by Jason Rauhe, CPAAugust 27, 2019

Beginning in 2018, a NEW permanent tax benefit is available to exporting C corporations. The 2017 Tax Cuts and Jobs Act implemented the Foreign Derived Intangible Income (FDII) deduction, which applies a preferential C corporation tax rate to foreign income. Moreover, this new benefit is available in addition to any IC-DISC benefit already taken.

The new FDII Code section 250 has confused many CPA’s with its use of the term “intangible” income. However, the benefit is actually calculated based on export sales of tangible assets. The foreign income derived from this calculation is taxed at the new preferential rate, while the remaining income is deemed coming from intangible assets and taxed at the full 21%.

Although the calculation itself can be complex, the FDII tax benefit for C corporations renders only 62.5% of your export income taxable at the new, lower 21% corporate tax rate. Taxing only 62.5% of the export activity at a 21% rate produces an effective tax rate on export net income of only 13.125%, subject to limitations. In order to calculate this benefit, the following information is needed:

  • Annual transactional sales detail – both foreign and domestic
  • Detail should include data such as customer, invoice, quantity, price, cost, and destination
  •  P&L and Balance Sheet (net tax PP&E)
    In addition to our other services, please let us know if you have any clients that you think may benefit from taking advantage of this new benefit.