“Tax-Favored” Foreign Income: Planning Pointers and Traps, An Overview of the FDII and GILTI Deductions

The Tax Cuts and Jobs Act (TCJA) reduces the corporate income tax rates of C corporations to 21 percent. The TCJA further reduces the C corporation income arising from tax-favored foreign income by means of two deductions:

  • The Foreign-Derived Intangible Income (FDII) deduction equals 37.5 percent of FDII and results in an effective C corporation tax rate of 13.125 percent of FDII.
  • The Global Intangible Low-Taxed Income (GILTI) deduction equals 50 percent of GILTI and results in an effective C corporation rate of 10.5 percent of GILTI.

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