In this blog post, we will provide a comprehensive overview of the GILTI tax, who is subject to it, and how it affects multinational corporations. We will also discuss the tax rates for GILTI income, and how to comply with GILTI tax regulations. We understand that GILTI tax can be a complex topic, which is why we encourage readers to consult with a tax professional to ensure compliance with the law and to determine their specific tax liability.
WHAT IS THE GILTI TAX?
GILTI tax is a provision of the U.S. tax code that applies to U.S. taxpayers who own at least 10% of the shares of a controlled foreign corporation (CFC). The purpose of GILTI tax is to discourage profit shifting to low-tax countries by taxing the U.S. shareholder’s share of the CFC’s global intangible low-taxed income (GILTI). GILTI income is the CFC’s income from intangible assets, such as patents, trademarks, and copyrights, that is subject to a low rate of foreign tax.
HOW IS THE GILTI TAX CALCULATED?
The GILTI tax is calculated by taking the taxpayer’s net CFC tested income (which is the CFC’s gross income minus certain deductions) and reducing it by a deemed return on the CFC’s tangible assets. This deemed return is calculated as 10% of the CFC’s qualified business asset investment (QBAI), which is the CFC’s average aggregate adjusted bases in its tangible property used in its trade or business. The resulting amount is then multiplied by the GILTI tax rate, which is currently 10.5%.
It is important to note that the GILTI tax is a separate tax from the regular income tax and is calculated and reported on a taxpayer’s Form 8992 (Part of the IRS form 5471).
HOW TO AVOID PAYING THE GILTI TAX?
If the taxpayer takes the money out of the corporation as wages or dividends or if their corporate income tax rate is more than 18.9%, they may not have to pay GILTI tax.