Which Industry Can Benefit from IC-DISC? Find Out Now

If your business exports goods or services from the United States, you may be overlooking a powerful federal income tax incentive: the Interest Charge Domestic International Sales Corporation, or IC-DISC.

First enacted by Congress in 1971, the IC-DISC remains the only statutory export tax incentive available today. It offers U.S. exporters the opportunity to significantly reduce their federal income tax liability by converting ordinary income into qualified dividends.

Understanding which industries can benefit from IC-DISC is essential for business owners, tax advisors, and CFOs seeking to improve after-tax profits. This article breaks down the top IC-DISC eligible industries, common misconceptions, and how your company can determine if it qualifies.

To learn more about the structure and purpose of IC-DISC, refer to this introduction to the IC-DISC program.

Table of Contents

1. What is the IC-DISC and How Does it Work?
2. Key Eligibility Requirements
3. Top Industries That Can Benefit from IC-DISC
4. Common Misconceptions About IC-DISC Eligibility
5. How Much Can Your Industry Save With IC-DISC?
6. Next Steps: Does Your Business Qualify?
7. Why Work With Export Tax Management?

What is the IC-DISC and How Does it Work?

An IC-DISC is a tax-exempt U.S. corporation that receives commissions on export sales from an operating business. These commissions are deductible expenses for the operating company and are ultimately taxed at qualified dividend rates when distributed to shareholders.

For example, if an operating company pays a $1 million commission to its IC-DISC, the company deducts the amount at its ordinary income tax rate (up to 37%), while the IC-DISC distributes that income to shareholders at lower dividend tax rates (typically capped at 20%).

This mechanism can produce 10–20% savings on qualified export income, depending on the business structure and ownership. To understand how commissions are calculated, see our guide on IC-DISC commission calculation methods.

Key Eligibility Requirements

While the benefits are significant, not every company qualifies. IC-DISC eligibility depends on meeting a few essential criteria:

U.S. Business Ownership

The IC-DISC must be a C Corporation formed under U.S. law. However, any U.S.-based entity, including S Corporations, LLCs, partnerships, or individuals, can own the IC-DISC and receive the tax-advantaged dividends. More details on ownership structure are available in our article on IC-DISC benefits by business entity.

Exported Property Must Have 50% U.S. Content

The exported product must have at least 50% of its value derived from U.S.-based inputs, such as materials, labor, or production.

Use Outside the United States

Products or services must be ultimately used or consumed outside the U.S. This includes direct exports (where the seller ships the product abroad) and indirect exports (where the customer resells the product internationally).

You can explore these criteria further in our breakdown of IC-DISC qualification rules.

Top Industries That Can Benefit from IC-DISC

Many businesses incorrectly assume the IC-DISC is only for large manufacturers. In reality, a wide range of industries, both product- and service-based, can qualify. Below are the most common industries that benefit from IC-DISC.

Manufacturing

Manufacturers are the primary beneficiaries of IC-DISC. Companies that produce and export tangible goods, such as machinery, electronics, and industrial tools, can often generate substantial export tax savings.

Example:  A U.S. manufacturer exports precision tools to overseas automotive suppliers. By implementing an IC-DISC, the company reduces its federal tax burden by approximately 15% on export profits.

Our article on maximizing your IC-DISC as a manufacturer covers strategies for optimizing savings in this sector.

Agriculture and Food Processing

U.S.-based producers and processors of agricultural products, including grain, dairy, produce, and packaged foods, may qualify if their products are shipped for foreign consumption.

Example: A dairy cooperative exports powdered milk to Asia. Since the product is produced in the U.S. and consumed abroad, it meets IC-DISC requirements.

Software and Technology

While cloud-based software (SaaS) is generally excluded, packaged software or software embedded in exported hardware can qualify.

Example: A company develops control software embedded in U.S.-made manufacturing equipment exported to Europe. The export revenue linked to the software is eligible under IC-DISC. We explain how technology companies can qualify in our detailed IC-DISC example case study.

Architecture and Engineering Services

Services are eligible when they relate to real property construction located outside the U.S. This includes architecture, engineering, and some consulting services.

Example:  An engineering firm designs a water treatment facility in South America. Since the structure is located abroad, the service revenue qualifies for IC-DISC benefits.

Industrial Design and Product Development

Design services tied to products that are ultimately exported may also be eligible.

Example:  A product development firm works with a manufacturer to design a new medical device for global distribution. Since the end use is international, the design fees may qualify.

Distribution and Wholesale Exporters

Distributors that export U.S.-made goods, even if they did not manufacture the products, may benefit.

Example:  A wholesaler exports U.S.-made replacement parts to Canada and Mexico. The company qualifies based on the U.S. origin of the goods and foreign use.

Oil, Gas, and Energy

Exporters of equipment used in energy production, including valves, pumps, and pipelines, often qualify.

Example:  A company exports drilling equipment manufactured in Texas to operations in the Middle East. With an IC-DISC in place, the exporter reduces federal income taxes on those sales.

Medical Devices and Life Sciences

U.S.-based life sciences companies that export devices and laboratory equipment may be strong candidates for IC-DISC benefits.

Example:  A biotech firm exports diagnostic testing machines to hospitals in Europe. These U.S.-manufactured products qualify under IC-DISC export criteria.

Common Misconceptions About IC-DISC Eligibility

Many companies mistakenly assume they don’t qualify for IC-DISC. Here are some frequent misconceptions:

• “Only C Corporations can benefit.”
  In fact, the IC-DISC itself must be a C Corp, but any type of entity can own it. This includes S Corps, LLCs, partnerships, and individuals.
• “Only physical products qualify.”
  Certain services, such as architectural and engineering work on foreign projects, can also qualify.
• “We don’t export directly, so we can’t qualify.”
  Indirect exporters may still be eligible if their products are ultimately used overseas.

Our IC-DISC FAQs address many of these and other common concerns.

How Much Can Your Industry Save With IC-DISC?

Companies using an IC-DISC typically save 10–20% of their net export income. These savings can be significant, often six or seven figures for companies with substantial export volume.

Example:
A U.S. exporter earns $1.5 million in qualified export income. By paying a $600,000 commission to its IC-DISC, the company deducts this amount at ordinary income tax rates and pays tax at the lower dividend rate. The result is over $100,000 in annual tax savings.

These benefits compound over time, making the IC-DISC not only a short-term savings tool but a valuable part of long-term tax strategy.

To see how these numbers apply to your situation, review our guide to IC-DISC tax strategy and savings scenarios.

Next Steps: Does Your Business Qualify?

Here’s a simple checklist to help you determine IC-DISC eligibility:

• Are your goods or services used outside the United States?
• Is at least 50% of the product’s value U.S.-based?
• Are you a U.S.-based entity (C Corp, S Corp, LLC, or individual)?
• Do you have more than $500,000 in annual export revenue?

If you answered “yes” to most of these, your business may qualify.

To begin evaluating your options, see our overview of Form 1120-IC-DISC filing requirements.

Why Work With Export Tax Management?

With over 25 years of specialized experience, Export Tax Management has helped hundreds of businesses, from manufacturers to service providers, maximize their IC-DISC benefits.

Unlike general tax firms, we focus exclusively on IC-DISC, offering:

• Turnkey IC-DISC formation
• Annual tax return preparation and compliance
• Commission calculations and documentation
• IRS support and audit defense
• Custom strategies tailored to your industry

To begin, contact us to schedule a free IC-DISC assessment and find out how much your business could be saving.