This is a preview of one of the articles in the new KROST Quarterly Manufacturing Issue, titled “Foreign-Derived Intangible Income (FDII) Can Increase Cash Flow for Manufacturing Companies and Distributors with Global Operations” by Evelyn Fernandez, CPA, MST.
The Tax Cuts and Jobs Act (TCJA) included several tax changes relating to the US taxation of multi-national companies. One change that specifically impacts manufacturers and distributors with global operations is the implementation of the Foreign-Derived Intangible Income (FDII) deduction (IRS Section 250).
The calculation of FDII is complex, but the bottom line is that it offers a 37.5% deduction to US C corporations on qualifying activity. This reduces the 21% corporate tax rate to 13.125% for tax years beginning after December 31, 2017, and before January 1, 2026. After this date, the deduction drops down to 21.875%, which results in an effective corporate tax rate of 16.406%.
The three key items to note about the deduction are:
- Only US C corporations qualify.
- There must be foreign-derived deduction eligible income. Income that falls into this category includes foreign-derived sales of products or services provided… Continue here »
KROST Quarterly is a digital publication that highlights some of the hot topics in the accounting and finance industry. Volume 3, Issue 2 highlights some of the hot topics in manufacturing, including accounting for PPP, transfer pricing, Foreign-Derived Intangible Income (FDII), R&D tax credits, and more.
About the Author
Evelyn Fernandez, CPA, MST, Principal
Tax, International Tax, Manufacturing & Distribution
Evelyn is a Tax Principal at KROST. She has been in the public accounting profession for over 15 years. Her areas of expertise include tax planning and compliance for high net worth individuals, international entities and individuals, multi-state taxation, partnerships, S corporations, trusts, nonprofit organizations, and entertainment businesses. » Full Bio