IC-DISC Process
Step 1
Step 1
Step 1
The exporting company creates a tax-exempt IC-DISC. The IC-DISC is a “paper” entity that does not require office space, employees, or tangible assets. In this example, the IC-DISC is set-up under the ownership of the individual shareholders of the exporting company.
Step 2
Step 1
Step 1
The exporting company pays the IC-DISC a commission. The IC-DISC commission may be determined as the greater of 50% of export net income or 4% of export gross receipts. The commission may be increased even more in certain instances.
Step 3
Step 1
Step 3
The exporting company deducts the commission amount paid to the IC-DISC from its ordinary income taxed at 35%. The commission income for the IC-DISC is deferred from current taxation.
Step 4
Step 1
Step 3
When the IC-DISC pays dividends to its shareholders, the shareholders pay dividend income tax, currently at a rate of 15%. The net effect is a 20% tax savings on the IC-DISC commission.