IC-DISC – The Last Surviving Export Incentive
The Interest Charge-Domestic International Sales Corporation is the last surviving federal tax benefit for privately-held exporters in the United States. Private companies that export products outside the U.S., including Canada and Mexico, can save more than 50 percent on their federal income taxes related to export sales.
Growing demand for U.S. products in emerging foreign markets like China and India is at an all-time high. Exporters that don’t currently have an IC-DISC in place are missing the opportunity to significantly reduce their federal income tax burden each year.
The IC-DISC provides U.S. exporters and their shareholders permanent tax savings—20 percent of net export income. An IC-DISC operates as follows:
- A U.S. exporter or shareholder(s) forms and IC-DISC that is owned by the shareholders of the corporation.
- The U.S. exporter pays a tax deductible commission at an estimated regular tax rate of 35 percent.
- The qualifying IC-DISC entity pays no U.S. income tax on the commission income.
- The commission income is accumulated in the IC-DISC and remains untaxed until the IC-DISC decides to pay a dividend to its shareholders at the lower preferred qualified dividend tax rate of 15 percent.
- The tax benefit is a 20 percent tax savings (35 percent regular tax rate less 15 percent dividends tax rate).
SourceHOV | Tax optimizes the commission paid to the IC-DISC by employing a transaction-by-transaction analysis, which utilizes all inter-company pricing methods afforded by the Internal Revenue Code and Treasury Regulations. These include 50 percent of combined taxable income, 4 percent of gross receipts, and marginal costing at the product, product line and product group levels.
The cost of implementation, maintenance and transaction optimization of IC-DISC is minimal compared to the federal tax savings available to every U.S. exporter.