Tax Incentives for Exporters – Maximize Savings with IC-DISC & FDII
Export-driven tax breaks give U.S. companies a powerful way to keep more of every overseas sale.
The primary US-based tax incentives for exporters are the Interest Charge Domestic International Sales Corporation (IC-DISC) and Foreign Derived Intangible Income (FDII). An IC-DISC is a separately formed business entity that makes a commission on certain export sales. The federal tax rates are lower when those payments are distributed as qualified dividends.
This guide to export incentives will explain your options in more detail, the expected tax benefits and other advantages, and how to begin reaping tax savings.
What Are Export Incentives?
Export incentives are government-backed tools — usually created by statute or regulation — that lower the cost or raise the after-tax profit of selling U.S. goods or services abroad.
They come in four main flavors:
Tax-based
- IC-DISC (Interest-Charge Domestic International Sales Corporation)
- FDII (Foreign-Derived Intangible Income)
- What they do: Reduce federal income tax on qualifying export earnings
Financing & Insurance
- Export-Import Bank loan guarantees
- SBA Export Express loans
- What they do: Cut borrowing costs and transfer credit risk
Direct Grants & Promotion
- USDA Market Access Program
- Commerce trade missions and matchmaking grants
- What they do: Offset marketing expenses and open doors to foreign buyers
Tariff & Duty Relief
- Duty Drawback
- Foreign-Trade Zones
- What they do: Eliminate or defer customs duties on inputs destined for re-export
Together, these programs encourage U.S. companies to enter or expand in overseas markets by improving cash flow, reducing risk, and sharpening price competitiveness.
How Export Incentives Work
In the United States, export incentives operate by lowering the cost and risk of selling abroad, thereby helping U.S. goods and services compete more effectively in foreign markets. They do this through four broad channels:
- Tax-based incentives – The Interest-Charge Domestic International Sales Corporation (IC-DISC) structure lets qualifying exporters treat a portion of export profits as qualified dividends, generally taxed at a lower rate than ordinary income. This effectively boosts after-tax margins on foreign sales.
- Customs relief – Programs such as duty drawback and Foreign-Trade Zones (FTZs) refund or eliminate U.S. import duties on inputs that are later re-exported, trimming the landed cost of finished products.
- Export financing and risk mitigation – The Export–Import Bank of the United States (EXIM) provides loan guarantees, direct loans, and export credit insurance, while the USDA’s GSM-102 guarantees help agricultural exporters. These tools substitute the federal government’s credit rating for that of the exporter or buyer, making overseas deals easier to finance and insure.
- Cost-sharing grants and advisory support – Programs like the Small Business Administration’s State Trade Expansion Program (STEP) and the Commerce Department’s International Trade Administration (ITA) reimburse part of the expense of trade shows, market research, and compliance, and offer technical guidance on foreign regulations.
Export Tax Management Inc. specializes in IC-DISC incorporation, compliance, and implementation. Explore your tax incentive options with our services.
Export Incentives and the World Trade Organization (WTO)
According to the International Trade Administration, the US already exports $2 trillion in services and goods worldwide but can always afford to expand.
That’s why Congress created the IC-DISC in 1971. That’s not the only tax incentive for US corporations with foreign presences; FDII is another popular option.
Export Tax Management Inc. specializes in IC-DISC incorporation, compliance, and implementation. Explore your tax incentive options with our services.
| Program | WTO compliance status (as of May 2025) | Why this is the right label |
| IC-DISC | Likely compliant (never challenged) | No WTO member has ever brought a case; commentators note it sidesteps the “export-contingent” test because the tax benefit applies only after income exists and without volume triggers. (Capstone Associated) |
| FDII deduction | Unchallenged — under scrutiny | EU letter (2019) signals a possible WTO complaint, arguing the deduction is tied to foreign sales, but no dispute has been filed to date. |
| Foreign Sales Corporation (FSC) — repealed | Prohibited | Panel/Appellate Body found FSC to be an export-contingent tax subsidy (DS108, 2000). (Trade and Economic Security) |
| Extraterritorial Income (ETI) — repealed | Prohibited | FSC replacement (ETI Act) was also ruled WTO-inconsistent in 2002 and again in 2006 compliance proceedings. (Trade and Economic Security) |
| USDA GSM-102 export-credit guarantees (pre-2014) | Prohibited | GSM-102, GSM-103 and SCGP guarantees for cotton and other products were condemned as export subsidies in DS267 (Brazil v. U.S.). (Every CRS Report) |
| USDA GSM-102 (post-2014 reforms) | Generally compliant | 2014 U.S.–Brazil settlement added higher fees and shorter tenors; Brazil dropped retaliation and pledged no new WTO action while the program follows the agreed terms. No new disputes have been filed. (USDA) |
Quick Rule of Thumb
- Safe: Tax deductions or grants you can claim whether or not you hit an export target—e.g., IC-DISC, FDII, R&D credits, FTZ duty savings.
