Global Entity Structuring After OBBBA: New Considerations for U.S. Taxpayers Doing Business Abroad

U.S. taxpayers are increasingly engaging in activities abroad. The most obvious considerations are whether to form the entity in the U.S. or another country and what type of entity to choose. Adding to the complexity of the decision are the numerous types of relief available for taxing foreign income in the U.S.

The OBBBA has modified and renamed GILTI to net controlled foreign corporation tested income (NCTI) and eliminated the qualified business asset investment (QBAI) deduction that reduced the GILTI inclusion. FDII, too, has been modified and renamed, now referenced as FDDEI, or foreign-derived deduction eligible income. To ease taxation, formerly, Section 250 provided tax relief to domestic corporations with a 37.5% tax deduction for FDII and a 50% deduction for GILTI. The corresponding Section 250 deductions for NCTI and FDDEI will be 40% and 33.34% respectively. These changes, along with the reduction of the Section 960(d) rate for foreign tax credits from 20% to 10%, create effective tax rates of 12.6% for NCTI and approximately 14% for FDDEI. Weighing the taxation on worldwide income against the benefits and burdens of being a foreign entity is a complex process.

Holding the investment individually seems to be a good idea when coupled with the 962 election to take advantage of the lower corporate rates. However, individuals aren't eligible for Section 959 relief from the second level of taxation when assets are distributed.

Listen as our panel of experts explains U.S. taxation of foreign income and the impact of OBBBA, including GILTI/NCTI, Subpart F, and PFIC, and relief available by way of Section 962, foreign tax credits, and international treaties to help advisers make the best entity choice for businesses with earnings outside the U.S.