Big Beautiful Bill: What the US Tax Reform Means for Investors
The "Big Beautiful Bill" brings sweeping changes to US tax law, from tax relief for the middle class and businesses to Section 899, which could hit foreign investors hard. What does it mean for investors from Europe?
The "One Big Beautiful Bill" (OBBBA), also known as the "Big Beautiful Bill", is a sweeping reform package from the US government with major consequences for tax law, the economy and international investors. At the time this article was published, the bill had not yet been passed, but Congress was expected to enact it in a similar form in the near future. The aim of the legislation is to give economic growth a massive boost, create new incentives to invest, push through social policy reforms and at the same time build political capital ahead of the 2026 midterm elections.
Update: The bill was signed into law on July 4, 2025. Section 899, described below, was removed before the Senate vote and did not become part of the final law. For an analysis of the enacted version, see One Big Beautiful Bill: the analysis.
At the heart of the bill are the extension of the Trump-era tax cuts, massive investment in defense and border security, the rollback of the previous administration's climate and social programs, and new tax mechanisms that particularly affect foreign investors.
For investors from Europe, this is especially relevant. The bill brings not only tax opportunities but also considerable risks, above all through the new provision in US tax law under Section 899 IRC, which can be seen as a kind of "retaliatory tax" against countries whose tax systems are regarded as discriminatory.
The Big Beautiful Bill runs to more than a thousand pages of legislative text and was passed in the US House of Representatives using the budget reconciliation process. This process allows passage with a simple majority in the Senate and is a popular tool for far-reaching tax and spending legislation.
Tax relief for individuals
A central goal of the bill is tax relief for the middle class:
Extension of the income tax rates introduced in 2017: The lower Trump-era rates stay in place and will not expire in 2026 as originally scheduled.
Higher standard deduction: The deduction rises by $1,000 for individuals and $2,000 for married couples.
Child Tax Credit: The credit rises to $2,500 (House version) or $2,200 (Senate).
New deductions: including for tip income, overtime, certain expenses for seniors and a deduction for car loan interest through 2028.
Higher SALT cap: The cap on deductions for state and local taxes rises to up to $40,000 for incomes below $500,000.
Estate tax exemption: The tax-free amount of an estate is significantly increased.
Business incentives and investment support
The bill also contains numerous measures to encourage business investment:
Bonus depreciation for equipment: Immediate expensing is extended through 2029.
Research costs fully deductible: R&D investment can also be fully deducted through 2029.
Looser interest deduction limits: Businesses can deduct more interest expense.
Opportunity Zones extended: Investments in economically distressed areas keep their tax advantages through 2033.
Tax credits for clean biofuels: through at least 2031.
Permanent 20% deduction for pass-through entities: The Qualified Business Income (QBI) Deduction is made permanent. This means sole proprietorships, LLCs and other pass-through structures can keep a flat 20% of their net income tax-free, provided certain conditions are met.
Corporate tax rate stays at 21%: The corporate rate in place since 2017 will not be raised.
Special taxation of foreign profits: Profits earned abroad remain taxable, but the rules are restructured. For tax years beginning after December 31, 2025, the GILTI regime becomes NCTI (Net CFC Tested Income). The deduction under Section 250 IRC drops from 50% to 40%, which at a federal rate of 21% gives an effective rate of 12.6%. The haircut on foreign tax credits falls from 20% to 10%, so 90% of taxes paid abroad can be credited; at a foreign tax rate of around 14% or more, there is usually no residual US tax. More important than the rates: the 10% exemption for tangible assets (QBAI) is eliminated entirely, so asset-heavy foreign subsidiaries that used to generate little or no GILTI will now generate NCTI.
Rolling back the green agenda
The Big Beautiful Bill scraps many of the previous administration's climate measures:
EV tax credits eliminated: This mainly affects electric vehicles and charging infrastructure.
Inflation Reduction Act credits rolled back: Support for clean power generation, hydrogen, building retrofits and energy efficiency is sharply cut or eliminated.
Spending increases and social policy
Defense budget up by $150 billion: mainly for drone programs, satellites and military AI.
Stronger border security: an additional $70 billion, including $50 billion for physical barriers and $5 billion for personnel and infrastructure.
Work requirements for benefits: People on Medicaid or SNAP will have to show that they are working or available for work.
Budget impact
Higher budget deficit: The Congressional Budget Office (CBO) estimates the bill adds around $2.4 trillion to the primary deficit, and up to $3 trillion including interest through 2035.
Loss of coverage: As a result of the social policy reforms, up to 10.9 million people could lose their health insurance.
Section 899 IRC: a risk for foreign investors
Particular attention goes to the introduction of Section 899 IRC. This provision targets foreign investors, especially those from countries whose tax regimes the US classifies as discriminatory. These include countries that have introduced digital services taxes, minimum taxes under OECD standards or targeted withholding taxes on US companies. Most European countries are very likely to fall into this category.
Section 899 provides that US-source income earned by individuals or entities from these countries can be hit with a tax surcharge. This applies above all to interest, dividends, royalties and gains from real estate sales and permanent establishments. The withholding tax increase can be phased in step by step, up to a maximum of 20 percentage points above the current rate.
Hit hardest are investment structures with no US involvement. Fund vehicles, trusts and holding companies based in typical offshore or European jurisdictions that cannot show sufficient substance or connection to the US will come under pressure. Treaty claims, meaning relying on a double tax treaty, also become much harder or are ruled out entirely under Section 899 if the home country is on the US Treasury's blacklist.
In practice, this means a German investor investing in US real estate projects through a company based in Luxembourg must expect dividends to be taxed at up to 35 percent instead of 15. Capital gains can also face a much heavier tax burden, especially if the beneficial owner comes from an affected country and cannot demonstrate an effective tax structure.
Another critical point is the potential denial of treaty benefits. Section 899 could act as a treaty override, letting domestic legislation trump existing double tax treaties. That is a break with established international practice and is likely to create considerable legal uncertainty.
Section 899 gives the US Treasury the power to publish a quarterly list of "discriminatory countries". For investors, that means constant uncertainty: even with structurally sound planning, the tax landscape can change overnight if the home country is reassessed.
On top of that, existing structures will have to be reported and restructured under the new law. Reporting requirements such as Form 5472 for foreign-owned US companies become more important, as do beneficial ownership reports under the Corporate Transparency Act.
What does this mean for European investors?
Structuring and compliance matter far more than before. Classic private equity or real estate structures should be rethought. You may need to bring in US blocker companies, use treaty-compliant holdings or favor alternative financing such as portfolio interest.
Tax impact analyses become a must. If you hold or plan an investment in the US, you will need to run scenarios with higher withholding tax and check whether your structure still holds up. Financing costs and return forecasts will need adjusting too.
Legal advice becomes essential. The interpretation of Section 899 and how it interacts with the relevant treaty rules are complex and keep shifting. The risk of being classified as a "disqualified person" by mistake is real, and it can be expensive.
A different kind of walking
The Big Beautiful Bill brings opportunities for US investors, especially in infrastructure, manufacturing and tax relief for American mid-sized businesses. For foreign investors from Europe, however, the law is a significant challenge. Section 899 IRC could have an effect comparable to "FATCA": an extraterritorial tax regime that can lead to a rethink of entire investment strategies. What Section 899 provided in detail and how things developed is covered in our article Section 899: US tax policy and investors; you will find more articles under News.
If you want to keep investing successfully in the US, you should review and adjust your structure soon and prepare for a period of high regulatory uncertainty. We support you with structured consultation, tax analysis and hands-on support.
Consultation & implementation
If you'd like to find out what this means for your own situation, the best step is to book a consultation.
