Key provisions of the new US tax code from a corporate tax perspective
- Corporate Income Tax Rate Reduced from 35% to 21%. Effective from 1 January 2018 – a pro rata calculation will be required for US corporations not using a calendar year-end.
- 100% Dividend Participation Exemption. Dividends received from 10% owned non-US subsidiaries would be exempt from US tax (capital gains still generally subject to US tax). A one year holding period applies.
- Limitations on Net Operating Loss (“NOLs”). For losses incurred in 2018 or later, the NOL deduction would be limited to 80% of taxable income.
- R&D expenses. In general, R&D expenses would be required to be amortized over a five year period, with R&D conducted outside the US required to be amortized over a fifteen year period.
- Mandatory One-Time Transition Tax. A one-time transition tax is levied on existing accumulated untaxed earnings of a US company (at a 15.5% rate for cash/cash equivalents and 8% for the balance).
- Additional Controlled Foreign Corporation Rules. The existing US CFC rules are retained and expanded to include a new category of CFC income, namely global intangible low-taxed income, which effectively subjects offshore earnings to US tax at a 10.5% rate. In addition, certain export income (including royalties, services, sales) earned by US companies should become subject to US tax at a rate of 13.125%.
