BUSINESS ENTITIES
FDII DEDUCTION
The new law provides a domestic C-corporation with a deduction for its foreign-derived intangible income (“FDII”). A corporation can claim up to 37.5% deduction, which results in 13.1% effective tax rate, as compared with a 21% corporate rate. The deduction is reduced to 21.875%, resulting in an effective tax rate of 16.4% after January 1, 2026.
FDII deduction may be applied to specific types of income:
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Sales of tangible property to foreign person or entity for foreign use
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Sales of intangible property to foreign person or entity for foreign use
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Provision of service to person, entity or with respect to property located outside the United States
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TIPS FROM IRS
Taxation of Nonresident Aliens
U.S. Citizens and Resident Aliens Abroad