Farewell GILTI, Hello NCTI: How the OBBBA Changes Your 2026 Tax Strategy
If you own a foreign company—whether it’s an IT consultancy in Bangalore or a marketing agency in Dubai—the rules of the game just changed. Starting in January 2026, the One Big Beautiful Bill Act (OBBBA) officially replaces the old “GILTI” regime with a new, stricter system called Net CFC Tested Income (NCTI).
At KKCA, we are already helping our high-net-worth clients navigate these shifts to prevent a sudden spike in their U.S. tax liability.
1. From GILTI to NCTI: What’s in a Name?
For years, business owners relied on the QBAI (Qualified Business Asset Investment) deduction to shelter a portion of their foreign profits from U.S. tax.
The 2026 Change: The OBBBA has eliminated the 10% QBAI deduction entirely.
- Under the Old Law: You could deduct a percentage of your tangible assets (like office equipment) before calculating tax.
- Under NCTI (2026): Your entire net income from a Controlled Foreign Corporation (CFC) is now potentially subject to U.S. tax, regardless of your physical assets.
2. The New 12.6% Minimum Tax
The OBBBA hasn’t just changed the formula; it has increased the “effective” tax rate.
- The Rate Hike: The effective tax rate on foreign earnings is rising from 10.5% to 12.6%.
- The “Haircut” Relief: In a small win for taxpayers, the “Foreign Tax Credit Haircut” (the amount of foreign tax you can’t use as a credit) is being reduced from 20% to 10%. This means you can now use 90% of the taxes you paid in India or the UK to offset your U.S. bill.
3. New Requirements for Form 5471 (2025–2026)
Even if your income doesn’t change, your paperwork will. The 2025 Form 5471 (which you file in 2026) includes new lines (20a and 20b) to track “Top-up Taxes” related to global minimum tax initiatives.
- Category 1 & 5 Filers: New exceptions have been added for “constructive ownership,” potentially exempting some family members from filing if they have no direct stake in the company.
4. The 1% Remittance Fee (Starting Jan 2026)
As part of the new enforcement measures, a 1% federal fee will now apply to certain international money transfers sent from U.S. banks to foreign accounts. While this isn’t an “income tax,” it is a cost of doing business that expats must factor into their 2026 cash flow.
5. Summary: How to Prepare with KKCA
The OBBBA is designed to make it harder to “park” profits offshore. To stay ahead, we recommend three immediate steps:
- Entity Classification: Should your foreign company remain a corporation, or should we “Check the Box” to treat it as a partnership for U.S. tax?
- Salary vs. Dividend Review: With NCTI rates rising, it may be more tax-efficient to increase your foreign salary to reduce the company’s “Tested Income.”
- CAMT Review: If your foreign holdings are significant, we must now evaluate the Corporate Alternative Minimum Tax (CAMT) impacts using the new Schedule H-1.
The KKCA Strategic Edge
The OBBBA transition is the most significant international tax event since 2017. Our team is equipped with the latest 2026 modeling tools to project your NCTI liability before you file.
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.