A Closer Look as to How FDII Can Reduce the Effective Corporate Tax Rate to 13.125%
By Anthony Diosdi Foreign Derived Intangible Income (“FDII”) deduction was enacted as part of the 2017 Tax Cuts and Jobs Act. Under this tax regime, a U.S. C corporation may claim deduction of up to 37.5 percent on a portion of the corporation’s FDII income. Because the current U.S. federal corporate income tax rate is 21 percent, a FDII deduction can result in an effective tax rate of only 13.125 percent (21% - 37.5% = 13.125%).A FDII deduction can be extremely beneficial to U.S. exporters of goods, services, and intellectual property such as the sale of software or apps, and the streaming of audio or video. A FDII deduction is not available for income received from financial services, any domestic oil and gas extraction, activities performed through a branch, and…