GILTI vs Subpart F: what is the difference?

Subpart F taxes specific categories of passive and related-party CFC income to U.S. shareholders in the year earned, regardless of distribution. GILTI taxes most remaining CFC income; for tax years beginning after December 31, 2025, GILTI was renamed Net CFC Tested Income (NCTI) under the One Big Beautiful Bill Act. Subpart F has not changed. The layered rule remains: Subpart F applies first, GILTI/NCTI picks up the rest.

How each works:

• Subpart F income categories: foreign personal holding company income (dividends, interest, rents, royalties), foreign base company sales income, foreign base company services income, and insurance income. No changes under the OBBBA.
• GILTI (your 2025 return): active CFC income above a 10% deemed return on tangible assets (QBAI deduction intact).
• NCTI (2026+ returns): same active CFC income but QBAI deduction eliminated, meaning all tested income is included.
• Both regimes tax income in the year it is earned, not when it is distributed.

Individual CFC shareholders face full ordinary income rates on both Subpart F and GILTI/NCTI without a Section 962 election. The Section 962 election treats the individual as a corporation, unlocking the Section 250 deduction (50% for 2025 GILTI; 40% for 2026+ NCTI) and FTC access, at the cost of ordinary rates on later distributions.

Indirect FTC is available for both categories under Section 960. The FTC basket is still filed as a separate category on Form 1116.

For expat small-business owners, a CFC can create unexpected U.S. tax even without distributions under either regime. A check-the-box election to treat the entity as a disregarded entity or partnership avoids CFC status entirely.

For a full breakdown, see our GILTI and NCTI guide.