Section 250 Deduction: How US Expat Business Owners Can Reduce Corporate Taxes

According to the IRS, domestic corporations claimed hundreds of billions in Section 250 deductions in recent years, with many achieving effective tax rates as low as 10.5% on foreign business income. If you own a foreign corporation as a US expat, this powerful deduction could dramatically slash your US tax burden, too.

Section 250 allows qualifying taxpayers to deduct up to 50% of Global Intangible Low-Taxed Income (GILTI) and 37.5% of Foreign-Derived Intangible Income (FDII) for the 2025 tax year. Most importantly for expat business owners, you can access these deductions through a Section 962 election, potentially reducing your effective tax rate to around 10.5% instead of paying individual tax rates that can reach 37%. 

The bottom line: If you own 10% or more of a foreign corporation, Section 250 might be the key to keeping more of your hard-earned business profits. We’ve helped over 23,000 expats optimize their international tax situations, and we know exactly when Section 250 makes financial sense and when simpler strategies work better.

What Is Section 250 and Do I Qualify?

Section 250 provides tax deductions for US corporations and qualifying individuals on specific types of foreign income. It is Congress’s way of keeping American businesses competitive globally while ensuring they contribute to US tax revenue.

You might benefit from Section 250 if you’re:

• A US citizen or resident who owns 10% or more of a foreign corporation subject to GILTI rules 
• An expat entrepreneur with a foreign business structured as a corporation 
• Someone considering a Section 962 election to access corporate tax rates and deductions 
• Operating in a low-tax foreign jurisdiction where Section 250 deductions provide better results than local tax benefits 

For most individual expats, Section 250 becomes relevant when their foreign corporation generates GILTI. Despite the intimidating name “Global Intangible Low-Taxed Income,” GILTI captures most types of business income, not just intellectual property or intangible assets.

How Much Can Section 250 Save Me?

The current deduction rates are generous but scheduled to decrease after 2025:

2025 Tax Year (Filed in 2026):

• GILTI deduction: 50% (creating an effective rate of 10.5%)
• FDII deduction: 37.5% (creating an effective rate of 13.125%)

2026 and Beyond:

• GILTI deduction: 37.5% (effective rate increases to 13.125%)
• FDII deduction: 21.875% (effective rate increases to 16.4%)

Example: Maria owns a Portuguese consulting company and earns $150,000 annually. Without Section 250, she’d pay US individual tax rates up to 24%. With a Section 962 election and Section 250 deduction, her effective US tax rate drops to approximately 10.5% for 2025.

Can Individual Expats Use Section 250?

Yes, but only through a Section 962 election. As an individual taxpayer, you cannot directly claim Section 250 deductions. However, Section 962 allows you to elect corporate tax treatment on your foreign corporation income, qualifying you for Section 250 benefits.

How Section 962 Works:

• You elect to be taxed at the 21% corporate rate instead of individual rates
• You become eligible for the Section 250 deduction (50% for GILTI in 2025)
• Your effective rate drops to around 10.5% on GILTI income
• You can also claim Foreign Tax Credits for up to 80% of foreign corporate taxes paid

Trade-off to Consider: Future dividend distributions from your foreign corporation will be taxable as ordinary income rather than previously taxed income, so timing matters for long-term planning.

When Does Section 250 Make Sense vs Other Strategies?

Section 250 typically works best for expat business owners when:

• Your foreign corporation operates in a low-tax country (UAE, Singapore, Hong Kong)
• You’re in higher US individual tax brackets (24% or above)
• Your business generates substantial income exceeding the Foreign Earned Income Exclusion limits
• You want to maintain a corporate structure for business or legal reasons

Alternative Strategies Often Work Better:

• Check-the-Box Election: For smaller operations, treat your foreign corporation as a disregarded entity and use the Foreign Earned Income Exclusion to exclude up to $130,000 (2025 amount) with zero US tax
• Foreign Tax Credit Strategy: If your foreign corporation pays substantial local taxes (above 13%), the Foreign Tax Credit might eliminate US taxes entirely without needing Section 250 complexity

What Forms Do I Need to File?

To claim Section 250 deductions, you must file Form 8993 with your tax return. This form calculates your eligible deductions based on complex formulas involving your foreign corporation’s income and assets.

