Exporting Products from the United States

Home | China Law Blog | If You Export from the United States You Can Save on Your Taxes With a DISC Election Table of Contents Toggle How Export Companies Can Reduce Their Taxes If you are an American company exporting products without an IC-DISC, you are probably overpaying on your US taxes. It’s that simple. The Interest Charge Domestic Sales Corporation (“DISC”) is a tax incentive U.S. exporting companies should be using to reduce their overall U.S. tax liability. But few do. IC-DISC Background The United States originally enacted DISC legislation in 1971, to provide export subsidies to domestic companies. A DISC is a qualifying US corporation which elects to be taxed under special tax rules. Under those rules, the domestic corporation that makes the “DISC Election” is NOT taxable. How IC-DISC Works to Reduce Taxes DISC allows exporters to transform what would typically be ordinary income, taxable at approximately 40%, to qualified dividend income, taxable at approximately 20%. To obtain the tax benefit, a DISC Company is incorporated as a domestic corporation. The legislation provides a mechanism whereby the operating company may pay a commission to the DISC Company. The commission paid is a fully deductible expense for the operating company. The commission received by the DISC Company is NOT taxable to the DISC. When the DISC pays a dividend to its shareholders, the payment is taxable at the lower dividend tax rates. Operational Changes are Not Required The tax benefits provided by the DISC do not require any operational changes for the exporting company. There is no requirement for employees to track time or to make any other changes in how they currently transact business. The Treasury Regulations specifically provide that the DISC is not required to have any substance, including employees, risk of loss, etc., and that the DISC may be a “paper company.” This is one of the few areas of tax law where the “substance” requirement is specifically exempted. Companies that are exporting products for use outside the U.S. can benefit from the DISC. The DISC does not require operational changes and it can provide significant tax savings. This post is a guest post by Mehrdad Ghassemieh, an international tax lawyer and an adjunct professor at the University of Washington School of Law, where he teaches international tax planning. Check Out Our China Law Services Share Twitter Facebook LinkedIn E-mail Comment China Law Blog The China Law Blog focuses on the practical aspects of Chinese law and how it impacts foreign companies that do business in or with China. The goal is to help readers understand what works and what does not work and what businesspeople can do to use the law to their advantage. China Law Blog's aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy. Harris Sliwoski Blog Read more posts [email protected] Read More Legal News Related Posts September 15, 2026 Your AI-Drafted China Contract Says It Needs a Lawyer. Listen to It. September 11, 2026 Forensic Accountants in China Business Litigation: How True Numbers Can Tell the Wrong Story September 4, 2026 China NNN Agreement or Trademark Registration? You Usually Need Both September 1, 2026 AI Didn't Replace Lawyers. It Gave Us the 48-Page Contract. August 27, 2026 Do I Need a China NNN Agreement or a China Manufacturing Agreement? Usually Both. August 26, 2026 China’s New Overseas Investment Rules: Can Your Chinese Investor Actually Get the Money Out? August 24, 2026 International IP Protection for Startups: What to Protect and Where August 19, 2026 The Documents Are the International Deal August 19, 2026 China Supplier Fraud in Yiwu: Why We Recommended the Police, Not a Lawsuit August 17, 2026 China Trademark Registration: Why U.S. Companies Need More Than a Filing Agent August 10, 2026 Buying Expensive Equipment from China: Seven Questions to Answer Before You Pay August 7, 2026 DDP Shipping Risks: What Boise Cascade’s Guilty Plea Means for U.S. Buyers August 6, 2026 Protecting Your Artwork Internationally: What Artists Need to Do Before the Work Travels August 5, 2026 Your China Employee Signed the Vacation Policy. You Can Still Lose. July 29, 2026 The RedNote Contract Lesson for Companies Doing Business in China Leave a comment Cancel reply