One of the biggest changes the 2017 Tax Cuts and Jobs Act (TCJA) enacted in the international tax arena was section 951A, also known as the Global Intangible Low-Taxed Income (GILTI). GILTI requires certain U.S. owners of foreign corporations to include in their personal income taxes the GILTI from the foreign corporation. This reporting is beginning with the 2018 tax filings.
GILTI is a complex and not completely intuitive law, and since there are forms that must be filed it cannot be ignored. See here. However, that is for your tax professional to perform this analysis and complete the forms. You can assist by asking if it applies to you and knowing the basic requirements. In general, GILTI is a form of “Subpart F” income, which means it applies to U.S. shareholders of controlled foreign corporations (CFC). In simpler terms:
U.S. shareholders – U.S. person that owns at least 10% of a foreign corporation
CFC – foreign corporation where U.S. shareholders own more than 50%
Therefore, if you are the 100% owner, or greater than 50% owner, you alone can cause your company to be subject to these rules. Also, these are the same rules that require you to file Form 5471 as a Category 5 filer. Therefore, if all your taxes have been done correctly, you can simply check if you are filing this type of form and you will know GILTI applies to you, or at least needs to be taken into consideration. Lastly, there are also attribution rules that can cause you to be considered the owner of the stock of your family members or other foreign corporations. Again, a tax professional can analyze these rules for you, your job is just to give them all the information.
Overall, GILTI is something that cannot be avoided, but it is an excellent opportunity to make sure all your filings are in order and be proactive about your situation. In many cases, the taxes from GILTI can be avoided, but only with proper planning and application.
If you have any questions about GILTI, missing or late forms, or need assistance with analysis, please contact our office.