Service Overview
The 2025 One Big Beautiful Bill Act (OBBBA) replaced the Foreign-Derived Intangible Income (FDII) deduction with the Foreign-Derived Deduction Eligible Income (FDDEI), effective for tax years beginning after December 31, 2025. Like its predecessor, FDDEI encourages U.S. C-corporations to generate revenue from serving foreign markets by applying a preferential tax rate to eligible income.
FDDEI does not require income to be generated from intangible assets (i.e. royalties). Instead, the tax law assumes a fixed rate of return on a corporation’s U.S. fixed assets and any remaining foreign source income (i.e. exports) above that fixed asset return is deemed to be generated by intangible assets. The deduction is applicable to sales of almost any product or service where the buyer is foreign.
The formula to determine FDDEI is complex and requires the identification of specific data, but the benefit of a 33.34% deduction against taxable income deserves careful consideration. Prior to this replacement FDII had a benefit of 37.5% deduction.
Benefits
Could your company benefit from FDDEI?
FDDEI may represent a significant deduction for your C-corporation if you generate income from:
- Sale of property to a non-US person for foreign use. A sale may also include any lease, license, exchange, or other disposition.
- Services provided to a foreign party or with respect to any property outside of the United States.
Many related-party property and service transactions are also eligible for the deduction, although special rules may apply that could reduce the eligible deduction.
If you are already claiming the R&D Tax Credit, there is a tremendous overlap of the required information and collection process that could be leveraged to claim the FDDEI deduction.
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