DAOs often form internationally to attract global talent, achieve regulatory clarity, or align with a project’s borderless ethos. This move offshore, however, pulls U.S. participants into a complex web of international tax law. Rules designed to stop multinational corporations from shifting profits to low-tax jurisdictions now apply to decentralized networks.

For many, the acronyms alone are intimidating: CFC, PFIC, Subpart F, and GILTI. The last one, Global Intangible Low-Taxed Income (recently renamed Net CFC Tested Income or NCTI for tax years beginning after December 31, 2025), is particularly feared. A closer look reveals a surprising reality. For most internationally structured DAOs with U.S. members, this regime provides the most advantageous path forward. It offers a predictable and tax-efficient outcome compared to its punitive alternatives.

The International Tax Alphabet: CFCs, PFICs, and Subpart F

When a DAO organizes outside the United States, U.S. participants must determine its classification. Three regimes are paramount.

A Controlled Foreign Corporation (CFC) is any foreign entity where U.S. persons own more than 50% of the vote or value. Given the concentration of token holders in many projects, a DAO can easily become a CFC without intending to. This status triggers immediate U.S. taxation on certain types of income for its major U.S. owners.

One category of this income is Subpart F income, which primarily targets passive income such as interest, dividends, and royalties. A DAO treasury generating yield from staking or DeFi lending could produce Subpart F income, which is taxed to U.S. members at their standard income tax rates.

If a DAO is not a CFC, it might be a Passive Foreign Investment Company (PFIC). A foreign entity becomes a PFIC if it meets either an income test (75% or more of its gross income is passive) or an asset test (50% or more of its assets produce passive income). A DAO holding a large treasury of digital assets will almost certainly meet the PFIC asset test. The PFIC regime is punitive, designed to eliminate any benefit of tax deferral through severe interest charges and taxation at the highest marginal rates.

The GILTI Regime: An Unintended Home for DAOs

The GILTI regime was created in 2017 as a backstop to Subpart F. It subjects a CFC’s U.S. shareholders to immediate tax on their share of the corporation’s active business income that is not otherwise subject to a high foreign tax.

Here is the critical problem for DAOs: the GILTI calculation allows a deduction based on a 10% return on the CFC’s Qualified Business Asset Investment (QBAI), which is its tangible, depreciable property. A traditional multinational might have factories, machinery, and equipment that generate QBAI and reduce its GILTI inclusion.

A DAO’s treasury consists almost entirely of digital assets. These assets, such as ETH, BTC, and stablecoins, are intangible property. They generate zero QBAI. Consequently, nearly all of a DAO’s net income that is not Subpart F income becomes GILTI.

Consider a DAO established under a Liechtenstein foundation, a common structure. The DAO holds a treasury of staked ETH and generates income. Its U.S. members own enough of the governance tokens to make it a CFC. Since the staked ETH is not a tangible asset, it creates no QBAI. All the net staking income flows directly into the U.S. members’ GILTI calculation, subject to immediate U.S. tax.

Why GILTI is the Best Available Option

This sounds discouraging, but a direct comparison reveals GILTI’s clear advantages. For U.S. members, proactive planning to be treated as a CFC subject to GILTI provides a more predictable and tax-efficient outcome.

The table below compares the treatment for a U.S. C-corporation participating in a foreign DAO.

For U.S. members, the choice is clear. GILTI offers a lower rate than Subpart F and a predictable framework, unlike the punitive PFIC system.

The Inversion Trap and Other Cross-Border Risks

Traditional corporations sometimes try to avoid U.S. tax obligations through a “corporate inversion,” in which a U.S. parent company becomes a subsidiary of a new foreign parent. Congress has enacted strict anti-inversion rules to prevent this. These rules are triggered at specific ownership thresholds: 

• 80% or more: If former shareholders of the U.S. company own 80% or more of the new foreign entity, the IRS disregards the inversion and continues to treat the foreign parent as a U.S. corporation for all tax purposes.
• 60% to 79%: In this range, the entity is considered a “surrogate foreign corporation.” While it remains foreign, it is denied key tax benefits, such as using foreign tax credits to offset tax on inverted assets.
• Less than 60%: The transaction generally falls outside the anti-inversion rules.

DAOs, with their naturally diffuse and global ownership, often sidestep these traps. It is rare for a single country’s token holders to maintain the 60% or 80% ownership required to trigger the anti-inversion rules. This decentralized structure provides an innate defense against some of the most complex international tax penalties.

While DAOs could also be classified as foreign partnerships or trusts, those structures carry their own heavy reporting burdens. For most DAOs operating as business entities, the CFC analysis is the correct starting point.

A Practical Framework for International DAOs

If you are a U.S. person participating in a DAO organized abroad, we recommend a clear framework for analysis.

1. Model the Ownership. You must determine whether U.S. members, collectively, cross the 50% CFC threshold. This requires tracking token ownership, which can be difficult but is essential for compliance.
2. Project the Income. Classify the DAO’s expected revenue. Is it from passive activities like lending, which could trigger Subpart F? Or is it from more active protocol fees, which would likely fall under GILTI?
3. Document Foreign Taxes. If the DAO pays taxes in its home jurisdiction, meticulous records are necessary. These records are the foundation for claiming foreign tax credits to reduce any U.S. tax liability from GILTI or Subpart F inclusions.

The international tax code was not written for DAOs, but with careful navigation, its frameworks can be managed. GILTI, often seen as a tax trap, is better understood as a compliance path. It is a path that offers clarity and a favorable rate in a world of complex alternatives.

If your DAO operates across borders or holds assets through foreign entities, the right structure can mean the difference between a manageable 10.5 percent inclusion and a costly compliance surprise. Allegis Law helps international DAOs model GILTI exposure, avoid PFIC pitfalls, and design governance that stays clear of inversion thresholds. Connect with our team to review your structure and align it with both federal and state conformity rules before the next tax cycle closes.

¹ The effective rate is based on the 21% corporate rate and the 50% deduction under IRC §250. This deduction is scheduled to decrease to 37.5% for tax years beginning after December 31, 2025, raising the effective rate to 13.125%.

This article is for informational purposes only and does not constitute legal or tax advice.