Additional Required Forms:

• Form 5471: Required for US persons with foreign corporation interests
• Form 8992: Calculates your GILTI inclusion amount
• Section 962 Election Statement: Must be attached to your return

What About FDII vs GILTI?

Most expat business owners encounter GILTI rather than FDII, but both qualify for Section 250 deductions:

GILTI (Global Intangible Low-Taxed Income):

• Applies to most foreign corporations income above a 10% return on tangible assets
• 50% deduction available through 2025 (drops to 37.5% in 2026)
• Triggered when you own 10% or more of a foreign corporation

FDII (Foreign-Derived Intangible Income):

• Applies to domestic corporations selling products/services for foreign use
• 37.5% deduction through 2025 (drops to 21.875% in 2026)
• Less common for typical expat business structures

GILTI is the relevant category for most expat entrepreneurs since it captures income from foreign corporations rather than domestic corporations with foreign sales.

Three Common Expat Scenarios

Scenario 1: Tech Consultant in Estonia

David operates an Estonian software company with minimal tangible assets that generates $180,000 annually. Estonia’s 20% corporate tax rate, combined with the Section 962 election and Section 250 deduction, creates an effective US rate of around 10.5%.

Scenario 2: E-commerce in Dubai

Sarah runs an e-commerce business from Dubai with zero local corporate tax. Through Section 250, she maintains the UAE tax benefits while achieving a 10.5% effective US rate instead of potentially 24%+ individual rates.

Scenario 3: Consulting in Thailand

Mike operates a Thai consulting firm and earns $200,000 annually. Thailand’s 20% corporate tax, combined with Section 250 deductions, often eliminates US tax liability entirely through foreign tax credit coordination.

Common Pitfalls to Avoid

• Assuming Section 250 Always Helps: Complex calculations mean simpler strategies sometimes provide better results. Always compare against the Foreign Earned Income Exclusion and Foreign Tax Credit alternatives.
• Missing Election Deadlines: Section 962 elections must generally be made with your original return or by the extended due date. Late elections face strict IRS requirements.
• Inadequate Documentation: Section 250 requires detailed records of foreign vs domestic income, currency conversions, and asset valuations. Poor documentation invites IRS scrutiny.
• Ignoring Future Implications: Section 962 elections affect how future distributions are taxed, so consider your long-term business plans.

Should I Consider Section 250 for My Business?

Section 250 makes sense when the math works in your favor and the compliance burden is justified by tax savings. Here are clear indicators:

Strong Candidates for Section 250:

• Foreign corporation income exceeding $130,000 annually
• Operations in countries with corporate tax rates below 15%
• Individual tax brackets of 24% or higher
• Desire to maintain the corporate structure for business reasons

Better Off with Simpler Strategies:

• Foreign corporation income under $130,000 annually
• Operations in high-tax countries (above 20% corporate rates)
• Preference for simpler compliance requirements
• Plans to take regular distributions from the corporation

Getting Professional Help

Section 250 involves some of the most complex areas of US international tax law. The interaction between GILTI calculations, Section 962 elections, foreign tax credits, and state tax implications requires expert analysis.

Red Flags You Need Professional Guidance:

• You own 10% or more of a foreign corporation
• Your foreign business generates over $130,000 annually
• You’re considering restructuring your business entity
• You want to optimize between multiple expat tax strategies

The peace of mind from getting this right far outweighs the cost of professional guidance. One miscalculation could result in thousands of missed tax savings or unexpected liabilities.

Your Next Steps

Section 250 can provide substantial tax relief for qualifying expat business owners, but the decision requires careful analysis of your specific situation. The key is determining whether the complexity and compliance requirements justify the potential tax savings.

If Section 250 might apply to your situation, here’s what to do:

1. Gather your foreign corporation’s financial information for the past year
2. Calculate your current US tax liability under different scenarios
3. Consider the timing since deduction rates decrease after 2025
4. Evaluate long-term business plans and how Section 962 affects future distributions

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.

This article is for informational purposes only and should not be considered as personalized tax advice. Tax laws are complex and change frequently. Always consult with a qualified tax professional for advice specific to your situation.