The Virginia General Assembly recently enacted legislation that will allow qualified exporters to receive a permanent tax savings of 20% or more by utilizing an IC-DISC (Interest Charge-Domestic International Sales Corporation). The IC-DISC has enabled many exporting companies to achieve significant tax savings.
How does it work?
- An eligible U.S. exporting company forms a special U.S. corporation that elects to be an IC-DISC. An IC-DISC is a “paper” entity that is used as a tax savings vehicle. IC-DISCs do not require corporate substance, employees, or assets – instead it serves as a conduit for export tax savings.
- The exporting company pays the IC-DISC a commission.
- The exporting company deducts commission from ordinary income taxed at up to 39.6 percent.
- The IC-DISC pays no tax on the commission as long as qualification standards are met. Export receipts in excess of US $10 million are not eligible for deferral of tax.
- Shareholders of an IC-DISC are generally not taxed until the earnings are distributed as dividends. Shareholders must pay annual interest on the tax deferred, which is currently around .2 percent.
The result of forming an IC-DISC can be a 20% or more tax savings on commission.
For more information, refer to our Fast Facts publication on IC-DISCs.