As an owner-managed exporting business, revised tax rules mean you can take advantage of significant savings by creating an interest charge-domestic international sales corporation (IC-DISC).
If you qualify, this arrangement allows you to take dividends out of the IC-DISC at a favorable 15 percent dividend tax rate – a savings of 20 percent off the top rate of 35 percent on your qualifying income.
Benefits of an IC-DISC
- Commission DISC benefits include permanent tax savings on your global sales – 15 percent tax rate versus 35 percent tax rate on 4 percent of export sales
- Operating DISC benefits include permanent tax savings of 20 percent on DISC taxable income
- One-time tax deferral opportunity
- Ability to leverage cost of capital
- Means to facilitate your succession or estate planning
- Commission DISC Arrangement o ABC Company has $10 million in export profits
- ABC Company pays $400,000 in commissions to the IC-DISC
- ABC Company reduces taxable income by $400,000 (commission paid to the IC-DISC)
- The $400,000 is distributed to owners as a dividend, and taxed at only 15 percent as opposed to the regular tax rate of 35 percent
- The owners pay $60,000 in taxes instead of $140,000 – a savings of 55 percent or $80,000 in total savings
- Operating DISC Arrangement o ABC Company has $10 million in export profits
- ABC Company pays dividends of $10 million to its shareholders
- Shareholders of ABC Company pay $1.5 million in income taxes – a savings of $2 million