What is It?
An Interest Charge – Domestic International Sales Corporation (IC-DISC) is a tax-exempt corporate entity used to reduce federal income taxes on export profits. It allows US exporters to convert a portion of ordinary income into qualified dividends, which are taxed at a lower rate. This utilizes a US tax incentive designed to encourage exports by providing a permanent tax savings opportunity for qualifying US exporters.
How It Works
- A US company forms a separate IC-DISC entity.
- The IC-DISC is paid a commission (typically 4% of export gross receipts or 50% of export net income).
- The IC-DISC pays no federal income tax on its income.
- Profits are distributed to shareholders as qualified dividends (max 20% tax rate).