- At Risk: Any cash, credit guarantee, or lower tax rate you receive only because the product is exported (and that scales with export volume or price). Those features invited—and lost—the FSC/ETI and Cotton cases.
The Types of Tax Incentives for Exporters in the USA
Here’s an overview of the tax incentives exporters can take advantage of:
U.S. Tax Incentives Exporters Can Use
| Tool | Typical Eligibility Test | How the Benefit Works | Export-Relevant Example |
| Tax Credit | Activity must satisfy a statutory purpose (e.g., R&D, renewable energy, hiring veterans). | Reduces tax liability dollar-for-dollar. Some credits are non-refundable (only offset tax owed); others are refundable (excess is paid out). | • Research & Experimentation Credit for product improvements sold abroad. • Foreign Tax Credit for income taxes already paid to a foreign government. |
| Tax Deduction | Expense must be ordinary and necessary to the business (IRC §162) or specifically listed in the Code. | Lowers taxable income; benefit equals deduction × marginal tax rate. | • IC-DISC commission deduction (see below). • FDII deduction on profits from serving foreign markets. • Standard deductions for travel, marketing, insurance, etc. tied to export sales. |
| Tax Exemption / Exclusion | Income type is expressly carved out from tax base. | Income is never taxed, so benefit is 100 % of the amount excluded. | • Interest on certain state or municipal export-finance bonds (federal exemption). • State-level sales-tax exemptions for goods shipped abroad. |
Where Does IC-DISC Fit?
| Step | Tax Treatment | Effect |
| 1. Exporter pays an IC-DISC “commission.” | Exporter deducts the commission as an ordinary business expense. | Deduction reduces exporter’s taxable income. |
| 2. Commission is retained inside the IC-DISC. | IC-DISC itself is not taxed on the income it earns. | Functionally an exemption at the entity level. |
| 3. IC-DISC distributes profits to its shareholders. | Shareholders receive qualified dividends (2025 top rate: 20 % + NIIT) instead of ordinary income. | Converts export profit into lower-rate income—often described as a tax-favored dividend. |
Learn more about IC-DISC rules.
Tax Credits
Tax credits allow taxpayers to deduct a specific amount by the dollar from their federal income taxes. Businesses pay less money on their taxes as a result. Tax credits can be partially refundable, fully refundable, or nonrefundable.
A refundable or partially refundable tax credit generates a refund according to the prescribed amount. States and the federal government will make tax credits available to qualifying businesses.
Tax Deductions
Another type of tax incentive exporters should consider is a tax deduction. Businesses can subtract a sum from their taxable income, paying less on their taxes. Types of deductions include itemized or standard deductions.
You subtract the amount due by taxable income, and thanks to The Tax Cuts and Jobs Act, the amount of standard deductions is higher than ever
Some deductions small businesses and startups are eligible to claim on their tax returns are as follows:
- Startup expenses
- Vehicle costs
- Property, sales, and local taxes
- Maintenance and repairs
- Pass-through tax deductions
- Loan interest
- Regulatory and licensing fees
- Professional and legal fees
- Insurance
- Equipment
- Bad debts
- Marketing and advertising
- Business travel
20+ Years IC-DISC Experience
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Our objectives are simple: to provide you with maximum export tax savings, while delivering unmatched personal attention by our staff of CPAs. Schedule a free consultation today to discuss how Export Tax Management can help you.
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Exporters should also consider their tax exemption eligibility. A tax exemption reduces the corporation’s tax obligation. Municipal, county, and state governments offer exemptions.
IC-DISCs and other tax-exempt organizations can also reduce their federal income tax rate.
Tax incentives share many similarities in how they reduce a corporation’s taxes owed. However, the different ways incentives lower taxes and the eligibility criteria make it worth a corporation’s time to thoroughly explore deductions versus credits versus exemptions, especially as they apply to IC-DISC and FDII.
Learn more about the differences between these two tax incentives for exporters in our article.
Want to explore how tax exemptions and incentives like IC-DISC can benefit your business?
At Export Tax Management Advisory Firm, we specialize in IC-DISC and can help you navigate exemptions, deductions, and credits to maximize your tax savings and boost your bottom line. Reach out to us for a consultation today!
