What is a controlled foreign corporation (CFC)?

A CFC is a foreign corporation where US shareholders — each owning 10% or more of the vote or value — together own more than 50% of the corporation. If your foreign company is a CFC, its US 10% owners can be taxed on certain earnings currently, before any distribution, under Subpart F and GILTI.

What is the difference between GILTI and Subpart F income?

Subpart F targets specific categories of passive and mobile income (dividends, interest, royalties, certain related-party sales and services). GILTI is a broader, catch-all inclusion that sweeps in most remaining active foreign earnings above a routine return on tangible assets. Both tax a US shareholder currently on undistributed CFC earnings.

Can I reduce my GILTI tax as an individual?

Yes. Individuals can make a Section 962 election to be taxed on GILTI at corporate rates and claim a foreign tax credit for the CFC's foreign taxes — often cutting the bill sharply when the foreign company already pays meaningful tax. Structuring ownership through a US C corporation can also unlock the Section 250 deduction that halves the GILTI inclusion.

Do I have to file Form 5471?

Generally yes. US persons who are officers, directors, or 10% shareholders of a foreign corporation usually must file Form 5471 with their return. The penalty for failing to file starts at $10,000 per form per year, so it's one of the highest-stakes information returns in the code.

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International Tax

GILTI and Subpart F: How US Owners of Foreign Companies Get Taxed

Own 10% or more of a foreign corporation? US law can tax you on its earnings before you ever take a dime out. Understanding GILTI and Subpart F is the difference between a manageable bill and a nasty surprise.

SMAART Tax Team

March 12, 2026

7 min read

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