What Is GILTI?
Global Intangible Low-Taxed Income (GILTI) is a US anti-deferral tax regime introduced by Section 14201 of the Tax Cuts and Jobs Act of 2017, codified at IRC §951A. Its goal is to prevent US shareholders of controlled foreign corporations (CFCs) from indefinitely accumulating income in low-tax jurisdictions while deferring US tax until a distribution is made.
In plain terms: if a US person controls a foreign corporation that earns income exceeding a specified “normal return” threshold on tangible assets, the excess income — the GILTI — is included in the US shareholder’s US taxable income in the year the CFC earns it, regardless of whether any distribution has occurred.
How GILTI Is Calculated
GILTI equals the net CFC tested income minus QBAI (qualified business asset investment return): 10% of the net book value of the CFCs’ tangible business assets. The result is, broadly speaking, the portion of CFC income presumed to derive from intangibles or location advantages — hence the name.
Applicable tax rates differ by taxpayer type:
- US corporations (C-Corps): GILTI is included in the base at 50% via the §250 deduction, resulting in an effective rate of 10.5% (rising to 13.125% from 2026 if the deduction decreases to 37.5%). They may also apply an 80% foreign tax credit on taxes paid by the CFC on GILTI income.
- US individuals: GILTI is included at 100% in ordinary income and taxed at the individual’s marginal rate (up to 37% federal). They do not have direct access to the 80% foreign tax credit or the §250 deduction — unless they make the §962 election.
The §962 Election: The US Individual’s Primary Tool for GILTI
The §962 election (IRC §962) allows an individual to elect to be treated as a US corporation for purposes of Subpart F income (which includes GILTI). The consequences are:
- The individual gains access to the §250 deduction (50%, or 37.5% from 2026) on GILTI.
- They may apply the 80% foreign tax credit on taxes paid by the CFC on the GILTI amount.
- They are taxed on net GILTI at an effective rate of 10.5%–13.125% rather than at their personal marginal rate.
The election is made annually and is revocable. It is most advantageous when the taxpayer’s personal marginal rate is high and the CFC already pays tax in its foreign jurisdiction.
Dual Exposure: GILTI and Spain’s TFI Regime in Parallel
For a US citizen who is also a Spanish tax resident and who controls a foreign entity, both regimes can fire at the same time:
- In the US: GILTI inclusion under IRC §951A on the US Form 1040.
- In Spain: Attribution under the CFC / TFI regime (Art. 91 LIRPF), if the four cumulative conditions are met — control ≥ 50%, effective tax rate < 75% of the Spanish IS rate, passive income > 15% of total income, and insufficient substance.
Both regimes can attribute the same income to the same taxpayer, albeit using different bases and rates. The Spain–US tax treaty does not directly eliminate this overlap: foreign tax credits are the mitigation tool, but their application in this scenario is technically complex and does not always fully neutralize the double burden.
Interaction with Form 5471
Taxpayers subject to GILTI must file Form 5471 with the relevant Schedules I, P, Q, and R to compute and report the GILTI inclusion. The Form 5471 data is the foundation for the GILTI calculation in respect of each controlled foreign corporation.
At BMC, when we advise US citizens relocating to Spain who hold interests in foreign entities, the GILTI + TFI interaction is always one of the first points in our diagnostic. Dual exposure is not inevitable — but ignoring it certainly is costly.