Foreign Sales Companies (FSCs) are created to reduce income tax on export-related income. Administrative pricing rules allow for up to a 15% reduction in income tax and up to 30% reduction in corporate taxes. FSCs must meet certain requirements, including maintaining a primary bank account outside the manufacturer’s country of origin and holding meetings outside the country of origin. Categories of corporate export business that qualify for income tax exemption include solicitation, trading, and contracting. A specific percentage of transaction costs should be represented by foreign direct costs to qualify for exemption.
Administrative pricing rules are used to determine the income of a Foreign Sales Company (FSC). This type of company is created in order to reduce the income tax on export-related income. Categories of corporate export business that qualify for income tax exemption include solicitation, trading, and contracting.
According to the administrative price rules, a reduction of up to 15% of income tax and up to 30% of corporate taxes is possible. When a company sells products or services to a country outside its original origin, it is considered an exporter. The taxable income generated by such sales is adjusted if the export transactions are carried out by a foreign sales company.
It is possible for a producer to create an FSC directly or to use an intermediary for export. An FSC is sometimes formed by export trading companies, which are groups specializing in the sale and transfer of foreign goods. FSCs act on their own behalf with direct ties to a parent company or could act independently as appointed agents for an external company.
In order to meet the requirements of FSC training, the merged entity would need to maintain its headquarters in a qualifying foreign country. It should have at least one director who is not a permanent resident of the principal manufacturer’s home country, have no more than 25 shareholders, issue only common stock, and keep separate accounts at its head office.
Additional FSC requirements under the Administrative Price Rule framework include maintaining a primary bank account that is located outside the primary manufacturer’s country of origin. All meetings of shareholders and directors should be held outside the country of origin. Any stock dividends, legal fees and salaries must be paid from an overseas bank account.
According to the administrative price regulations, export businesses must meet certain requirements in order to obtain the quality for income tax exemption. While the activities take place in the foreign nation to which the goods are exported, only one activity needs to take place to qualify for the exemption. Any solicitation other than advertising is one of the qualifying export business categories. The solicitation could involve press releases in one of the local newspapers or direct sales.
Other categories of export business that meet income tax exemption status are trading and bargaining. In addition to participating in certain commercial activities, a specific percentage of the transaction costs should be represented by foreign direct costs. Under administrative price rules, foreign direct costs are considered to be equal to or greater than 50% of the total direct costs associated with five qualifying export activities or 85% of the total direct costs incurred by two export activities, such as delivery and transportation.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
