How to Calculate GILTI Tax (Now NCTI) on Foreign Earnings

Tax planning implications of the NCTI (formerly GILTI) regime

While the OBBBA didn’t fundamentally change how foreign corporations are taxed in the U.S., its continued antideferral devices make inversion less attractive from a U.S. income tax perspective:

• A lower corporate income tax rate
• The creation of a favored income category in the FDDEI deduction
• The NCTI inclusion’s favorable tax rate

How did the OBBBA change GILTI?

The One Big Beautiful Bill Act, enacted in July 2025, made several changes and additions to the prior law, resulting in the effective end of the GILTI regime on Dec. 31, 2025.

Changes to GILTI include, but are not limited to:

The One Big Beautiful Bill Act, enacted in July 2025, made several changes and additions to the prior law, resulting in the effective end of the GILTI regime on Dec. 31, 2025.

Changes to GILTI include, but are not limited to:

• Removes net deemed tangible income return (NDTIR) from the calculation
• Reduces the deduction percentage for net CFC tested income to 40%, resulting in a 12.6% effective tax rate
• Increases the net CFC tested income Foreign Tax Credit (FTC) allowance to 90
• Disallows 10% of the deemed paid FTC allowed for distributions of previously taxed net CFC tested income (applies to foreign income taxes paid or accrued with respect to distributions of previously taxed net CFC tested income made after June 28, 2025)
• For purposes of FTC’s, limits the expenses allocable to foreign-source income in the net CFC tested income category to: (i) the §250 deduction for net CFC tested income, and (ii) any other deduction that is “directly allocable” to net CFC tested income. No amount of interest expense or research and experimental expenditures are allocable to foreign-source net CFC tested income.
• Modifies the inventory sourcing rule solely for purposes of the foreign tax credit limitation
• Extends the subpart F and net CFC tested income rules to ownership structures involving “foreign controlled U.S. shareholders” and “foreign controlled foreign corporations”

For 2026 and future years: NCTI tax formula

U.S. shareholders of CFCs are subjected to current taxation on most net income earned through a CFC, with the NCTI effective rate being established at 12.6%.

That being said, NCTI inclusions can be reduced by a partial foreign tax credit. The OBBBA, in fact, increased the amount of foreign tax credits that can be credited against NCTI.

For pre-2026 years: GILTI tax formula

GILTI = Net CFC Tested Income – (10% x QBAI – Interest Expense)

Tested income: The gross income (or loss) of a CFC as if the CFC were a U.S. person, minus:

• CFC’s income that is effectively connected with a U.S. trade or business
• Income that is otherwise Subpart F income
• Income that is not Subpart F income because it is subject to an exception for income that is highly taxed
• Related party dividends
• Oil and gas extraction income

QBAI: Qualified business asset investment. The average of the adjusted bases in specified tangible property, subject to depreciation, and used in the CFC’s business to earn the gross income.

Interest expense: Certain business expenses associated with those assets used to calculate QBAI.

[To understand all the tax changes and implications for international tax from the OBBBA, download International Tax Changes in the One Big Beautiful Bill Act.]

NCTI (formerly GILTI) and Subpart F income

A CFC’s Subpart F income is the major component of its income that is taxed to any U.S. shareholder who directly or indirectly owns at least 10% of the CFC. Subpart F income consists of the following:

• Foreign personal holding company income, including income generally considered to be passive – such as interest, dividends, rent, royalties, capital gains, exchange gains, and so on – with some exceptions when these items are earned in active businesses
• Sales and services income from transactions with or on behalf of related persons, when either the purchase, sale, or service takes place outside the country of incorporation, subject to exceptions in each case
• Insurance income from policies outside a CFC’s country of incorporation
• Items imposed as a penalty, including bribes, kickbacks, etc.; a portion of income if a CFC has business considered to be affected by an international boycott; and income from unrecognized countries, countries with which diplomatic relations are severed, and countries that support terrorism

Importantly, like with GILTI, net income considered to be Subpart F income and taxed at ordinary tax rates as Subpart F income is not again taxed as NCTI.

Additional income subject to U.S. income tax

A CFC’s U.S. shareholders are also taxed on amounts considered to be “invested in United States property,” up to the amount of the CFC’s earnings and profits that have not been taxed by Subpart F. This includes CFC investments such as:

• Tangible property owned in the U.S.
• Debt owed by U.S. persons (with some exceptions)
• U.S. rights to certain intangible properties such as patents, copyrights, and business intangibles

NCTI foreign tax credit limitation

Foreign tax credits are limited annually to the amount of U.S. tax on foreign source taxable income as computed under U.S. tax principles. As a result, if the U.S. person pays more tax to the source country of the foreign source income than is due to the U.S. on the same foreign source income, the U.S. can limit the amount of foreign taxes that can be credited against U.S. tax liability.

Mathematically, the foreign tax credit limitation is computed as a taxpayer’s precredit U.S. tax liability multiplied by a ratio (not to exceed one), the numerator of which is the taxpayer’s foreign source taxable income and the denominator of which is the taxpayer’s worldwide taxable income for the year.

Foreign income taxes not credited because of the limitation can generally be carried back or forward to other taxable years, subject to the limitations for those years. However, foreign income taxes paid or accrued with respect to NCTI may not be carried back or carried forward.

Through 2025, GILTI foreign tax credits are also subject to a 20% “haircut” under §960(d), such that only 80% of the foreign taxes deemed paid on GILTI are eligible for a foreign tax credit.

