What is it?
An Interest-Charge Domestic International Sales Corporation (“IC-DISC”) is a C corporation formed in the U.S. that is exempt from U.S. taxation and exists primarily in the Internal Revenue Code and on paper. IC-DISCs allow the long-term deferral of tax on export profits and can provide a favorable tax rate differential of more than 15% on export profits. A corporate, LLC, or partnership exporter can form an IC-DISC to take advantage of these potentially large tax savings.
- A company that directly exports goods it manufactures, produces, grows, or extracts in the U.S. Besides manufactured goods, a good also can include software, films, and agricultural products.
- A company that provides architectural or engineering services for a project outside the U.S., even if the work is performed in the U.S. An architectural firm based in the U.S. can design a building that is built in Germany and qualify to form an IC-DISC.
- A company that manufactures, produces, grows, or extracts goods that are included in a product that is exported. A company that manufactures tires and sells them to a company that exports automobiles can qualify to form an IC-DISC.
How does it work?
The company forms a separate C corporation and elects to treat it as an IC-DISC. The company pays commissions to the IC-DISC based upon either 50% of the export net income or 4% of the export gross receipts. The IC-DISC is tax-exempt and does not pay tax on the commission income received, while the company receives a deduction for the commission payments. The IC-DISC subsequently makes a distribution, equal to the commission payments, to the shareholders as a dividend, converting ordinary income into qualified dividend income taxed at a reduced rate. If the IC-DISC retains any commission income rather than distributing to the shareholders, the IC-DISC shareholders pay a small interest charge (“IC”) on the deferral of tax payments.
If you export goods or services or sell goods as components that are included in products that are exported, please contact us to discuss your options.
For more information, please contact Suzanne Kane, JD International Tax Principal at 206.267.7684