The Foreign-Derived Intangible Income (FDII) tax regime was introduced in 2017 as part of the Tax Cuts and Jobs Act (TCJA). This preferential tax regime is designed to stimulate domestic economic growth by fostering innovation and the development of intangible assets, such as patents, trademarks and proprietary technology, within the United States. It offers a reduced tax rate to U.S. corporations with international operations. This is particularly beneficial for those with a particular focus on markets such as Latin America. 

From a strategic perspective, FDII plays a crucial role in decisions about where to locate intellectual property (IP) and how to structure global business operations. This tax incentive effectively reduces the tax rate on qualifying income to 13.125% until the end of 2025, rising to 16.406% thereafter.

FDII is a cornerstone of international tax planning for U.S. companies, offering significant competitive advantages in the global market. Leveraging these deductions allows businesses to optimize their tax position, reinvest in innovation and strengthen their presence in the global economy. 

Key aspects of FDII 

To better understand this measure and its application, it is important to consider the following points: 

  • Corporate structure: only C corporations (formed by national and foreign investors) that are U.S. taxpayers are eligible for the FDII deduction. 
  • Qualifying income as FDDEI (Foreign-Derived Deduction Eligible Income): this category includes sales of goods to foreign persons for use outside the United States, and the services provided to persons or with respect to properties located outside the United States. 
  • Documentation and substantiation: it is essential to maintain adequate records demonstrating that the income qualifies as FDDEI. Therefore, companies must register sales contracts, transaction records and evidence of foreign use. 

A long-term competitive advantage 

FDII serves as a powerful tool for optimizing corporate tax efficiency and fostering sustainable economic growth. Companies that understand and utilize these deductions can maximize their benefits and strengthen their position in international markets. 

If you are planning your international expansion, do not hesitate to contact Auxadi to manage your financial accounting in the United States or any of the more than 50 countries that we serve.

Can Auxadi help?

Auxadi can become your ideal partner. We offer a one stop shop value added outsourcing services in the areas of accounting and reporting, tax compliance, payroll management and representation services, among others.

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

All information contained in this publication is up to date on 2024. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.