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.
Custom order your Volvo through the Overseas Delivery Program and receive round-trip airfare, hotel accommodations, and a personalized delivery at the Volvo Factory Delivery Experience in Gothenburg, Sweden. Your experience begins in Sweden with insurance and registration included, enabling you to drive your new Volvo throughout Scandinavia and Europe. Create the adventure of a lifetime with the program named Best Overseas Delivery four years running, and return home with the ultimate souvenir.
The Airline Passenger Experience Association and SimpliFlying recognized United Airlines for providing a hospital-grade standard of cleanliness and safety during travel. Among the four largest U.S. carriers, United is the first to receive Diamond Certification, the highest in the new APEX Health Safety audit powered by SimpiliFlying.
IHG® Business Edge provides small- to midsized enterprises with benefits and confidence to navigate the evolving business travel environment.
A couple of my friends and I decided to rent a house in the Camelback Mountain area of Pennsylvania’s Pocono Mountains for New Year’s Eve. To find the perfect place, we used Vrbo.com; there were a bunch of properties to choose from, but, in the end, we decided to rent a place in The Village at Camelback.
The International Air Transport Association and Etihad Airways partnered to launch the IATA Travel Pass for passengers on the Gulf carrier. The IATA Travel Pass is a mobile app that helps passengers manage travel in line with government requirements for COVID-19 tests or vaccines. It will be initially offered on select Etihad flights from Abu Dhabi in early 2021, with plans to extend the offer if successful.
Step right up to the greatest show on Earth as FXExpress Publications, Global Traveler, trazeetravel.com and whereverfamily.com celebrate their 2020 award winners! Join the big top on Dec. 14 as we virtually award the winners of the 17th annual GT Tested Reader Survey awards, including the Airline and Hotel of the Year; the 17th annual Wines on the Wing Airline Wine Survey; the eighth annual Leisure Lifestyle Awards; the sixth annual The Trazees; and the third annual Wherever Awards.
Madeline Hotel & Residences, Auberge Resorts Collection recently debuted a complete redesign, now standing as a luxurious, modern mountain resort in Telluride, Colorado. At 10,540 feet, the ski-in/ski-out retreat boasts new social spaces, a refreshed lobby, a new boutique, a collection of new guest experiences and amenities, and wellness offerings. Additionally, Madeline features a collaboration with Olympian Gus Kenworthy, who helped create the hotel’s Recovery Ski Lounge.