The Federal Derived Intangible Income (FDII) deduction was introduced as part of the Tax Cuts and Jobs Act, in 2017. It allows American corporations to claim an FDII deduction, as determined by its foreign derived income in relation to its total income. The workings of the FDII can be somewhat complex, especially when it comes to what qualifies as being FDII eligible.
Broadly speaking, your company’s foreign-derived income could include sales of intangible or tangible products. These could either be manufactured by you or purchased for resale, for a foreign customer to use, outside of the USA. It may also include income you receive from a broad range of services.
Where things can get complex is in the area of what doesn’t qualify as FDII eligible. There are several areas, such as financial services income, any foreign branch income, and any domestic oil and gas extraction income, which categorically are excluded from FDII.
There is also a relatively complicated relationship between the FDII and the Global Intangible Low-Taxed Income (GILTI) category of the Tax Code. The goal of both these regimes was to implement tax reform measures to encourage companies with a multinational footprint to increase investment in their American operations.
Both FDII and GILTI share a common goal, but their individual statutory structures are very different. It’s very important for you, if your organization is multinational, to understand the workings of each, and maximize their respective tax benefits. It requires extensive experience and in-depth knowledge of the Tax Code in general for corporations, along with specific expertise with FDII and GILTI.
We would be happy to work with you to develop a strategy that takes advantage of all possible deductions, credits, and incentives within the Code to minimize your company’s tax obligations. Knowledge of FDII is certainly one deduction opportunity any multinational business should be taking advantage of.