Why the IC-DISC Is the Best Choice as a Tax Incentive
IC-DISC stands head and shoulders over FDII and other tax incentives for exporters eager to claim more tax savings. An IC-DISC is a Congress-issued tax incentive and tax code that broadens the scope of US sales in foreign countries and opens the door to exporting.
Eligible companies must establish an IC-DISC separate from their main entity, with it operating as a tax-exempt entity without office space or employees. The exporter or shareholders must form the IC-DISC, with a required delineation between it and C corporations.
When the corporation makes an international sale, it owes the IC-DISC a commission. The commission is deductible as a business expense. No federal income taxes are owed until the IC-DISC begins paying owner dividends.
The dividends have a tax rate of only 23.8 percent.
When should a corporation consider applying for IC-DISC status? Seek this tax benefit if a high tax rate has impeded business growth. Export Tax Management Inc. can help you determine the right road to tax savings and incentives for your business.
Contact us today to determine if IC-DISC status is right for you.
IC-DISC Tax Returns: Credits and Deductions
According to Schedules C and E of IRS Tax Form 1120, qualifying corporations can make the following deductions:
- Freight insurance and freight
- Contributions
- Interest
- Licenses and taxes
- Bad debts
- Employee benefit programs
- Profit-sharing plans and pensions
- Maintenance and repairs
- Officer compensation
- Warehousing
- Sales commissions
- Rent
- Wages and salaries
- Advertising and market studies
- Nonqualified inclusions and dividends
- Qualified dividends
- Total inclusions and dividends
- IC-DISC dividends (including former DISCs)
- Global Intangible Low-Taxed Income or GILTI
- Inclusions from controlled foreign corporation sales, in which a lower-tier foreign corporation’s stock was sold
- Dividends from foreign sources where the foreign corporation owns at least 10 percent but is not a hybrid corporation
- Dividends from wholly-owned foreign subsidiaries
- Dividends from foreign corporations with less than, equal to, or more than 20 percent owned
- Dividends on certain preferred stocks from public utilities that are less than or more than 20 percent owned
- Dividends from foreign or domestic corporation debt-financed stock
- Dividends from foreign corporations that are less than or more than 20 percent owned outside of debt-financed stock
Maximizing your IC-DISC is simple with the right support, such as from Export Tax Management Inc. For example, a bakery that produces goods in the US but sells them internationally would qualify for IC-DISC status, lessening its tax burden.
Advantages of Joining the IC-DISC Tax Incentives for Exporters
Establishing an IC-DISC allows corporations to begin reaping the following advantages.
Delaying Taxes by Waiting to Pay Dividends on the Commission
While corporations under DISC status must still file taxes within nine months from the end of their tax year and by no later than the 15th day (unless that day falls on a weekend or holiday), when the corporation has to pay taxes under this tax incentive isn’t always the same.
A corporation can wait until it generates $10 million of export sales before paying the commission as a dividend. This limit resets every year.
Spending Less Money on Taxes
Corporations don’t want to spend more than necessary on their taxes, as the loss in capital can trickle down to other parts of the company. A bad tax year might cause a corporation to tighten its belt, reduce staff, or make other changes to stay in the green.
Tax incentives for exporters can reduce their federal income tax spending, preventing the above cost-cutting measures from transpiring. IC-DISC corporations can deduct up to 50 percent of export income.
Increasing a Corporation’s Income
A corporation will have more income after delaying dividends on commissions and reducing federal income tax spending. This wealth can be used to reduce costs, expand (such as hiring more staff or opening more offices and warehouses), and research and develop new products and services.
Expanding Business Internationally
The additional income and ability to continue expanding its roster of goods and services will allow DISC-qualifying corporations to expand business internationally, increasing export revenue.
Exporting goods from the United States to other parts of the world gives businesses a competitive advantage, reduces risk (other economies might fluctuate less than their home economy), and increases access to tax incentives.
Is your corporation eager to explore tax incentives and ways to lower federal income tax? Reach out to Export Tax Management Inc. today and explore our services.
Requirements to Enjoy the IC-DISC Tax Incentives for Exporters
Corporations applying for tax-exempt status must understand the eligibility requirements for export tax incentives.
Here are the eligibility criteria an IC-DISC must meet:
- Up to 95 percent of its gross receipts must be qualified gross receipts.
- It must pass an export assets and gross receipts test.
- It must have only one stock class valued at $2,500 or higher.
- It must have separate records from other business entities.
- When adjusted, its qualified export assets must be worth 95 percent (or more) of its asset sums.
Qualifying corporations must document all income and spending, including dividends, deductions, special deductions, inclusions, and gross income, even if the corporation doesn’t pay taxes thanks to its tax-exempt status.
