The 119th Congress has passed what’s been coined the “One Big Beautiful Bill Act” or OBBBA (more formally known as H.R. 1), enacting a sweeping set of reforms that reshape key elements of the U.S. tax system. While it carries broad implications across many sectors, certain provisions will be particularly important for U.S. expatriates, foreign individuals, and foreign-connected business entities. BNC Tax has combined analysis from AI-powered legal insights and additional independent review* to report how the OBBBA impacts U.S. Expats and foreign-connected taxpayers.
I. What OBBBA Means for Individual U.S. Taxpayers Abroad
1. Citizenship-Based Taxation: Still the Law of the Land
Despite persistent advocacy for reform, H.R. 1 does not include any shift toward residence-based taxation. U.S. citizens living abroad remain fully subject to U.S. taxation on their worldwide income. The existing tools—like the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)—remain available but unchanged.
2. No Expansion of Expat Relief
The bill does not modify or expand the FEIE, nor does it introduce any new exclusions or deductions for nonresident citizens. Similarly, it doesn’t simplify or alleviate the administrative burden of forms like FBAR or FATCA.
❌ Residency-based taxation isn’t addressed at all.
2a. Positive Tax Breaks for Expats Still Apply from OBBBA
While H.R. 1 does not expand relief for expats, it also does not eliminate or reduce key tax benefits already available. U.S. expats can continue to claim the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credits (FTC), and, for those with qualifying dependents, the Child Tax Credit, which remains refundable in many cases. Additionally, changes in tax brackets—particularly broader lower-income thresholds—may allow expats to use less FTC in the current year, preserving more for future use through the FTC carryover provisions.
✅ These provisions still offer strategic planning opportunities for expats, especially in lower-tax countries or where income is under the FEIE threshold.
3. Clean Energy Credit Restrictions
Clean energy tax incentives have been rolled back. While this may seem unrelated at first glance, U.S. expats who invested in renewable projects abroad may lose access to these credits. Starting after December 31, 2025, many credits are terminated or restricted, particularly for investments involving “prohibited foreign entities” (e.g., certain Chinese companies).
4. OBBBA Creates New 1% Excise Tax on Remittances
This is among the most controversial new provisions. A 1% excise tax now applies to cash-based remittance transfers from the U.S. to foreign recipients. U.S. citizens and nationals may avoid the tax with proper identification or claim a refundable credit. Noncitizens generally cannot claim a refund.
Example: When the Tax Is Paid
- Maria, a non-U.S. citizen, sends $1,000 to her family in Mexico via a Western Union agent. She pays an additional $10 as excise tax.
- The tax is collected by the remittance provider and remitted to the IRS.
Example: When the Tax Is Not Paid
- John, a U.S. citizen, sends $2,000 to his daughter abroad via his bank. Since it’s from a U.S. financial institution, the transfer is exempt.
- Alex, also a U.S. citizen, pays $1,000 in cash to a money transmitter. He provides his SSN and claims a refundable credit for the $10 tax paid.
❌ This effectively raises costs for immigrants and expats using non-bank money services.
5. Reporting Complexity Remains
Despite some political momentum, there is no reporting simplification. Expats must still comply with the same FATCA, FBAR, and PFIC regimes, with growing enforcement muscle behind them.
II. OBBBA Impact on Foreign Individuals in the U.S.
Foreign nationals working in the U.S. who send money abroad are squarely hit by the remittance excise tax. It imposes an added compliance layer and increases transaction costs, particularly for individuals without U.S. bank access or Social Security Numbers.
III. Provisions Impacting Foreign Businesses and Cross-Border Entities
A. Section 899: The Retaliatory Tax Regime
If a foreign country imposes “discriminatory” taxes (e.g., digital services taxes) on U.S. companies, its residents and entities may be subject to higher U.S. tax rates:
- Rates increase by 5 percentage points per year, up to a cap of 20% above the baseline.
- Applies to passive income (interest, dividends, royalties) and active income (effectively connected income).
⚠️ Could affect treaty-based exemptions, raising international tax conflict risks.
B. BEAT Expansion
The Base Erosion and Antiabuse Tax (BEAT) is expanded to cover payments to entities in those “discriminatory” countries, further increasing the tax burden on foreign multinationals.
“Persons” here includes corporations, trusts, partnerships, and other foreign business structures.
C. Clean Energy Credit Restrictions for Businesses
Businesses lose or face new limits on clean energy credits, especially those linked to foreign supply chains or foreign ownership.
D. International Tax Adjustments from OBBBA
Key changes include:
- Revisions to FDII (Foreign-Derived Intangible Income)
- Expanded GILTI inclusions and narrowed deductions
- Tougher rules around foreign tax credits, increasing the risk of double taxation
Example: GILTI Inclusion Impact
Consider a U.S. individual who owns 100% of a foreign operating company classified as a controlled foreign corporation (CFC). The company earns active income that is fully taxed in the foreign country. Under prior rules, the individual could use the Section 250 deduction and claim a foreign tax credit (FTC) to reduce or eliminate U.S. tax on the same income. However, H.R.1 imposes new limitations on the FTC, including stricter rules around creditability and expense allocation, which reduce the amount of creditable foreign tax. Combined with a lower Section 250 deduction, this results in a higher residual U.S. tax, potentially increasing the effective rate from 10.5% to 15% or more—even though foreign taxes were already paid.
❌ This compounds the complexity for U.S. individuals with foreign operating companies, especially where local tax rates are close to but not higher than U.S. levels.
E. Increased Compliance and Reporting
- Additional burdens on partnerships, S corporations, and other foreign-owned passthroughs
- Expect more enforcement under FATCA and PFIC regimes
Final Thoughts on OBBBA
While the One Big Beautiful Bill is marketed as a pro-growth tax reform, it introduces meaningful complications for cross-border taxpayers. U.S. expats, foreign nationals, and globally active businesses face increased compliance, fewer credits, and new taxes. The absence of reforms like residency-based taxation or reporting relief for expats is a missed opportunity.
As always, we encourage clients to consult proactively on these issues. The new rules may not take full effect until 2026, but planning starts now.
Questions? Need help modeling the tax impact of a remittance or foreign income stream? Get in touch.
*While we love to read, the text of the H.R. 1 is almost 900 pages long. We would not have time for tax prep work if we read every page! We’ve used the highly reputable AI tax research tool, BlueJ, to pull out the sections of the bill which relate to expat individuals and foreign businesses. From there, we’ve reviewed the sections and added context and examples of how these provisions apply to you. As always, we rely on a strict AI protocol which means you can be sure we have put our mark on the information we are sharing with you here.