Beginning in 2026, the final legislation reduces the NCTI haircut to 10%, such that 90% of the foreign taxes deemed paid on NCTI are eligible for a foreign tax credit.

The new 10% foreign tax credit limit also applies to earnings previously taxed as GILTI or NCTI, and distributed after June 28, 2025.

[For a breakdown of the key provisions impacting cross-border tax planning, compliance, and strategy, download International Tax Changes in the One Big Beautiful Bill Act.]

How NCTI is applied in low-tax jurisdictions

Pillar Two of the Organization for Economic Co-operation and Development (OECD)’s Inclusive Framework on Base Erosion and Profit Shifting is designed to ensure that multinational enterprises with substantial revenue pay a minimum tax rate of 15% in the jurisdictions in which they operate, regardless of where they are headquartered. If companies try to shift profits to low- or no-tax jurisdictions, their country of residence has the right to “top up” taxes to the 15% global minimum rate.

The OECD has released guidance clarifying that the qualified domestic minimum top-up tax (QDMTT) applies before any CFC taxes, and that the NCTI regime is a CFC tax under the global anti-base erosion (GloBE) rules, not an income inclusion rule (IIR) tax.

However, because NCTI applies on an aggregate basis, not on a jurisdiction-by-jurisdiction basis, it will be treated as a blended CFC tax. The guidance addresses how to allocate taxes arising under such a blended CFC tax regime.

Note that this current NCTI guidance is temporary, and is likely to change.

What is the GILTI/NCTI high-tax exception?

The GILTI/NCTI high-tax exception is a provision that allows certain income of a CFC to be excluded from current U.S. tax if it is subject to a high rate of foreign tax. This high-tax exception applies to income that is subject to a foreign effective tax rate that exceeds 90% of the U.S. corporate tax rate, which is currently 21%, making the threshold for the high-tax exception 18.9%.

The high-tax exception is elective, meaning that taxpayers can choose whether to apply it. If the election is made, the high-taxed income is excluded from both subpart F income and tested income for GILTI/NCTI purposes. The regulations provide that the GILTI/NCTI high-tax exclusion can be applied to certain high-taxed income even if that income would not otherwise be foreign base company income or insurance income under the Subpart F rules.

The GILTI/NCTI high-tax exclusion was finalized by regulations issued in 2020, which allow for an elective exclusion of certain high-taxed income from the GILTI/NCTI calculation, aligning the rules more closely with the subpart F high-tax exception. This elective exclusion is intended to prevent double taxation and reduce the compliance burden for taxpayers with high-taxed foreign income.

How to calculate GILTI tax with workpapers software

Here is an overview of the step-by-step process to calculate GILTI tax, and how automated tax workpaper software can remove risk and improve accuracy.

Note that steps 4 and 5 can be skipped when calculating NCTI for 2026 and future years.

Step 1: Consolidate CFC data

Start by gathering information on each controlled foreign corporation (CFC) including gross income and exclusions (e.g., Subpart F income and high-taxed income).

Bloomberg Tax Workpapers’ automation features make it easier to aggregate large datasets across different input files and push them to all of your spreadsheets. This saves time and helps to ensure data accuracy and reduce manual errors, especially when making last-minute changes.

Step 2: Calculate tested income for each CFC

The next step is determining the tested income – or loss – for each CFC. Bloomberg Tax Workpapers provides a dedicated template tailored to align with U.S. taxable income principles. Here are the steps:

1. Adjust the gross income of the CFC to reflect U.S. taxable income by removing exempt foreign income: effectively connected income (ECI), subpart F income, high-tax exclusion, related person dividends, and foreign oil and gas extraction income
2. Integrate any allowable deductions, including cost of goods sold (COGS) and operational expenses.
3. Use Bloomberg Tax Workpapers’ built-in formulas to calculate the high-tax exemption, saving time and ensuring compliance.

Step 3: Aggregate tested income across all CFCs

Bloomberg Tax Workpapers simplifies the aggregation process across multiple foreign subsidiaries. The platform automatically consolidates data from all CFCs to deliver an aggregated tested income figure.

This aggregated approach ensures tax professionals can quickly review the collective impact of GILTI or NCTI calculations, while eliminating repetitive manual processes often prone to human error.

Step 4: Determine 10% of QBAI minus interest expense

Calculate the 10% return on QBAI while accounting for interest expenses attributable to tangible property. Bloomberg Tax Workpapers allows you to input QBAI amounts and interest data directly into the template to ensure consistent accuracy.

For businesses lacking quarterly inputs, Bloomberg Tax Workpapers’ flexible design accommodates beginning- and end-of-year values, helping you adapt calculations to real-world scenarios.

Step 5: Subtract QBAI deduction from net CFC tested income

With Bloomberg Tax Workpapers, the software takes care of this step for you. Input your aggregated tested income, QBAI, and associated interest deductions, and the automated calculations provide your initial GILTI inclusion amount.

Step 6: Apply foreign tax credits and section 250 deduction to reduce GILTI or NCTI liability

Foreign tax credits and Section 250 deductions are essential to reducing the overall impact of GILTI and NCTI liabilities. While GILTI-related foreign income taxes cannot be carried forward or backward, they can offset up to 80% of the U.S. tax liability on GILTI. Starting in 2026, 90% of foreign income taxes can help offset NCTI.

Bloomberg Tax Workpapers automates foreign tax credit application according to U.S. limitations and seamlessly integrates with Section 250 deduction calculations, giving you an accurate post-deduction GILTI/NCTI liability figure.