FX Excursions

FX Excursions offers the chance for once-in-a-lifetime experiences in destinations around the world.

Foreign-Derived Intangible Income Tax Benefits

by Kevin Ryan, CPA/Partner, Citrin Cooperman

Mar 9, 2020

PHOTO: © CYBRAIN – DREAMSTIME.COM

March 2020

IF YOUR U.S.-BASED BUSINESS SELLS PRODUCTS to the foreign marketplace or provides services to foreign customers, you may be entitled to significant tax benefits.

One new tax opportunity ushered in by the Tax Cuts and Jobs Act is the foreign-derived intangible income deduction, referred to as FDII. This new tax deduction (37.5 percent), effective for tax years beginning after Dec. 31, 2017, can reduce the U.S. corporate tax rate to a rate of 13.125 percent for certain qualified businesses. FDII aims to provide an incentive to domestic corporations to provide goods and services to foreign markets. However, consistent with many other elements of preferential tax relief under the new law, it only applies to domestic C corporations.

Don’t let the word “intangible” cause confusion. The deduction applies to all non-excluded foreign-derived gross income in excess of a routine return. Excluded foreign income includes Subpart F income, global intangible low-taxed income, financial services income and foreign branch income. The routine return equals 10 percent of the adjusted tax basis of a C corporation’s depreciable tangible assets used in its trade or business.

FDII is equal to the foreign source portion of its intangible income. It includes sales or other dispositions of property to a foreign person for foreign use, a license of intellectual property to a foreign person for foreign use, and services provided to a person located outside of the United States.

Corporations must maintain documentation to support the sale or service destination for foreign use. Property sold or services provided to a related party are not considered unless the related party then sells the product or provides the service to an unrelated foreign third party.

Calculating the FDII deduction involves a complex analysis, first determining qualified business asset investment, deduction-eligible income and foreign-derived deduction-eligible income before calculating deemed intangible income and FDII, then multiplied by 37.5 percent to arrive at the deductible amount.

Foreign tax credits are also allowed against FDII, but only the taxable portion of FDII (62.5 percent) is taken into account to determine the foreign tax credit limitation. The FDII deduction is limited to taxable income of the C corporation.

The FDII tax deduction can provide significant tax savings for U.S. companies. When first introduced, there was some concern the World Trade Organization might view it as an illegal export subsidy. However, it is current tax law and companies should take advantage of it. U.S. corporations must also consider the state tax implications associated with FDII. In addition, many are now considering housing intellectual property in the United States, as the low rate of tax competes with patent box regimes offered by other countries. Further, companies should analyze whether it is worthwhile to transfer existing foreign business into newly formed C corporations to reap the FDII tax benefits.

The content of this article is for informational purposes only. It is not intended to be a substitute for professional financial advice. Always seek the expertise of a certified financial advisor or other qualified provider with any questions you may have regarding personal finance, investment and money-related issues.

Introducing

FX Excursions

FX Excursions offers the chance for once-in-a-lifetime experiences in destinations around the world.

Explore Excursions

#globility

Insta Feed
Daily
Apr 25, 2024

Hôtel Royal Unveils evian SPA, the First in Europe

Hôtel Royal Evian Resort, France, recently debuted its all-new evian SPA, the only one in Europe and inspired by the water cycle found in nature.

Tips to Plan a Destination Event Worth the Trip

Corporate events can often feel … too corporate. Where to go to get the team out of the office environment to bond and think outside the box? Starting with an unconventional, unique space to make them feel like the all-stars they are will get the juices flowing and make your LinkedIn profile glow.

Daily
Apr 24, 2024

Summer, Unplugged: Get Cozy at These Digital Detox Destinations

There is a cure for summertime blues in the digital age: Find yourself a beautiful country inn, cabin or retreat far in spirit from the maddening crowds and distractions of daily life. Next, unplug, relax and don’t look back.

eFlyer Reviews
Apr 24, 2024

Fairfield by Marriott Phnom Penh Review

Phnom Penh as we imagined it stretches beneath us: a picturesque, low-rise mix of Southeast Asian and French Colonial styles. When the inhabitants of those buildings look back at us here in the Fairfield by Marriott hotel in Chip Mong Tower, they see the future.

Travel Tips to Help Protect Your Health and Your Trip

Five Tips to Help Minimize Potential Travel Problems

Daily
Apr 24, 2024

Wolf by Vanderpump Opens at Harveys Lake Tahoe

Lisa Vanderpump, TV star and restaurateur, recently opened her newest restaurant, Wolf by Vanderpump at Harveys Lake Tahoe, in partnership with Caesars Entertainment. To commemorate the occasion, Vanderpump hosted a star-studded opening and surprised guests with an extravagant “white carpet” arrival with her dog, Marky.

eFlyer Lead
Apr 24, 2024

Is California Set to Ban Clear?

A new California bill recently proposed banning security screening company Clear from operating at California airports. The bill targets companies like Clear that let passengers pay to pass through security ahead of other passengers.

The Argosaronic Islands Are Calling

The Saronic or Argo Saronic Islands of Greece call travelers to explore its seven small islands and islets brimming with history, natural sites and more. With most easily accessible by boat, the islands’ proximity to ports of Athens make the Saronic Islands an ideal destination for those preferring shorter boat rides. In fact, trips from Athens ports to the islands take only between 10 minutes and two hours, depending on the island you choose, making them perfect for day or weekend trips. From Piraeus port, you can access Hydra, Spetses, Aegina and Poros directly. Come explore these stunning islands with us and find the inspiration to plan your next trip to these islands. Hydra Hydra town curves around a slope overlooking the Argosaronic Gulf like an amphitheater and is considered one of the most romantic destinations in Greece. Most unique to the island is its lack of vehicles. People on the island get around on mules and donkeys as well as water taxis, making for a peaceful and laid-back day. Hydra lies a two-hour ferry ride from Piraeus port in Athens.

Daily
Apr 24, 2024

Four Seasons Yachts Unveils Inaugural Itineraries

Four Seasons Yachts prepares for its inaugural season by unveiling the first 10 of its unique voyages in the Caribbean and Mediterranean.