There are significant cross-border tax incentives in the U.S. and abroad. In particular, your business may benefit from IC-DISC (Interest Charge Domestic International Sales Corporation) planning. IC-DISC can reduce U.S. tax by 50% or more on export sales, providing a powerful benefit to small and mid-sized firms looking to go global, but the rules are highly complex.
“Interest Charge – Domestic International Sales Corporation” is an exceedingly complex name for this tax incentive which was introduced in its current form by Congress in 1984. It was designed to provide a tax incentive for U.S. companies that sell goods and services abroad as a means of balancing trade. Until recently, the IC‐DISC provisions were relatively unknown and often overlooked because other tax incentives were more often used until the last remaining alternative was eliminated in 2006. In fact, due to a persistent lack of awareness among qualifying companies and their advisors, only a small portion of eligible businesses are taking advantage of IC-DISC tax incentives today.
To utilize the IC-DISC tax incentive, a separate IC-DISC corporation must be established. IC-DISC benefits cannot begin to accrue until this happens. This means that no IC-DISC tax savings can be derived prior to the incorporation of the separate IC-DISC entity, and it is through the related bookkeeping entries of this “paper” entity that U.S. tax benefits are tracked and determined. A qualified professional services firm should handle all of the complex procedures needed to set‐up the IC-DISC and then maintain the separate accounting and technical requirements which must be met on an annual basis. It is highly recommended that these be performed and monitored by a dependable third party advisor lest the IC-DISC corporation be “disqualified” by the IRS and the related tax savings be lost.
Our experts at BPM can help. With many years of experience in U.S. export incentives, our international tax team can help you take advantage of this powerful tax incentive, thereby allowing you to defer income. IC-DISC tax savings provide excellent rewards relative to the low transaction cost of implementation , but since savings cannot be claimed on income earned before the IC-DISC is established, companies should take prompt action to ensure they derive maximum competitive advantage.