Change Country

International Businesses

Relief with International Tax Deductions

Posted on August 19, 2020 by

Sue Tuson

Sue Tuson

Share This

Here is some good news for exporters of products and services. The Tax Cuts and Jobs Act (TCJA) of 2017 provided a benefit for corporations that export goods or services by creating a foreign-derived intangible income deduction (FDII), also referred to as a section 250 deduction. This deduction effectively provides a lower tax on exports through a 37.5% deduction on certain export income resulting in a federal tax rate of 13.125% down from the current federal corporate tax rate of 21%. This benefit is only available for C corporations. The initial documentation requirements to support the deduction were quite onerous and deterred many businesses from pursuing the deduction. On July 9, the Treasury released regulations that have provided significant relief in making this deduction much easier to support. If your business operates in a “C” corporation form and you have export sales, we can help you explore the potential benefits you can receive from this deduction.

The export income eligible for the FDII deduction is the excess income over a fixed return (generally 10%) on depreciable tangible property used in the corporation’s trade or business. It’s a very complex calculation, but well worth investigating if the corporation is profitable and has significant export revenue. In order to take the deduction, the taxpayer must have documentation supporting that the revenue was:

1) Derived from a qualified export sale by having specific documentation that the sale was made to foreign persons and

2) The product or service was for foreign use or benefit

The regulations provide detailed information on determining qualification and documentation.

To learn more, call us at 248-208-8860 or click here to contact us.

Share This

Sue Tuson

Shareholder, International Tax

As an international tax advisor, Sue helps businesses structure their operations globally to mitigate tax costs and maximize profits.

Related Insights

Transfer Pricing Basics for International Companies

The concept of transfer pricing addresses the amounts that related parties under common control charge one another for goods, services, or intellectual property. For example, the price charged by a parent company when it sells goods to its subsidiary is referred to as the transfer price. The central issue regarding transfer pricing is the tax obligation that may arise around these kinds of transactions when they cross two or more tax jurisdictions. 

by Nina Wang

Branch or Subsidiary? Using an EOR to Bridge the Gap

If your company is in the early stages of planning a global expansion, it is important to consider how entity taxation and access to workforce outside your home country can be connected when deciding how and when to execute your growth strategy. Operating in a new market directly as a foreign company or a subsidiary of a foreign company has different tax consequences and compliance costs. Using an Employer of Record (EOR) can help.

by Teresa Gordon

Why US Manufacturers Should Consider Nearshoring to Mexico

For manufacturing and distribution businesses with operations in China or other faraway locations, nearshoring to Mexico is starting to look more attractive. Learn about the top drivers of nearshoring and why many businesses are choosing Mexico.

by Carlos Calderon

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content