GILTI replaced by NCTI: What US expats with foreign companies need to know

NCTI (Net CFC Tested Income) replaces GILTI for tax years beginning after December 31, 2025, changing how certain US shareholders of Controlled Foreign Corporations calculate foreign company income subject to US tax.

For US expats who own foreign companies, the transition changes how a US shareholder’s Section 951A inclusion is determined from CFC tested income and tested loss. NCTI is therefore a revised version of the existing regime, not an entirely new concept.

US citizens and Green Card holders who own foreign businesses, such as an Australian Pty Ltd or UK limited company, may still have US tax and reporting obligations even if the business operates entirely outside the US.

Published on September 02, 2026

Written by Rose-ann De Villa, EA, CPA

Rose-ann De Villa, an IRS Enrolled Agent and CPA with 15 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in the UK.

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Why is GILTI changing to NCTI?

GILTI is changing to NCTI because new international tax rules modify how foreign corporation income is calculated for US tax purposes.

The change applies to tax years beginning after December 31, 2025, where the former Global Intangible Low-Taxed Income (GILTI) rules are renamed Net CFC Tested Income (NCTI). The goal remains similar: to tax certain income earned through Controlled Foreign Corporations (CFCs), but the calculation method has changed.

This matters because a business operating overseas may still create US tax obligations. NCTI can change how much income is included on the owner’s US tax return, especially for certain US shareholders of foreign corporations such as an Australian Pty Ltd or UK limited company.

When will I actually see NCTI on my US tax return?

NCTI applies to tax years beginning after December 31, 2025, so many taxpayers filing their 2025 US tax return in 2026 will still be dealing with GILTI rules.

US owners of foreign companies should use this transition period to review their structure, particularly if they have not previously analyzed whether their company is treated as a CFC for US tax purposes.

Example

A US citizen living in Australia who files a 2025 return in 2026 would generally still be looking at the rules applicable to the 2025 tax year, assuming the taxpayer and company use calendar tax years.

How is NCTI different from the GILTI rules I used before?

The main difference is that NCTI removes the QBAI-based net deemed tangible income return and changes other parts of the calculation, including the Section 250 deduction and foreign tax credit rules.

Feature	GILTI	NCTI	Notes/Updates
Applies to	Certain US shareholders of CFCs	Certain US shareholders of CFCs and foreign-controlled foreign corporations	Reflects new Section 951B rules for certain foreign-controlled U.S. shareholders and foreign-controlled foreign corporations
Effective period	Prior rules	Tax years of foreign corporations beginning after December 31, 2025	Identifies taxable years of foreign corporations
QBAI deduction	Available under previous rules	Removed	Replace “QBAI deduction” with “QBAI-based net deemed tangible income return”
Section 250 deduction	50% under previous rules	40% under new rules	Eligible domestic corporations and Section 962-electing individuals only
Foreign tax credit treatment	Subject to prior GILTI limitations	Modified under new rules	Section 960(d) deemed-paid percentage generally increases from 80% to 90%, with the same individual eligibility caveat

The practical effect depends on the type of business involved. A company with substantial physical assets may be affected differently from a service-based company with fewer tangible assets.

For that reason, the change should not be viewed as an automatic tax increase or decrease. The outcome depends on the company’s income, foreign taxes, and the taxpayer’s overall US tax position.

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Who is affected by NCTI rules?

NCTI generally affects US shareholders of CFCs. A US shareholder normally owns at least 10% of the foreign corporation’s vote or value, while CFC status generally requires more than 50% US-shareholder ownership. Special attribution and Section 951B rules can change these results.

Situations that may require review include:

A US citizen who owns an Australian Pty Ltd that operates an active business. The company may be treated as a foreign corporation for US purposes, even though it operates entirely in Australia.
A US person who owns a UK limited company and leaves profits inside the company. Retaining earnings overseas does not necessarily prevent US tax considerations if CFC rules apply.
A US expat who incorporated a foreign company after moving overseas. The company’s local tax treatment does not, by itself, determine how the IRS classifies it.
Multiple US family members who collectively own shares in a foreign corporation. Ownership attribution rules may affect whether CFC rules apply.

Will NCTI increase the US tax on foreign business income?

