Section 962 Election: How US Expats Can Reduce Taxes on Foreign Corporation Income 

Written by Mike Wallace

MBA

Reviewed by Allen Pfeister

MBA, CPA

Mike Wallace

MBA

Mike Wallace, CEO at Greenback Expat Tax Services, has extensive experience in finance, operations, and strategic leadership. Mike has worked in numerous C-Level roles, including at large financial institutions. Mike holds a Master's in Business Administration (MBA) from the University of Chicago's Booth School of Business.

Allen Pfeister

MBA, CPA

Allen Pfeister is a Partner at Tax Uncomplicated, collaborating with Greenback Expat Tax Services and Klemsen Consulting. Allen holds an MBA from the University of New Orleans and a BS in Accounting and Finance from Louisiana State University.

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Updated on July 24, 2025

6 minute read

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Wallace, M. (2025, July 24). Section 962 Election: How US Expats Can Reduce Taxes on Foreign Corporation Income . GreenbackTaxServices.com. Retrieved , from https://www.greenbacktaxservices.com/knowledge-center/section-962-election/

Good news for American expats with foreign business investments: Section 962 of the Internal Revenue Code can significantly reduce your tax burden on income from controlled foreign corporations (CFCs). According to IRS data, this election allows individual shareholders to pay corporate tax rates instead of higher individual rates on certain foreign income, potentially saving thousands in taxes annually. 

If you own shares in a foreign corporation or have been hit with unexpected GILTI (Global Intangible Low-Taxed Income) taxes, Section 962 might be exactly what you need. This election lets you treat your foreign corporation income as if it were earned through a US corporation, often resulting in substantial tax savings and the ability to claim foreign tax credits. 

What Is a Section 962 Election and How Does It Work? 

Section 962 allows US individual shareholders of controlled foreign corporations to elect corporate tax treatment for specific types of foreign income. Instead of paying individual tax rates (which can reach 37%), you pay corporate rates (currently 21%) on qualifying income like GILTI. 

When you make a Section 962 election, the IRS treats you as if you own your foreign corporation shares through a fictional US corporation. This means: 

• Your GILTI income gets taxed at the 21% corporate rate instead of individual rates up to 37% 
• You can claim foreign tax credits against the corporate-rate tax 
• You may qualify for the Section 250 deduction, which reduces GILTI by 50% 
• Future distributions from the foreign corporation may face additional taxation 

Take Note

This election must be made annually and applies to all your controlled foreign corporations for that tax year.

When Does Section 962 Make Sense for Expats? 

The Section 962 election works best in these common expat scenarios: 

Corporate Expats with Foreign Subsidiaries  

If your employer has granted you shares in foreign subsidiaries, you might face GILTI taxes on deemed distributions. The election can reduce these taxes from individual rates to corporate rates. 

Entrepreneur Expats with Foreign Corporations  

Business owners abroad often establish foreign corporations for legitimate business reasons. When these corporations generate income above certain thresholds, GILTI taxes kick in. Section 962 can provide significant relief. 

Expats in Low-Tax Countries  

If you live in a country with minimal corporate taxes, your foreign corporation might generate substantial GILTI income. The election helps manage the impact of the US tax. 

The election works best when your foreign corporation pays little to no foreign taxes. If your corporation already pays high foreign taxes, the Foreign Tax Credit might provide better relief. 

How Much Can Section 962 Save You? 

Example 1: Tech Entrepreneur in Singapore

Sarah owns a software company in Singapore that generates $200,000 in GILTI income with minimal Singapore taxes. 

Without Section 962: 

• GILTI taxed at 37% individual rate = $74,000 US tax 
• After 50% GILTI deduction = $37,000 US tax owed 

With Section 962: 

• GILTI taxed at 21% corporate rate = $42,000 
• After foreign tax credits and Section 250 deduction = $21,000 US tax owed 
• Savings: $16,000 annually 

Example 2: Corporate Expat in Dubai

Mike receives company shares in a UAE subsidiary generating $150,000 GILTI income. 

