Export Tax Incentives in the United States

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The United States has operated on a trade deficit for years. As of 2016, that deficit was nearly a half trillion dollars! The United States does offer, however, a remedy to increase our trade balance: the Interest Charge Domestic International Sales Corporation (IC-DISC) export tax incentive. However, many companies in the United States fail to utilize this important tax break.

shipyard and shipping container being loaded and unloaded for export and import

What is Export Tax Incentives for U.S. Manufacturers?

The Interest Charge Domestic International Sales Corporation, commonly referred to as IC-DISC, is the one remaining export incentive in the United States. The use of the IC_DISC results in permanent tax savings for U.S. exporters and stakeholders of 10% or more of net export income.

First enacted in 1971 by Congress, the IC-DISC is meant to encourage U.S. export trade to bolster the economy and reduce the incentive for those companies to conduct operations abroad. Today, the IC-DISC provides significant and permanent tax savings for producers and distributors of U.S. made products used abroad by allowing companies to defer income, with interest charged on the deferred tax.

Which businesses qualify for IC-DISC?

Export tax incentives in the United States are available to qualified producers and/or distributors that are either directly involved in exporting, or selling products to distributors/wholesalers who resell outside of the United States. Exporters that are good candidates for the IC-DISC tax incentive include, but are not limited to, the following:

  • Manufacturers that directly export their products
  • Manufacturers that sell products destined for use overseas
  • Architectural and engineering firms whose work will be constructed abroad
  • Agricultural growers
  • Mineral Extractors
  • Software Developers

This list includes traditional manufacturers as well as those who grow agriculture, extract minerals, distribute U.S. made goods, and develop software. Engineering and architectural services related to foreign construction projects are also included.

What are the Requirements and Qualifications for the IC-DISC?

In order to take full advantage of the export tax incentives offered by the IC-DISC, a U.S. exporter has to satisfy several requirements. Those requirements are listed below:

U.S. Manufacturing Requirement

The IC-DISC can serve as a buy-sell agent or a commission-based agent but the expoert property must be manufactured within the United States. Property is deemed to be manufactured within the United States if either 20% of its conversion costs are incurred in the U.S. and there is a substantial transformation in the U.S. Alternatively, the operations in the U.S. can be generally considered to constitute manufacturing. Furthermore, architectural and engineering services for projects located outside the United States also qualify for export tax incentives.

Destination Test

The export property must satisfy a destination test. This means that the property must be held for sale, lease or rent in the ordinary course of business for use, disposition, or consumption outside the United States. Property satisfies the destination test if it is sold to a customer in the United States, provided the property does not need further manufacturing by the purchaser prior to export and the property is shipped to a foreign destination within one year. Under the destination test, the purchases will have to provide the exporter with information showing that product was exported outside the United States.

Minimum 50% U.S. Content Requirement

The export property should have no more than 50% of the value of the final product attributable to foreign comoponents. This is to encourage the domestic manufacturer to employ U.S. suppliers.

Why Choose Export Tax Management?

Export Tax Management exclusively offers international tax advisory services to U.S. businesses that have products or services delivered outside of the United States. ETM is the premier international tax advisory firm in the United States specializing in the IC-DISC. Our objectives are simple: To provide you with maximum export tax savings, while delivering unmatched personal attention by our staff of CPA’s.

Contact Export Tax Management today to learn how we can provide you with the maximum export tax savings.

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