Federal tax law currently treats income earned by U.S.-controlled companies operating in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories the same as foreign income, subjecting it to a special tax called GILTI (Global Intangible Low-Taxed Income). This bill would carve out an exception: if a corporation derives at least 80% of its income from a U.S. territory and at least 75% of that income comes from active business conducted there, its territorial income would no longer count toward the GILTI calculation. In practice, this lowers the U.S. tax burden on companies based in places like Puerto Rico that earn most of their money locally. The change would apply retroactively to tax years beginning after December 31, 2023.
Corporate Benefits
- GILTI inclusion for territorial corporations — Active income of qualifying U.S.-territory businesses excluded from taxable tested income
- Qualification threshold — Corporation must derive 80%+ of gross income from, and 75%+ connected to active business within, a U.S. possession
Congressional Summary
Territorial Economic Recovery ActThis bill excludes the income of certain controlled foreign corporations in U.S. territories from the calculation of global intangible low-taxed income (GILTI) for federal tax purposes.Under current law, a U.S. shareholder of a controlled foreign corporation is required to include in gross income the GILTI of the shareholder. The calculation of GILTI is based, in part, on the controlled foreign corporation’s tested income (the controlled foreign corporation’s gross income less certain exclusions).Under the bill, the income from a qualified possession corporation that is effectively connected with an active trade or business within a U.S. territory (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) is excluded from gross income for purposes of calculating a controlled foreign corporation’s tested income.The bill defines a qualified possession corporation as any controlled foreign corporation if, for a three-year period ending in the prior tax year (or for the existence of the controlled foreign corporation if less than three years) (1) 80% or more of the controlled foreign corporation’s gross income was derived from a U.S. territory, and (2) 75% or more of the controlled foreign corporation’s gross income was effectively connected to the active conduct of a trade or business within a U.S. territory.
Legislative Subjects
Details
- Congress
- 119th
- Chamber
- House
- Status
- summarized
- Action
- Introduced in House
- Action Date
- 2025-01-13
- Date Added
- 2026-04-30
- Source
- Congress.gov →
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