GILTI to NCTI: What changed for US expats in 2026?

A recent law changed how the US calculates the Section 951A income inclusion for certain US shareholders of foreign companies. For Americans abroad who own a foreign company, this change is more than just a new name. It replaced the old term Global Intangible Low-Taxed Income (GILTI) with a new one called Net CFC Tested Income (NCTI), and the law also changed how some deductions and foreign tax credits are calculated.

The timing can be confusing. If you are preparing your 2025 US tax return in 2026, you might hear that “GILTI has become NCTI” and assume the new rules already apply. In most cases, they do not. The 2025 tax return still uses the old GILTI rules, while the new NCTI system generally starts with the 2026 tax year.

Published on: August 27, 2026
Written by: Darryl Albuquerque

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In this article

Key facts at a glance:

Question	Direct answer
When does NCTI begin?	Generally for taxable years beginning after December 31, 2025
Does a 2025 return use NCTI?	Generally no for calendar-year taxpayers
What happened to QBAI?	The QBAI-based net deemed tangible income return was removed
What is the new Section 250 deduction?	40% for eligible corporate or Section 962 treatment
What is the new deemed-paid FTC percentage?	90%
Does NCTI apply to ordinary company profit?	No. It is based on tested income and tested loss under US tax rules
Can foreign-controlled structures be affected?	Yes, potentially, under the new Section 951B rules

Is GILTI being replaced by NCTI?

Yes. NCTI replaces GILTI under the revised Section 951A rules for taxable years beginning after December 31, 2025.

Public Law 119-21, commonly known as the One Big Beautiful Bill Act, or OBBBA changed how this tax works. It replaced the old term “global intangible low-taxed income (GILTI)” with a new one called “net CFC tested income (NCTI).”

It also removed the QBAI-based net deemed tangible income return, which could previously reduce GILTI based partly on a CFC’s investment in qualifying tangible business assets.

For tax years up to 2025 → GILTI rules still apply
For tax years starting in 2026 and later → NCTI rules apply

When does NCTI replace GILTI?

For most calendar-year taxpayers, NCTI begins with the 2026 tax year, which generally means the first NCTI return will be filed in 2027.

The new Section 951A rules generally apply to US shareholder tax years beginning after December 31, 2025. Separate transition rules may affect CFCs with non-calendar tax years. IRS Notice 2025-72 also explains that from that point, US shareholders use net CFC tested income instead of a GILTI inclusion amount for foreign corporation tax years.

Typical calendar-year treatment

Tax year	Section 951A regime	Typical filing year
2025	GILTI	2026
2026	NCTI	2027
2027 onward	NCTI	Following year

Transition rules can be more complex for CFCs that do not use a calendar year. The 2025 law also removed the one-month deferral election for certain foreign corporations for tax years starting after November 30, 2025. Notice 2025-72 provides transition guidance for affected companies.

For the typical expat who owns a calendar-year foreign company, though, 2025 remains the GILTI year and 2026 becomes the first NCTI year.

Does NCTI apply to a 2025 tax return filed in 2026?

Generally, no. A standard calendar-year 2025 US tax return filed during 2026 still applies the GILTI rules.

The IRS’s December 2025 Form 8993 instructions still refer to GILTI and state that, for tax years beginning before January 1, 2026, the Section 250 deduction generally includes 50% of GILTI.

For tax years beginning after December 31, 2025, the deduction percentage is 40%.

Meanwhile, the IRS’s early-release 2026 Form 8992 is titled “Calculation of Net Controlled Foreign Corporation Tested Income (NCTI).” That form is designed for the new tax-year regime and is currently a draft, not a form taxpayers should use for a 2025 filing.

Example: An American living in London who owns a UK Ltd and is preparing a calendar-year 2025 US return in June 2026 would generally still determine any applicable Section 951A inclusion under the GILTI rules. The 2026 year is where the NCTI rules generally enter the picture.

