Skip to main content

Search

How Qualified Corporations Can Maximize the FDII, Export Incentive, Deduction

Article
3 minute read
February 2, 2021

Many U.S. C-corporations that generate revenue from serving foreign markets may be missing opportunities for tax benefits offered by the Foreign-Derived Intangible Income (FDII) deduction. Created by the Tax Cuts and Jobs Act of 2017 (TCJA), this income category does not have to be derived from intangible assets and may represent a significant deduction for eligible corporations.

This deduction has now been in place for several years, but guidance and regulations have been changing as recently as 2020. Even if a corporation is already taking advantage of some of the benefits of this deduction, they may be missing additional opportunities.

The formula to determine FDII results in a permanent benefit through a 37.5% deduction against taxable income under Section 250 and is computed based on the excess of export sales and services income above a fixed rate of return on the corporation’s tangible depreciable assets (known as Qualified Business Asset Investment (QBAI). The deduction is available to those corporate taxpayers that have positive taxable income, and in general, after applying available net operating losses under Section 172.

US C-Corp and Foreign Customer

A taxpayer’s foreign derived income may translate into a significant deduction for a C-Corporation taxpayer that generates income from Foreign Derived Deduction Eligible Income (FDDEI):

These elements of FDII are frequently overlooked:  

Weaver can assist corporations seeking to maximize the benefits of this deduction by:

For more information about qualifying for this deduction, contact us. We are here to help.

© 2021