Recently Paul Ferreira, President, Export Tax Management and Jennifer Simpson, Regional Director, EXIM Bank gave a webinar on two potentially money saving programs for exporters – IC-DISC and export credit insurance. Here are the highlights:
IC-DISC : A Tax Incentive for Exporters
Interest Charge-Domestic International Sales Corporation (IC-DISC) is a statutory provision of the US Internal Revenue Code (tax code) that provides a federal income tax incentive to keep jobs in the United States and sell products for use outside of the United States. The incentive is realized by allowing some or all of the taxable income relative to export sales to be taxed as a qualified dividend (23.8 percent) as opposed to ordinary income (39.6 percent).
IC-DISC applies to products that are manufactured, produced, grown or extracted within the US and sold for use outside of the US. Examples include:
- Manufactured: textiles, shoes, jewelry, clothing
- Produced: food products, films, software, architectural designs
- Grown: agricultural & horticultural products, processed timber
- Extracted: seafood, scrap metal
IC-DISC also applies to indirect exporters. For example, if a U.S.-based manufacturer builds an industrial machine in New Jersey and sells it to a distributor in Pennsylvania, and, the distributor in Pennsylvania sells that machine to an international client within one year, both the manufacturer in New Jersey and distributor in Pennsylvania can utilize IC-DISC.
Products must contain at least 50 percent U.S. content based on total fair market value (not cost), including gross margin, to qualify for IC-DISC.
The benefits of an IC-DISC include:
- Reduce federal income tax
- Improve competitive advantage
- Completely non-invasive to normal business operations
Remember IC-DISC is a statutory provision in the US tax code and one that every US-based exporter should consider!
Export Credit Insurance: Protection from Nonpayment by Foreign Buyers using Open Credit
Export credit insurance is a product that protects an exporter’s accounts receivable from nonpayment by foreign buyers. With export credit insurance, American companies can increase their global competitiveness by offering credit terms up front to international customers. In addition, companies with export credit insurance can broaden their borrowing base and improve cash flow by borrowing against insured receivables.
In order to qualify for export credit insurance from EXIM Bank, customers must be in business at least one year, have financial statements or tax returns and a D&B/DUNS number, and US content must be greater than 50 percent including labor but excluding mark up (different from IC-DISC).
The benefits of export credit insurance include:
- Risk protection from nonpayment by foreign buyers
- Sales tool to offer credit terms to customers
- Expanded borrowing base with insured receivables
Click on the link below to see the slides and hear the 30-minute presentation of IC-DISC and export credit insurance followed by Q&A from the audience.You can also download the export trade insurance eBook.