What are the main differences between GILTI and NCTI?

The biggest changes are the removal of the QBAI-based return, a smaller Section 250 deduction, and a larger deemed-paid foreign tax credit percentage.

The broad comparison looks like this:

Rule	GILTI through 2025	NCTI from 2026
Official terminology	Global Intangible Low-Taxed Income	Net CFC Tested Income
QBAI-based tangible return	Available in GILTI calculation	Eliminated
Section 250 deduction*	50%	40%
Section 960(d) deemed-paid FTC*	80%	90%
FTC haircut	20%	10%
Effective corporate rate before FTC*	10.5%	12.6%

*The Section 250 and Section 960 rules are primarily corporate provisions. Section 962 can make corporate-style treatment relevant to qualifying individual US shareholders.

The US corporate tax rate is still 21%. With GILTI, a 50% Section 250 deduction means only half is taxed, resulting in an effective rate of 10.5% before foreign tax credits. Under NCTI, the deduction drops to 40%, so more income is taxed, resulting in 12.6%.

That does not mean every expat with NCTI will pay 12.6%. The final tax can be very different depending on ownership structure, Section 962 elections, foreign taxes paid, high-tax exclusions, distributions, and other factors.

What is NCTI and how does it work?

NCTI is a US shareholder-level Section 951A inclusion. It is generally calculated by combining the shareholder’s pro rata shares of tested income and tested loss from relevant CFCs.

IRS guidance explains that this is based on your ownership share in each foreign company. The IRS then totals these amounts across all your CFCs to arrive at one final figure.

The key point is that NCTI is not the same as your company’s total income. Only certain categories of income are included in the calculation. Other items are excluded or dealt with under separate international tax rules.

How is NCTI calculated from 2026?

NCTI is basically just your share of your foreign company’s profit, minus any losses. The old “tangible asset” adjustment is gone.

In simple terms, here’s what happens:

Determine each CFC’s tested income or tested loss under US tax rules.
Calculate the US shareholder’s applicable pro rata share of those amounts.
Aggregate the pro rata shares of tested income and tested loss across the relevant CFCs.
If the result is positive, it becomes the shareholder’s NCTI.
Apply the relevant Section 250, Section 962, and foreign tax credit rules, where available.

The Draft 2026 Form 8992 combines the sum of pro rata shares of net tested income and net tested loss, with NCTI floored at zero if the result is zero or negative.

The IRS now goes straight from company profits and losses to NCTI, without the old extra adjustment for business assets.

Does the high-tax exclusion still apply under NCTI?

Yes. The high-tax exclusion remains part of the Section 951A framework, subject to an election and the applicable qualification rules.

Treasury’s August 2026 proposed regulations continue to describe an election that excludes an item from tested income when it is subject to an effective foreign tax rate greater than 90% of the maximum corporate rate under Section 11.

With the current 21% US corporate rate, that corresponds to an effective foreign tax rate above 18.9%.

The word election matters. Paying tax in a high-tax country does not, by itself, mean NCTI can simply be ignored. Eligibility, grouping and election requirements still need to be considered.

For Americans running companies in countries with comparatively high corporate income taxes, this can remain one of the most significant parts of the analysis.

How could NCTI affect US expats who own foreign companies?

NCTI may affect expats differently depending on the company’s assets, tested income, foreign tax rate, ownership and the shareholder’s US tax treatment.

There is no reliable rule that says “NCTI means more tax for every expat.” Several changes are happening at once.

Owners who may notice a larger difference include those whose CFCs previously benefited significantly from the QBAI-based tangible return, owners of businesses in lower-tax jurisdictions, and individual shareholders whose planning depends heavily on a Section 962 election. The disappearance of the tangible-asset return can increase the Section 951A base in relevant cases.

On the other hand, the larger 90% deemed-paid credit percentage may improve the foreign tax credit side of the calculation for qualifying corporate or corporate-style treatment. The high-tax exclusion can also remain relevant where its requirements are met.

