before electing.
My CFC pays 15% local tax. Will I owe US tax on NCTI?
Probably little or none. With the improved 90% deemed-paid credit, a foreign effective rate around 14% or higher typically wipes out the US residual tax on the inclusion. Run the exact calculation, because expense allocation and the Section 250 deduction still move the final number.
We have a big factory abroad. What is our biggest risk?
The QBAI repeal. Under GILTI, 10% of your tangible asset base was excluded from the inclusion. That exclusion is gone, so more of your CFC's earnings are now in the NCTI base. Revisit whether your asset and entity footprint still produces the result you planned for.
Is Congress done changing these rules?
Not necessarily. A September 2026 House bill (H.R. 10431) proposes further NCTI changes, including removing the remaining 10% foreign tax credit haircut and letting NCTI losses carry forward. It has no cosponsors yet and is best treated as a proposal to watch, not law to plan around.
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