Foreign exchange and the value of IC-DISC
GSI recently hosted a seminar on foreign exchange and IC-DISC. In a global economy, foreign exchange is a major component in doing business, and it’s important to hedge risk in order to:
· Secure profit margins from international sales
· Reduce exposure to sudden shifts in exchange rates
· Meet future payments to foreign counterparts by securing cash flow in advance
While many businesses may think that the best option is to receive payment in U.S. dollars, a foreign buyer may very possibly give better terms in their local currency. Thus, if your business is able to manage/hedge the foreign exchange risk, it could result in more profitable sales.
The Interest Charge – Domestic International Sales Corporation (IC-DISC) provides a permanent tax savings for U.S. exporters. A separate entity is formed and the company pays a commission on its export sales to the DISC, reducing the the taxable income of the company and allows for profits to be taxed at the dividend rate as opposed to the corporate tax rate – a potential savings of up to 19.6 percent.
The IC-DISC is available for use by manufacturers, agricultural producers, food processors, architecture and engineering firms, and software companies. Export sales are often larger than many would assume. In addition to direct exports, indirect sales such as components of larger products as well as farm crops qualify.
Surprisingly, only a few thousand companies nationwide take advantage of the permanent tax savings offered through an IC-DISC, which is available to all forms of business organizations, including C corporations, S corporations, partnerships, LLCs, and sole proprietors. If you’re an exporter, or make components which are exported, we encourage you to explore this tool.
You can view the foreign exchange and IC-DISC presentations from our speakers here.