The Interest Charge Domestic International Sales Corporation (IC-DISC) tax incentive was implemented to encourage American companies to make or distribute US products for export. It provides permanent, significant tax savings if your company is directly involved in exporting or even selling products to companies that export them. Eligible businesses include:
How the IC-DISC Works
In order to take advantage of the IC-DISC export tax incentive, your business must first form an Interest Charge Domestic International Sales Corporation, which has its own bank account, and accounting records. Further, it must file its own US tax returns. There should be no other changes to your business operations.
The workings of the IC-DISC deduction are somewhat complex. A qualified accountant with expertise in the Tax Code, and specifically, details of IC-DISC should be engaged to assist with its administration. As a generalization, the way it works is that the operating company pays a commission to the IC-DISC, within the parameters laid out in the Code. The operating company subsequently expenses the commission, thus reducing its ordinary income. The IC-DISC in turn, is not taxed on the commission income it receives from the operating company, as it is tax-exempt under the terms of the incentive.
There are a number of requirements and details which must be understood and adhered to. Having a qualified tax expert onside will greatly assist in getting all the figures correct, and the process followed appropriately. At the very outset, there are several criteria that must be met in order to obtain DISC status for your corporation. Again, while exploring this opportunity, it is a good idea to have a qualified tax expert on your side, who can assist in meeting all the requirements, as well as administering them down the road.
If your company is into exporting US made goods such as those listed above, it is well within your best interests to take advantage of IC-DISC if you qualify.