Business Service Providers

Tip of the Month from Crowe Horwath LLP

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It’s Tax Season! US companies that export goods (products or raw materials), will benefit significantly from an IC-DISC. This export tax incentive eliminates up to 50% of the US company's federal income taxes. Are you interested in saving taxes?

IC-DISC Overview

U.S. companies exporting to foreign countries may reduce their federal income tax by taking advantage of an IC-DISC, Interest Charge – Domestic International Sales Corporation. This federal tax benefit is available to companies that export U.S. property, as well as to U.S. firms that perform certain engineering and architectural services on foreign construction projects.

The use of an IC-DISC allows up to 50% of the exporting company’s profits to be shifted to its individual shareholders, and taxed at their 15% dividend tax rate.

The IC-DISC is a separate corporation that does not pay tax. It does not have any employees or performs any specific activities. It is a "paper company" created by the tax code to encourage U.S. exports.

Qualified U.S. export property must be manufactured, produced, grown or extracted in the U.S., and at least 50 percent of its value must be attributable to U.S. content. Indirect exporting also qualifies, such as sales to a U.S. re-seller that exports the product, without further manufacturing.

IC-DISC Operations

  • Shareholders of the exporting company set up the IC-DISC.
  • The exporting company pays a tax-deductible commission to the IC-DISC, based on its export sales.
  • This commission is calculated as the greater of 4 percent of the revenue generated from the qualified export sales or 50 percent of the taxable income from export sales.
  • The IC-DISC, as a tax-exempt entity, pays no federal income tax on this commission.
  • The IC-DISC distributes the income to its shareholders, in the form of dividends.
  • These dividends are qualified dividends, and thus taxable at the 15% tax rate on dividends.
  • Results in tax savings of 20% for the exporting group (35% ordinary tax rate, less 15% dividend rate).
  • The IC-DISC should form and file its election early in the tax year – Tax benefit is prospective only.

terest Charge - Domestic International Sales Corporation

Crowe Horwath LLP
575 Market Street, Suite 3300
San Francisco CA United States

Don Jones, CPA
West Leader of International Tax Services
Tel: +1 (415) 946-7441
http://www.crowehorwath.com/

Marcus Sharei, CPA, JD
West IC-DISC Leader
Tel: +1 (415) 946-7453
Marcus.sharei@crowehorwath.com

Crowe Horwath LLP is a top 10 US accounting firm with 2,700 professionals located in major US market centers, as well as all offshore trading partners.

We provide full-service tax, audit, and planning services to both public and private businesses and their owners.

Our Northern California international tax practice seeks referrals/traffic from the export.gov site in the following areas:

A. US companies exporting American-made goods

1. IC-DISC export tax benefit planning and compliance,
2. Structuring multi-national transactions,
3. Set up foreign operating subsidiaries and joint ventures,
4. Planning for offshore IP migration,
5. Transfer Pricing: Analysis and documentation of related party transactions,
6. Other tax minimization strategies for the business owners, and
7. US compliance and tax filings for the affiliated group.

B. Foreign companies setting up US operations

1. Analysis of best entity operating form for entry into US market,
2. Assistance with US implementation activities,
3. Transfer pricing: Analysis and documentation of related party transactions,
4. Tax treaty analysis and withholding tax issues, and
5. Tax aspects of US immigration issues for the foreign owners.

The BSP directory is intended to provide an additional resource to U.S. exporters doing business in this geographic area. The BSP directory is not comprehensive. Inclusion does not constitute an endorsement or recommendation by the U.S. & Foreign Commercial Service. We have performed limited due diligence research; but we strongly recommend that you perform your own due diligence investigation and background research on any company. We assume no responsibility for the professional ability or integrity of the providers listed. We reserve the right not to list any particular company.