The corporation must also file taxes by the required deadline. Avoid common mistakes, such as failing to meet IC-DISC status yet filing as one anyway, skipping or leaving off important parts of Tax Form 1120, and failing to check your math before filing.
Where Do Most U.S. Exports Go?
Most U.S. exports go to Canada and Mexico, followed by China, Japan, and the United Kingdom. In 2022, these top five destinations accounted for a significant portion of total U.S. goods exports.
Top Destinations for U.S. Exports (2022):
- Canada: $356.5 billion (17.3% of total U.S. exports)
- Mexico: $324.3 billion (15.7% of total U.S. exports)
- China: $150.4 billion (7.3% of total U.S. exports)
- Japan: $80.2 billion (3.9% of total U.S. exports)
- United Kingdom: $76.2 billion (3.7% of total U.S. exports)
Other notable export destinations include: the European Union (27 countries) with a total of $350.8 billion in U.S. goods exports.
What Does the United States Export the Most?
The latest U.S. Census Bureau data for 2024 show that American exporters rang up a record $2.06 trillion in goods shipments. Five products alone accounted for more than a quarter of that total:
| Rank | Leading export (2024) | Export value | Share of total U.S. goods exports | Major destinations |
| 1 | Civilian aircraft parts | $123 billion | 6.0 % | France, Germany, Brazil |
| 2 | Crude oil | $118 billion | 5.7 % | Netherlands, South Korea, Canada |
| 3 | Gasoline & other refined fuels | $118 billion | 5.7 % | Mexico, Canada, Netherlands |
| 4 | Low-value shipments* | $68.2 billion | 3 – 4 % (approx.) | Mexico, Canada |
| 5 | Liquefied natural gas (LNG) & other petroleum gases | $62.2 billion | 3.0 % | Japan, Mexico, United Kingdom |
Don’t forget services. Travel, business & professional services, telecom/IT services, and financial services together topped $1.1 trillion in 2024, with travel alone up $26 billion from 2023 .
Why Are Export Subsidies Considered Harmful?
Short answer: Because they distort prices, drain public budgets, and spark trade retaliation—often running afoul of WTO rules in the process.
Export-contingent subsidies offer short-term gains to a narrow group but impose long-term costs on the wider economy and trading partners.
WTO rules leave room for non-contingent support (e.g., general R&D credits, broad tax-rate reductions like IC-DISC), but programs that pay because you export invite litigation and retaliation.
For firms, the safest path is to use WTO-compliant incentives—lower tax rates on income already earned, duty-drawback on imported inputs, or neutral finance tools—rather than volume-linked rebates that can be challenged as prohibited export subsidies.
FAQs About Tax Incentives for Exporters
An exporter tax credit is a government incentive that lets a firm subtract a percentage of its qualified export earnings from the income tax it owes. The goal is to boost the price competitiveness of domestically made goods and services abroad.
Companies that earn a defined share of revenue from foreign sales and file the required export documentation generally qualify, with many programs also extending benefits to small or indirect exporters that supply exporters.
Most countries zero-rate or exempt exports from VAT or sales tax, and many prohibit export duties under trade agreements. A government may still levy an export tax in limited circumstances—such as on raw commodities for revenue or supply-security reasons—so long as it stays within its WTO commitments.
FDII is income from exporting intangible assets, such as patents, trademarks, or intellectual property. Exporters benefit from FDII through a reduced tax rate, effectively encouraging innovation and U.S.-based companies to sell their intangible assets in foreign markets while lowering their overall tax burden.
Yes, certain service companies can qualify for export tax incentives, particularly if their services are related to foreign projects. Engineering, architectural, and software development firms that deliver services abroad can benefit from IC-DISC tax advantages, provided they meet the necessary qualifications.
Do you have more questions?
If you’re interested in learning more about tax incentives for exporters, Export Tax Management is ready to assist. For further information, explore our IC-DISC FAQs or contact us to schedule a consultation and discover how IC-DISC can boost your export tax savings strategy.
20+ Years IC-DISC Experience
Unlock Significant Tax Benefits with IC-DISC
Our objectives are simple: to provide you with maximum export tax savings, while delivering unmatched personal attention by our staff of CPAs. Schedule a free consultation today to discuss how Export Tax Management can help you.
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Tax incentives for exporters, like FDII and IC-DISC, offer powerful opportunities for businesses to reduce their tax burden and boost profitability. These incentives reward your efforts and position your company for global expansion.
Take the next step toward accelerating your growth by contacting Export Tax Management today!
