The Tax Cuts and Jobs Act brought about many changes for multinational businesses. One of the more significant changes was the application of Global Intangible Low-Taxed Income (GILTI) to foreign subsidiaries. In a previous insight, we outline the key considerations in tax reform for international businesses. This insight offers the five reasons to consider GILTI and provides an illustrative example of its impact.
Five Reasons to Consider GILTI
Estimated Tax Liability of Foreign Structure with U.S. Individual Shareholder
For illustration purposes only. Actual results will vary based on facts and circumstances.
|Pre Reform||Post Reform||Notes|
|Type of Foreign Entity||Flow Thru||Corp||Flow Thru||Corp|
|Foreign Net Income||1,000,000||1,000,000||1,000,000||1,000,000||(1)|
|Foreign Corporate Income Tax Rate||15%||15%||15%||15%|
|Foreign Corporate Income Tax||150,000||150,000||150,000||150,000|
|Foreign E&P Amount||850,000||850,000||850,000||850,000||(2)|
|Foreign Dividend Withholding Tax Rate||5%||5%||5%||5%|
|Forign Dividen Withholding Tax||42,500||42,500||42,500||42,500|
|U.S. Individual Federal Tax Rate||43.4%||23.8%||40.8%||40.8%||(3)|
|U.S. Individual Tax Before Foreign Tax Credits||434,000||202,300||408,000||346,800|
|Foreign Tax Credit||192,500||42,500||192,500||42,500|
|Residual Individual U.S. Tax||241,500||159,800||215,500||304,300|
|Total Income Tax Liability||434,000||352,300||408,000||496,800|
As you can see, GILTI can have a significant impact on international tax liability of an individual shareholder. A structure change may be of benefit given foreign tax credits on GILTI income. Contact your Eide Bailly professional or a member of our International Tax Team to discuss your situation.