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:
Sales of tangible property to foreign person or entity for foreign use
Sales of intangible property to foreign person or entity for foreign use
Provision of service to person, entity or with respect to property located outside the United States