IC-DISC, which stands for Interest-Charge Domestic International Sales Corporation is an export tax benefit for small and medium U.S. manufacturers. Due to the amount of money the incentive can save a company, it is alarming how few businesses are taking advantage of the IC-DISC laws.
According to U.S. tax laws, a company can utilize an IC-DISC to have its export income tax liability reduced by more than 50%. Instead of being taxed the standard income tax rates (highest being 35%), IC-DISCs’ profits are being taxed at the dividend rate of 15%.
Bottom line, the IC-DISC is allowing companies to double their post-tax income. Sounds pretty good, right?
That being said, here is a generalized description of three different types of businesses that can qualify for IC-DISC:
- A manufacturing company that directly exports its own goods.
- A company that provides engineering or architectural services that are administered in the U.S. for a structure built outside the U.S.
- A company produces a component part that is included in a product that is exported overseas.
A domestic corporation must file an election with the IRS to be treated as an IC-DISC for tax purposes. The corporation must maintain a minimum capitalization of $2,500 of authorized and issued shares and meet the qualifying export receipts test and export assets test, which state that at least 95% of the IC-DISC’s gross receipts and assets must be related to the export of U.S . manufactured property whose value is at least 50% attributable to the U.S. produced content.
Here is a quick 3- Step Guide to the IC-DISC:
- Why an IC-DISC? Since the IS-DISC is a tax-exempt corporation, it earns income that would otherwise be taxable to the exporter. The IC-DISC itself will not be taxed on the income, but once the income is distributed to the shareholders it will be taxed at dividend income tax rates, which are significantly less than ordinary income tax rates. The difference between dividend tax rates and ordinary tax rates is extreme enough to create tax savings.
- Who Qualifies? If you are able to answer “yes” to all of the following questions, you may qualify for an IC-DISC.
- Does your company export (directly or indirectly) more than $3 million annually?
- Is your manufacturing done within the United States?
- Are you a privately-held company?
- Is It Worth It? To find out whether it is financially compelling for your business, estimate your savings using the table below.
|Est. Minimum Tax Savings||
Est. Maximum Tax Savings
To explore your options further and receive personalized information from a specialist, please contact one of our advisors at Texas R&D Tax Credit Solutions by clicking here.