2025 Tax Updates & Planning for Cross-Border Businesses and Global Families

From rising tariffs to sweeping reforms under the One Big Beautiful Bill Act (OBBBA), 2025 brings significant tax changes affecting individuals and businesses with global ties. Staying informed on these developments is essential to managing your 2025 tax exposure and optimizing planning opportunities. Key updates include:

For Individuals Living Abroad and Global Families

• Foreign Earned Income Exclusion increased to $130,000, allowing more income earned abroad to be excluded from U.S. tax.
• Estate and Gift Tax Exemption is raised to $15 million per person for 2025 (indexed higher in future years), removing the scheduled reduction, providing greater lifetime and estate planning flexibility.
• Annual Gift Tax Exclusion increased to $19,000 for 2025.
• Foreign Tax Credits and Net Investment Income Tax . A recent U.S. court ruling has further opened the door for using treaty-based foreign tax credits (FTCs) to reduce Net Investment Income Tax (NIIT) liability. While the outcome is promising, the issue remains unsettled.

• Non-U.S. Mutual Funds. Plan U.S. tax filing and investment structures carefully, especially if holding non-U.S. mutual funds or retirement accounts such as exchange-traded funds, TFSAs, or RESPs.
• For individuals operating in multiple states, monitor state and local tax (SALT) developments, including temporary increase in SALT deduction cap to $40,000 for individuals in 2025.

For Businesses (Domestic and Cross-Border)

• 100% Bonus Depreciation reinstated for qualified assets placed in service after January 19, 2025, enhancing cash flow.
• Section 179 Expensing Limits increased, benefiting small and mid-sized businesses investing in U.S. assets.
• Research and Experimental (R&E) Expenses are fully deductible now for domestic R&D; foreign R&D expenses must be amortized over 15 years.
• EBITDA-Based Interest Deduction Limits restored, requiring careful financing and debt structure planning.
• GILTI replaced by Net CFC Tested Income (NCTI), removing the 10% tangible asset return exclusion results in an increased effective tax rate due to raising the taxable base on foreign earnings.
• FDII replaced by Foreign-Derived Deduction Eligible Income (FDDEI) with a lower deduction rate and more streamlined rules.
• Foreign tax credit (FTC) rules beneficially adjusted, with a higher allowable credit percentage and increased complexity in expense allocation for NCTI .
• Controlled Foreign Corporation (CFC) Look-through Rule permanently enacted, and the one-month deferral election repealed.
• Downward Attribution and Controlled Foreign Corporation (CFC) Rules have changed, reducing some reporting burdens for minority U.S. investors but requiring close review of ownership and filing obligations.
• Base Erosion and Anti-Abuse Tax (BEAT) rate increased to 10.5%.
• A New 1% Excise Tax on cross-border remittance transfers starts in 2026, impacting electronic fund transfers abroad.
• Transfer pricing documentation and compliance expectations heightened; arm’s-length pricing is critical.
• Tariffs on Canadian goods increased generally to 35% if not compliant with CUSMA.
• Qualified Small Business Stock (QSBS) exclusion cap increased, encouraging investments in U.S. small businesses.
• Consider year-end alignment for CFCs with majority U.S. shareholders due to uniformity rules.
• Review your shareholder compensation and operating cash levels as part of tax risk management.

This high-level summary should guide strategic tax planning for 2025, reflecting the broad scope of reform impacting cross-border entities, U.S. persons abroad, and family businesses. Consulting with tax advisors is strongly recommended to tailor these concepts to your specific circumstances and to ensure compliance and optimization under the new rules.