What the One Big Beautiful Bill Changes for Owners of Foreign Corporations (GILTI) and Businesses Generating Sales from Foreign Markets (FDII)

At a glance

• The main takeaway: The One Big Beautiful Bill (OBBB) reforms international tax rules by renaming and revising GILTI (now NCTI) and FDII (now FDDEI), impacting the treatment of foreign income of U.S. shareholders and corporations.
• Impact on you: There are multiple variables, but U.S. shareholders of foreign corporations with international income face an effective rate increase of 10.5% to 12.6% under NCTI but domestic corporations could benefit from broader eligibility and a simplified regime under FDDEI.
• Next steps: With most changes effective in 2026, now is the time to engage in strategic tax planning. Aprio’s international advisors are ready to help assess your exposure and opportunities.

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The full story:

The OBBB, enacted on July 4, 2025, introduces notable changes to U.S. international tax laws affecting both domestic corporations and U.S. shareholders of foreign corporations. The new bill significantly amends the Global Intangible Low-Taxed Income (GILTI) provision that requires U.S. shareholders to include their pro-rata share of a controlled foreign corporation’s (CFC) income in their U.S. taxable income. It also modifies the rules for the deductions that shareholders can take against this income.

With most of the amendments taking effect as soon as 2026 for calendar year taxpayers, it is imperative that taxpayers invested in foreign corporations or generating sales from foreign markets start strategic tax planning to optimize their tax strategy for upcoming years.

How the OBBB Changes GILTI

The OBBB imposes significant changes to the GILTI income inclusion and related deduction, including changing the name from GILTI to Net CFC Tested Income (NCTI). Under GILTI rules, U.S. shareholders with at least 10% ownership of the vote or valuee of a CFC are required to include their pro-rata share of the CFC’s GILTI in their U.S. taxable income.

Under prior law, the GILTI rules focused on taxing intangible income. This income was more likely to be sheltered in low-tax foreign jurisdictions for longer periods of time or even indefinitely. However, the OBBB modifies GILTI and removes the part of the calculation that provided an exclusion for income derived from tangible property. In general, under current law, a CFC’s income subject to GILTI was the amount above a routine 10% return on its tangible property.

As a result, taxpayers are now required to include the CFC income derived from tangible property as well as intangible property in their U.S. taxable income.

Consequently, U.S. shareholders of CFCs that have sizeable investments in tangible property could see their foreign earnings inclusion increase in future tax years.

Domestic corporations under NCTI are also eligible to receive a deduction against this income, resulting in a reduced effective tax rate. However, the OBBB decreases the allowable deduction from 50% to 40% of NCTI for taxable years beginning after December  31, 2025.

In addition to modifying the deduction rates, the OBBB also amends the foreign tax credit rules related to NCTI. Previously, the deemed paid credit was limited to 80% of foreign taxes but increases to 90% under the OBBB. As a result, when factoring in a decreased deduction percentage and foreign tax credit changes, the combined effective tax rate to eliminate U.S. residual tax rises to 14%, compared with 13.125% under current law.  Finally, the new rule also provides that interest expense and research and experimentation expenses are not allocated to foreign source NCTI, and can generally be a taxpayer favorable change resulting in an increase to the amount of NCTI foreign tax credit available.

Comprehensive tax planning and projection modeling will be necessary to determine the impact on your business.

How the OBBB Changes FDII

The OBBB also introduces revisions to the rules for the Foreign Derived Intangible Income (FDII) deduction, which grants domestic corporations a reduced effective tax rate on qualifying export income. Like NCTI, the OBBB changes the name of FDII to Foreign-Derived Deduction Eligible Income (FDDEI). For tax years before 2026, the deduction was equal to 37.5% of the corporation’s FDII.

A key part of FDII under current law is that generally the deduction is reduced in an amount equal to a 10% return on certain of the corporation’s tangible property called “net deemed tangible income return,” similarly discussed for GILTI above.

Under the OBBB, the method for calculating the FDDEI deduction has been streamlined. In taxable years beginning after December 31, 2025, the deduction will permanently be equal to 33.34% of qualifying FDDEI, which makes eligible income subject to an approximately 14% effective rate of tax versus 13.125% under current law (and lower than the statutory 21% corporate income tax on non-export income). Further, the “net deemed tangible income return” concept has been eliminated, which decreased eligible income subject to a reduced effective rate of tax. This should benefit domestic corporations with material amounts of tangible property ownership in the U.S., which was previously viewed as a potential deterrent of U.S. capital investment.

Ultimately, more businesses could benefit from lower tax rates and increased tax savings under the new rules.

The OBBB also provides that interest and R&E expense deductions are no longer taken into account in the computation. Consequently, businesses with significant R&E and interest expenses could have quite favorable outcomes, and therefore a larger FDDEI deduction. However, one unfavorable change to the FDDEI deduction calculation is that income from the sale or disposition of intangible assets (as defined in Section 367(d)), or depreciable, amortizable, or depletable assets, is no longer qualifying export income for transactions occurring after June 16, 2025.

To find out exactly how your corporation can benefit under the new FDDEI deduction rules, schedule a consultation with an Aprio advisor to begin your assessment.

The bottom line

The OBBB introduces major changes to international tax provisions that affect multinational U.S. corporations and U.S. individuals invested in foreign corporations. NCTI and FDDEI are both complex computations. The changes to NCTI cause the regime to operate more like a global minimum tax and have aspects that are both taxpayer favorable and unfavorable. The changes to the FDDEI generally expand the benefit to industries which were previously disadvantaged, in particular, asset intensive industries or corporations with significant R&E and interest expense. 

Careful and strategic tax planning is necessary to navigate these changes and maximize tax benefits. Though the international tax system remains complex, Aprio’s experienced team of advisors is prepared to help you navigate these changes to optimize your tax strategies. Learn how Aprio can help.