Changes in International Tax Rules under the "One Big Beautiful Bill Act" (OBBBA)

The “One Big Beautiful Bill Act” (OBBB Act), enacted on July 4, 2025, introduces targeted international tax provisions primarily aimed at corporate entities. However, one specific measure directly affects individual taxpayers who frequently engage in international money transfers.

Here are the key updates for individual taxpayers:

New 1% Remittance Transfer Tax

Effective January 1, 2026, the OBBB Act imposes a new 1% excise tax on certain international money transfers. This tax is the most significant change impacting individuals and applies specifically to how a transfer is funded, not the total amount transferred across all methods.

When the tax applies:

The 1% tax is levied when you use a remittance transfer provider and fund your international transaction using:

  • Cash
  • A money order
  • A cashier’s check
  • A similar physical instrument

When the tax does not apply:

The legislation explicitly excludes electronic transfers from this tax. You are not subject to the 1% tax if you fund your international transfer via:

  • A direct bank-to-bank wire transfer.
  • An ACH (Automated Clearing House) payment.
  • A transfer funded by a U.S. debit card.
  • A transfer funded by a U.S. credit card.

Impact on Individual Taxpayers

This provision affects individuals sending money internationally for various reasons, such as supporting family members, purchasing property abroad, or paying for international services, particularly those who rely on cash-based funding methods at physical transfer locations.

To avoid this new tax, individuals should consider utilizing electronic methods for sending funds internationally. For instance, sending a wire directly through your bank’s online portal or using a debit card with an online money transfer service will bypass the 1% excise tax.

Foreign Tax Credit (FTC) Simplification for Individuals

While the OBBB Act made extensive, complex changes to corporate Foreign Tax Credit rules (like those related to GILTI and BEAT), it maintained existing mechanisms for individual taxpayers who claim the FTC on their personal income tax returns (Form 1040). Individuals can continue to claim a credit for foreign income taxes paid to other countries to avoid double taxation on income like foreign dividends, interest, or rental income, following existing rules and limitations.

For further details and specific guidance on how these changes affect your unique tax situation, please consult a qualified tax professional or refer to the IRS One, Big, Beautiful Bill provisions page.

In addition to the new 1% remittance transfer tax on cash transfers, the One Big Beautiful Bill Act (OBBB Act) includes other international provisions that affect individuals. These changes mostly relate to the tax treatment of U.S. citizens living abroad (expatriates) and those with ownership in foreign corporations. 

For U.S. expatriates and those with foreign income 

  • Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC): The OBBBA does not change the core mechanics of the FEIE, which allows qualified individuals to exclude a portion of their foreign-earned income from U.S. tax. For tax year 2026, the maximum FEIE amount increases to $132,900 due to inflation adjustments. The Foreign Tax Credit system remains in place for U.S. citizens and residents to claim a credit for foreign taxes paid to avoid double taxation.
  • Estate and Gift Tax Exemption: For 2026, the basic estate and gift tax exclusion amount increases to $15 million per individual. This higher exemption is especially relevant for wealthy expatriates engaging in estate planning, as it provides an opportunity to gift assets and potentially avoid the “covered expatriate” status upon expatriation.
  • Foreign Information Reporting: The OBBBA reinforces compliance and reporting requirements for foreign bank accounts (FBAR) and foreign financial assets (FATCA), without providing any relief or simplification for U.S. citizens living abroad. Penalties for non-compliance will also increase.
  • Clean Energy Credit Restrictions: The OBBBA restricts some clean energy tax incentives, which may affect individuals living abroad who invested in foreign renewable projects. 

For individuals with ownership in foreign corporations 

  • Controlled Foreign Corporation (CFC) Rules: For individuals who own shares in a Controlled Foreign Corporation (CFC), the OBBBA makes significant changes to the “Global Intangible Low-Taxed Income” (GILTI) regime, which is now renamed “Net CFC Tested Income” (NCTI).
    • Higher Inclusions: The bill eliminates the 10% exclusion for a deemed return on tangible assets (Qualified Business Asset Investment, or QBAI). This will generally increase a U.S. individual’s taxable income derived from their CFCs.
    • FTC Limitations: While the deemed paid foreign tax credit for C corporations increases to 90%, individuals who elect to be taxed as a C corporation under Section 962 may face new limitations on foreign tax credits. This could result in a higher residual U.S. tax on their CFC earnings, even if a high level of foreign tax was paid.
  • Ownership Tracking: For CFCs with tax years starting after December 31, 2025, U.S. shareholders may have a Subpart F or NCTI inclusion even if they did not hold the stock on the last day of the year. This requires year-round tracking of CFC ownership and status, which is important for those involved in mergers, acquisitions, or divestitures. 

 Updates in International Tax Rules under the “One Big Beautiful Bill Act”

The “One Big Beautiful Bill Act” (OBBB Act or OBBBA), signed into law on July 4, 2025 (Public Law 119-21), introduces significant and permanent changes to the U.S. international tax landscape for multinational businesses. These reforms redefine how foreign income is taxed, how deductions are calculated, and how credits are applied, with most provisions effective for tax years beginning after December 31, 2025.

Here are the key international tax updates:

Base Erosion and Anti-Abuse Tax (BEAT) Changes

The OBBBA permanently increases the BEAT tax rate to 10.5% for tax years starting in 2026. The legislation also permanently includes the treatment of certain U.S. tax credits in the BEAT calculation, a change previously scheduled to expire.

Global Intangible Low-Taxed Income (GILTI) Credits

The Act introduces a notable increase in the deemed paid credit for foreign taxes attributable to GILTI income, raising it to 90%. To align with this change, the final bill limits Foreign Tax Credits (FTCs) on previously taxed net CFC (Controlled Foreign Corporation) tested income by disallowing 10% of associated foreign taxes.

Introduction of the “Unfair Foreign Tax” Rule (Section 899)

A major policy shift is the proposed Section 899, which targets “unfair foreign taxes” imposed by other countries, such as the OECD’s Pillar 2 Undertaxed Profits Rule (UTPR), Digital Services Taxes (DSTs), and Diverted Profits Taxes (DPTs). This provision aims to increase the U.S. tax burden for investors tied to jurisdictions the U.S. Treasury Department identifies as imposing discriminatory taxes on U.S. companies. The rule creates a two-pronged approach, including additional income and withholding taxes, and an expanded application of the BEAT.

Strategic Implications for Multinational Corporations

These changes necessitate a thorough review of global tax strategies. Businesses operating across borders need to reassess their entity structures and optimize their foreign tax credit positions to manage the impact on their effective tax rates, cash flow, and compliance obligations.

For detailed guidance on how these changes affect your specific financial situation, we recommend consulting a tax professional or visiting the IRS website.

Disclaimer: This newsletter is for informational purposes only and does not constitute tax advice. Please consult with a qualified tax professional regarding your individual circumstances.