Export Tax Incentives – True Or False: Is Uncle Sam Generous? An Export Tax Incentive For You
Most don’t consider Uncle Sam very generous, but in the case of exports from the USA, he is! US tax law allows a manufacturer or exporter to create an Interest-Charge-Domestic International Sales Corporation, or IC-DISC. As an Export Tax Incentive, an IC-DISC has multiple benefits:
(1) it allows shareholders to treat distributions from the IC-DISC as qualified dividends. This IC-DISC maximum 23.8% rate is more favorable than the corporate 35% tax rate (plus max 23.8% dividend rates), or the maximum 39.6% personal tax rate (plus possible employment taxes);
(2) it allows a U.S. exporter or manufacturer to defer annually a portion of export-related income for U.S. tax purposes on qualified export transactions. In exchange for this benefit, interest is charged annually on the tax deferred and the exporter is subject to significant restrictions on the use of profits on which the tax is deferred.
Who would this benefit?
Clearly this Export Tax Incentive it would benefit an exporter who exports items from the US. It also benefits manufacturers who directly export and who sell to third parties if the product they manufacture is ultimately delivered outside the United States by the purchaser within one year after the sale. Lessors of rental export property. Services that are related and subsidiary to any qualified export. Engineering services for construction projects located (or proposed for location) outside the United States. Architectural services for construction projects located (or proposed for location) outside the United States. Managerial services in furtherance of the production of other qualified export receipts.
Should I attempt this on my own?
You could probably rent a parachute and jump out of a perfectly good plane. However, it’s not recommendable unless you know how to pack the chute. IC-DISCs have technical requirements that a tax attorney can help you with.