Without Section 962: 

• Individual tax rate on GILTI = $55,500 
• After GILTI deduction = $27,750 owed 

With Section 962: 

• Corporate rate taxation = $31,500 
• After credits and deductions = $15,750 owed 
• Savings: $12,000 annually 

How Does Section 962 Compare to Other Expat Tax Strategies? 

Section 962 vs. Foreign Earned Income Exclusion  

The Foreign Earned Income Exclusion excludes up to $130,000 (2025 tax year) of foreign earned income. Still, it doesn’t apply to passive income or GILTI—section 962 explicitly targets corporate income that FEIE can’t touch. 

Section 962 vs. Foreign Tax Credit  

While both can reduce taxes on foreign income, Section 962 works better when foreign taxes are low. The Foreign Tax Credit excels when foreign taxes equal or exceed US taxes. 

Section 962 and GILTI High-Tax Exception  

These strategies can work together. The GILTI high-tax exception eliminates GILTI entirely when foreign taxes exceed 18.9%, while Section 962 reduces taxes when they don’t. 

Free Calculator: Foreign Earned Income Exclusion (FEIE)

Who doesn’t love a tax break? Download our easy-to-use excel calculator to get an estimate of how the foreign earned income exclusion can save you money.

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What’s the Catch with Future Distributions? 

Section 962 elections come with an important consideration. When your foreign corporation eventually distributes earnings that benefited from the election, those distributions face additional US taxation. 

Here’s why: Since you paid corporate rates instead of individual rates, the IRS requires you to “true up” to individual rates when you receive the money. 

How Do You Make a Section 962 Election? 

To make a Section 962 election, individuals must attach a statement to their federal income tax return (Form 1040) for the relevant tax year. There’s no separate IRS form specifically for making the Section 962 election.

What You Need to Do:

• Include a written election statement that:
  • Clearly states you are making a Section 962 election under IRC §962.
  • Identifies the specific Controlled Foreign Corporations (CFCs) involved.
  • Includes any necessary supporting calculations.

Critical Deadline: You must make the election by the due date of your tax return (including extensions). Late elections generally aren’t allowed. 

Important

The election applies to ALL your controlled foreign corporations for that tax year. You can’t pick and choose which ones benefit.

What Mistakes Should You Avoid? 

• Forgetting About Future Distributions: Many expats focus only on immediate tax savings without planning for eventual distribution taxes. Work with a professional to model long-term impacts. 
• Missing the Deadline: Unlike some tax elections, Section 962 generally can’t be made after the return due date. Plan ahead during tax season. 
• Inadequate Documentation: The IRS requires detailed calculations and statements. Poor documentation can trigger audits or disallow the election. 

Is Section 962 Right for Your Situation? 

Section 962 works best for expats who: 

• Own shares in profitable foreign corporations 
• Face significant GILTI taxes 
• Live in low-tax countries where foreign tax credits provide limited relief 
• Can manage the complexity of ongoing compliance 

The election might not help if: 

• Your foreign corporation already pays high taxes (consider Foreign Tax Credit instead) 
• You plan to distribute earnings immediately 
• Your income falls below GILTI thresholds 

Get Your Section 962 Election Done Right 

Section 962 elections involve complex calculations and ongoing compliance requirements. One mistake can cost thousands in additional taxes or penalties. 

Greenback Tax Services has helped thousands of expats optimize their foreign corporation taxes through strategic elections and planning. Our CPAs and Enrolled Agents specialize in expat taxes and live in 14 time zones, so they experience firsthand the challenges of living abroad. 

Have questions about how Section 962 compares to other expat tax strategies? Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, click below to get a consultation with one of our expat tax experts.

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This article provides general information about Section 962 elections for educational purposes. Tax situations vary significantly, and you should consult with a qualified tax professional before making any elections or tax decisions. Greenback Tax Services specialists can provide personalized advice based on your specific circumstances.