Not necessarily. NCTI changes the US shareholder’s Section 951A inclusion and related tax treatment, but it does not automatically produce a higher US tax bill. The impact depends on the company’s specific circumstances.

Key factors include:

Foreign taxes paid
Type and amount of income earned
Availability of foreign tax credits
Ownership structure of the company
Availability of the Section 951A high-tax exclusion
Whether an individual makes a Section 962 election, which can materially affect the U.S. tax result for an expatriate owner.

The removal of the QBAI-based deemed return may have a greater impact on businesses with significant tangible assets, while service-based companies with fewer physical assets may see less of an impact.

Do NCTI rules change my US international tax filing requirements?

NCTI does not eliminate existing international reporting obligations, but the applicable calculations, forms, and potentially affected ownership structures must be reviewed.

These reporting requirements may include forms that provide the IRS with information about the foreign corporation, its ownership, and the income subject to US tax rules.

Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations). Used to report details about certain foreign corporations, including ownership information, income, and transactions with related parties.
Form 8992 (US Shareholder Calculation of Global Intangible Low-Taxed Income). Used to calculate the US shareholder’s GILTI inclusion amount. As the rules transition to NCTI, this calculation will be updated to reflect the new framework.

What should US expat business owners review now?

US expat business owners should review their foreign company structure, ownership, tax position, and reporting obligations for the first NCTI year.

Key areas to review:

Foreign company classification. A foreign company’s local legal treatment does not always match its US tax classification. Before assessing NCTI exposure, business owners should confirm how the IRS views the entity.

For example, a company that is treated as a corporation overseas may have different US reporting consequences depending on the entity type and ownership structure.
Ownership and CFC status. NCTI rules generally apply through the Controlled Foreign Corporation framework. Therefore, ownership percentages, attribution rules, Section 951B, and the revised any-day pro rata-share rules are important factors when determining whether a foreign company falls within the rules.
Foreign tax position. The amount of foreign tax paid can affect the overall U.S. tax outcome. Foreign tax credits may reduce potential double taxation, but the availability and limitation of those credits depend on the specific circumstances. For individuals, a Section 962 election is generally required to access the indirect deemed-paid foreign tax credit under Section 960.
International reporting obligations. Even if NCTI does not result in additional US tax, foreign company owners may still have information reporting obligations, including forms such as Form 5471 and other international tax filings.

How is NCTI calculated compared with GILTI?

NCTI removes the former QBAI-based net deemed tangible income return from the Section 951A inclusion calculation. Section 250 and foreign tax credit rules are applied separately when determining the resulting US tax.

The calculation can be simplified as follows:

Former GILTI calculation
→ aggregate pro rata shares of tested income
→ minus aggregate pro rata shares of tested loss
→ equals net CFC tested income
→ minus the net deemed tangible income return, generally 10% of QBAI reduced by →specified interest expense
→ equals GILTI, but not below zero

NCTI calculation
→ sum of pro rata shares of net tested income
→ minus the sum of pro rata shares of net tested loss
→ equals NCTI, but not below zero

Frequently Asked Questions

Do I need to take any action if my situation has not changed?

It depends on your circumstances. Even if your income, assets, or residency status remain the same, changes in tax rules or reporting requirements may affect what you need to file, your calculation and filing position, and whether any new reporting or tax elections apply. NCTI does not necessarily create a new form for every taxpayer.

Can I still use previous tax positions after the new rules take effect?

Not always. New rules may change how certain income, deductions, credits, or reporting obligations are calculated. Reviewing your specific situation is important before assuming previous treatment still applies.

Does this change affect all US citizens living overseas?

No. Living overseas does not, by itself, trigger NCTI. The principal factors include whether the person is a US shareholder, whether the foreign corporation is a CFC or falls under Section 951B, the person’s ownership period, and the corporation’s tested income or tested loss.

Will these changes automatically increase my US tax bill?

Not necessarily. The outcome depends on your overall tax position, including foreign taxes paid, available credits, and the classification of your income.

What should US expats do before filing their 2025 tax return?

A 2025 calendar-year return generally remains subject to the GILTI rules. Owners should confirm their CFC status, complete the applicable 2025 Form 5471 and Form 8992 reporting, and prepare for the NCTI rules that generally begin with CFC tax years starting in 2026.