Defining DISC
The Domestic International Sales Corporation (DISC) was first introduced with the Revenue Act of 1971 for providing eligible companies with export tax incentives. Rulings from the World Trade Organization (WTO) resulted in Congress enacting changes to the Internal Revenue Code, causing the replacement of DISC with the Interest Charge Domestic International Sales Corporation (IC-DISC). Under these rules, up to $10 million in export revenue and the DISC commission income thereon can be deferred indefinitely and any remaining income can be repatriated through qualified dividends at a reduced tax rate of 15 percent from the ordinary income rate of 35%.
Although a DISC is primarily a paper organization, they are required to maintain separate financial accounts and records books. Domestic International Sales Corporations are also required to file an annual income tax return even though it is exempt from corporate income taxation. Additionally, in order to qualify for DISC tax incentives, the exporter company must follow additional rules, such as the US content, US manufacturing and foreign destination tests.
Eligibility
DISC eligibility requirements can include direct exporters, indirect exporters, software licensing companies, and finally architectural and engineering design companies. Many of these companies are unaware of their eligibility.
Direct exporters ship all of their manufactured goods directly to another country. An example would be a New York based furniture company sells couches to Japan.
Indirect exporters develop and manufacture goods that are included with exports either in the overall assembly of the exported item or as an accessory. One example would be a company that produced microchips for a computer company that sold their finished product overseas.
Architectural and engineering design companies can qualify for DISC tax incentives, if the designs they fabricate are for structures being built outside of the U.S. An engineering company designing a bridge in China is just one example.
Benefits of DISC
Of course, the initial benefit that most companies derive from DISC is a lower tax bracket. However, that is only one benefit of using a DISC to improve the performance of your company. Here are a few examples:
- Independent of transfer pricing rules
- Smaller tax base for exporter
- Increased cash flow
- Up to $10 million in DISC income can be deferred indefinately
- Prevention of double taxation
- Lower tax rate
- Higher dividend payouts
Recognized experts in international tax law
Understanding the regulations that define how a domestic international sales corporation is operated to its full potential can be complex to say the very least. PIASCIK international tax professionals know all the latest rules governing DISCs , as well as other international tax laws governing expatriate taxation, OVDI filings, transfer pricing and FBAR filings. PIASCIK has over 75 years of combined expertise on international tax matters covering clients on every continent (we don't count Antarctica) in over 49 countries. Contact PIASCIK today, and let our seasoned tax professionals help you maximize your DISC tax incentives. We even offer flat rates with no hidden charges and the initial consultation absolutely FREE.
