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GILTI

Revealing GILTI: A 2024 Guide to Global Intangible Low-Taxed Income

In this evolving world where taxation is of significant importance, the abbreviation GILTI has become a centre of attention for multinational corporations (MNCs) operating in the United States. People are desperately longing for its concepts, how it impacts their businesses, what it brings to their execution of work and how it can change their procedural methodology.

This abstract unveils the concept of Global Intangible Low-Taxed Income in the context of the updated 2024 US tax laws, helping you understand its propositions, implications, and possible solutions for the substantial complexities.

What is GILTI?

GILTI stands for Global Intangible Low-Taxed Income introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. It is a tax provision specifically devised to require US MNCs with controlled foreign corporations (CFCs) operating abroad to pay a minimum level of tax on certain types of income. 

Understanding CFCs and GILTI:

Controlled Foreign Corporations (CFCs): These are foreign corporations in which US shareholders hold a majority of ownership or stake, typically more than 50%. 

    1. GILTI Income: This is about the share of CFC’s net income that is low-taxed under US tax regulations. It mainly deals with income generated from intangible assets like patents, trademarks, copyrights, and formulas. Companies can easily move these assets across borders, enabling them to shift their profits to countries where there are lower tax rates than the US.
  • The Purpose of GILTI: The fundamental objective of GILTI is to discourage and dampen US companies from establishing subsidiaries in tax havens to undermine and minimize their tax burden. By introducing a minimum tax on certain types of foreign income, GILTI aims to inhibit the erosion of the US tax base and create a more level playing field. 

Calculating GILTI (as of 2024):

The GILTI is calculated by the following steps:

Determine CFC’s Net Income: Start by identifying and calculating the CFC’s total taxable income under US Tax Rules

  • Calculate a Deemed Return: This is considerably a 10% return on the CFC’s tangible assets, such as property, equipment, etc.
  • Subtract the Deemed Return: Once you realize the above two, deduct the deemed return from the CFC’s net income. It will give you the CFC’s potential taxable income under GILTI.
  • Apply the tax rate: After determining CFS’s potential taxable income, apply the US tax rate on GILTI income, which ranges from 10.5% to 13.125% depending on the typical foreign tax rate that the CFC pays on its overall income.

Important Considerations for 2024:

  • Foreign Tax Credits: US companies have an opportunity to claim foreign tax credits against taxes already paid on GILTI income to foreign governments. This will help them avoid double taxation.
  • Tax Deductions: A 50% deduction is allowed on a portion of the GILTI amount, which effectively reduces the overall tax burden.
  • High-Tax Exception: The IRS aims to prevent high taxes on GILTI earned in countries with high corporate tax rates. Such regulations are continuously evolving and progressing; therefore, it is more than necessary to stay updated on recent developments. 

Conclusion:

GILTI has now become an integral part of US tax law. This abstract details all the necessary concepts and theories of GILTI. It unveils its purpose, calculation methodology, and the latest 2024 considerations. With such a basic understanding, MNCs in the US can easily proceed without any significant hindrances or difficulties. 

However, it is to be remembered that for further technicalities and mechanics, a tax advisor is recommended to navigate the intricacies of GILTI and establish a sound tax plan that mitigates the tax liability. In the US, Dimovtax.com is among the acclaimed tax agencies that can assist you with GILTI calculation and prevent you from falling into the trap of unwanted fines and penalties.

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