Trying to understand GILTI tax for my foreign business - how to determine shareholder type?

Thanks for the explanation. But isn't there some way to reduce the tax impact of GILTI? I've heard something about a Section 962 election or foreign tax credits. Do these help for individual shareholders? And what about the GILTI high-tax exclusion - does that apply to individuals too?

Yes, there are some strategies that can help reduce the impact. The Section 962 election allows an individual shareholder to be taxed as if they were a corporation for GILTI purposes, which gives access to the 50% GILTI deduction and 80% foreign tax credit that corporations receive. This can potentially reduce your overall tax burden, though it creates a second layer of tax when you eventually distribute earnings. Foreign tax credits can definitely help offset the US tax on GILTI, but as an individual, you'd generally only get a direct credit for foreign taxes you personally paid, not taxes paid by your foreign corporation. That's another reason why the Section 962 election can be beneficial. The GILTI high-tax exclusion can also apply when you make the 962 election, potentially excluding GILTI income taxed abroad at rates greater than 90% of the US corporate rate.

Does it actually work for complex situations? I have businesses in multiple countries (Singapore, Malaysia, and Taiwan) and I'm wondering if it would get confused trying to sort out which entities fall under GILTI and which don't.

I'm a bit skeptical that an AI tool could understand the intricacies of international tax law. Like, does it keep up with the changing GILTI regulations? The rules seem to change every year and even my expensive international tax accountant struggles to keep up.

It actually handles complex multi-country situations really well. The system is designed to track the ownership chains between entities and determine which ones trigger GILTI provisions. You can upload documentation for each entity, and it will map out the complete ownership structure to show you exactly how each one affects your US tax situation. The platform is constantly updated with the latest tax regulations - that's one of its biggest advantages. They have a team that monitors IRS guidance and tax law changes, so the advice reflects current rules. Unlike traditional accountants who might only update their knowledge periodically, the system incorporates new regulations as they're released.

How does this actually work? I'm confused how a third-party service can get you through to the IRS faster when their phone lines are always jammed.

This sounds way too good to be true. I've tried calling the IRS international tax department multiple times and always wait hours just to get someone who doesn't understand GILTI. There's no way you actually got a specialist in 15 minutes.

The service basically automates the calling process and navigates through the IRS phone system for you. It keeps dialing and working through the phone tree until it gets a human on the line, then it calls you to connect. It's using technology to handle the most frustrating part of reaching the IRS. Yes, I was skeptical too initially! But what happened was they got me through to a general agent first, and when I explained I had GILTI questions, the agent transferred me to someone in the international department. So it wasn't that I immediately got a GILTI specialist, but getting through the initial barrier made it possible to reach the right person eventually. Much better than spending hours on hold only to get disconnected.

I've done it for the past two tax years and found it worthwhile because I had significant foreign taxes paid by my corporation. Without the 962 election, I couldn't access the 80% foreign tax credit for those corporate-level taxes, which would have resulted in double taxation. But it really depends on your specific situation - particularly the tax rate in your foreign jurisdiction compared to the US corporate rate.

Thanks for sharing your experience! What additional forms did you have to file with the 962 election? My accountant mentioned it creates some complexity with eventual distributions too.

The main additional form is Form 1118 for the foreign tax credits, which can be quite complex depending on how many foreign entities you have. You also need to attach a statement to your return indicating you're making the Section 962 election. The complexity with distributions is definitely something to consider. When you eventually distribute earnings that were previously taxed under a 962 election, they're not treated as previously taxed income like normal Subpart F income would be. Instead, they're treated as qualified dividends up to the amount of tax you paid under the 962 election, with the remainder treated as regular dividends. This creates a second layer of tax.

Generally, service income from foreign corporations doesn't automatically trigger Subpart F unless it meets specific criteria (like services performed for a related party or services performed outside the country of incorporation). If your service income doesn't meet the Subpart F criteria, then any retained earnings would potentially be subject to GILTI.