The latest tax reform bill ("One Big Beautiful Bill") makes big changes to how U.S. businesses are taxed on foreign income. While many provisions are complex, there are real strategic implications — especially for SMBs that sell abroad, outsource services, or operate through foreign subsidiaries.
Here’s what’s changed and how smart business owners can use these updates to their advantage.
Say Goodbye to GILTI, Hello to Net CFC Tested Income
Old Rule:
The Global Intangible Low-Taxed Income (GILTI) regime let U.S. shareholders exclude a portion of foreign income based on a “deemed return” on tangible assets held abroad (called the QBAI exclusion).
New Rule:
The GILTI term is gone. It's now called Net CFC Tested Income.
More importantly, the tax-free return is repealed — meaning more foreign earnings will now be taxed by the U.S.
Strategy Angle:
If your business has foreign operations or plans to expand internationally, consider whether IP, software development, or high-margin activity should remain in the U.S. rather than offshore.
U.S.-based profits may now be more tax-efficient — especially with new domestic R&D and full expensing provisions.
FDII Is Rebranded: Export Incentive Still Exists
Old Rule:
Foreign-Derived Intangible Income (FDII) created a deduction for U.S. businesses earning profit from exporting goods/services tied to IP.
New Rule:
Now called Foreign-Derived Deduction Eligible Income (FDDEI).
Still a deduction for export-related income, but without the IP framing.
Strategy Angle:
If your SMB sells to foreign clients — SaaS, consulting, DTC e-commerce, etc. — you may qualify for a valuable deduction.
This works best when you’re exporting from a U.S. entity. Evaluate your pricing structure and IP ownership to see if you can optimize for FDDEI.
Permanent Look-Through Rule
The look-through rule (IRC §954(c)(6)) is now permanent, helping avoid double taxation on foreign-to-foreign dividends.
Strategy Angle:
This gives more certainty to holding companies or businesses that own foreign subsidiaries — allowing better tax planning around dividends and Subpart F income.
Bottom Line:
If your business earns, spends, or holds assets abroad, this bill should trigger a fresh look at your entity structure, sourcing strategies, and tax planning. For many SMBs, the best move may be bringing IP and high-value functions back to the U.S. where new deductions (like R&D, full expensing, and FDDEI) are now more valuable.
Want to model your international structure under the new rules? Let’s talk strategy — we’re helping clients realign now before 2026 kicks in.