This is why comparing GILTI and NCTI only by looking at the headline 10.5% and 12.6% rates is incomplete. The better question is: how do all the new rules interact with this particular foreign company?

What should US expats do before NCTI applies?

US expats with foreign corporations should compare their current GILTI position with the new NCTI framework before filing their first US return for a year in which NCTI applies.

A sensible review can follow seven steps:

Confirm whether the overseas company is a CFC. Check direct, indirect and constructive ownership rather than relying only on your personal share percentage.
Identify whether QBAI currently reduces your GILTI. A substantial existing tangible-asset benefit could make the transition more noticeable once that reduction disappears.
Review the company’s foreign effective tax rate. Foreign tax levels can materially affect the value of credits and whether the high-tax exclusion may be relevant.
Review any Section 962 election. The IRS currently allows eligible individual CFC shareholders making the election to access the Section 250 calculation.
Compare the old and new foreign tax credit treatment. The deemed-paid percentage moves from 80% to 90% for applicable years.
Confirm the company’s first NCTI tax year. Calendar-year and fiscal-year CFCs can transition differently.
Check both US and local-country effects before restructuring. NCTI may change one part of the US calculation, but changing an overseas business structure can create separate tax consequences.

The last point is worth stressing. A new acronym is not, by itself, a reason to restructure a foreign company. The numbers should drive the decision.

Frequently Asked Questions

Can tested losses from one CFC reduce NCTI from another CFC?

Generally, NCTI is determined by aggregating the US shareholder’s applicable pro rata shares of tested income and tested losses across relevant CFCs.

The IRS’s draft 2026 Form 8992 separately totals pro rata shares of tested income and tested loss before combining those figures to calculate Net CFC Tested Income. The details can become more complicated where ownership interests, different tax years or special CFC rules are involved.

Will NCTI change my Form 5471 filing requirement?

The move from GILTI to NCTI does not by itself eliminate Form 5471 reporting.

Form 5471 continues to be used by certain US persons who are officers, directors or shareholders of foreign corporations, with filing obligations depending on the applicable filer category and ownership rules. The IRS issued revised 2025 Form 5471 instructions in January 2026, including updates for the new CFC tax-year transition rules.

What happens to GILTI from earlier tax years?

Earlier Section 951A inclusions do not simply become new NCTI because Congress changed the terminology.

Previously taxed earnings and profits connected with earlier Section 951A inclusions continue to have their own tax attributes. In fact, the 2025 legislation and the Treasury’s August 2026 proposed regulations contain specific rules dealing with foreign taxes associated with distributions of previously taxed Section 951A earnings.

Can NCTI apply if I own less than 50% of a foreign company?

Yes, potentially, because your personal ownership percentage is not the same as the CFC control test. A US shareholder generally starts at a 10% voting-power-or-value threshold, while CFC status generally depends on US shareholders collectively owning more than 50% of the foreign corporation’s voting power or value, taking relevant ownership attribution rules into account.

So an American owning 30% of a foreign corporation could still be a US shareholder of a CFC if other applicable US ownership causes the company to satisfy the CFC test.

Should I restructure my foreign company because of NCTI?

Not solely because GILTI is becoming NCTI. Removing the QBAI-based return can change the economics of some foreign-company structures, while the revised Section 250 and foreign tax credit rules can pull the calculation in different directions.

A restructuring decision should therefore compare the actual US tax result before and after NCTI and account for tax consequences in the company’s home country as well. For an expat business owner, changing the entity may solve one US issue while creating another locally.

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Darryl Albuquerque, an IRS Enrolled Agent, brings 22 years of expat tax expertise in US tax preparation for Americans and Green Card holders living abroad.

Darryl also specializes in streamlined offshore filing and tax advisory services for American citizens, permanent residents, and foreign nationals living abroad.