How Can Form 8993 Reduce My U.S. Taxes on Foreign Business Income?

Form 8993 calculates the Section 250 deduction, which allows domestic corporations to deduct 37.5% of foreign-derived intangible income (FDII) and 50% of global intangible low-taxed income (GILTI) for the 2025 tax year. According to the IRS, this deduction can reduce the effective corporate tax rate on qualifying foreign income from 21% to as low as 10.5%, saving thousands of dollars annually.

The Section 250 deduction applies if your business has:

Foreign sales or services through a U.S. C corporation (FDII)
Foreign subsidiary income exceeding a 10% return on tangible assets (GILTI)
A Section 962 election allows individual CFC owners to claim corporate-level deductions

Does Your U.S. Corporation Earn Foreign Sales Income?

We’ll assess whether Form 8993 can reduce your effective corporate tax rate.

Here’s who needs Form 8993, how the deductions work, and why the calculations require expert handling.

What Is Form 8993?

Form 8993, officially titled “Section 250 Deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI),” is the IRS form used to calculate your deduction under IRC Section 250. The form has four parts that work together to determine how much of your foreign-related income qualifies for a reduced tax rate.

The Section 250 deduction was created by the Tax Cuts and Jobs Act (TCJA) in 2017 to encourage U.S. corporations to keep intellectual property and business operations in the United States. It rewards companies that serve foreign markets from a U.S. base and provides partial relief from GILTI taxation on income from controlled foreign corporations.

Form 8993 applies to C corporations and individuals who make a Section 962 election. It does not apply to S corporations, partnerships (as entities), or sole proprietorships. If you are a freelancer or self-employed expat without a C corporation, the Foreign Earned Income Exclusion (up to $130,000 for the 2025 tax year) or Foreign Tax Credit are likely more relevant to your situation.

What Is the Difference Between FDII and GILTI?

Form 8993 covers two distinct types of income, each with its own deduction rate. The distinction matters because it determines how much tax relief you receive and which part of the form applies to your situation.

Feature	FDII (Foreign-Derived Intangible Income)	GILTI (Global Intangible Low-Taxed Income)
What it is	Income a U.S. corporation earns from selling goods or services to foreign customers	Income from a controlled foreign corporation that exceeds a 10% return on tangible assets
Who it applies to	U.S. C corporations with foreign sales	U.S. shareholders owning 10%+ of a CFC
Section 250 deduction rate (2025)	37.5%	50%
Effective corporate tax rate	13.125% (instead of 21%)	10.5% (instead of 21%)
Most common for expats?	Less common (requires a U.S. C corporation selling abroad)	More common (applies to most expat business owners with foreign corporations)
Key Greenback resource	FDII guide	GILTI guide

FDII: How It Reduces Your Tax

FDII applies when a U.S. C corporation earns income from selling products, licensing intellectual property, or providing services to foreign customers for foreign use. The 37.5% deduction reduces the effective tax rate on that income from 21% to 13.125%.

Example: Your U.S. software company earns $500,000 total, with $300,000 from sales to European clients. After the FDII calculation (which factors in your deemed intangible income and foreign-derived ratio), you determine $200,000 qualifies as FDII. The Section 250 deduction is $200,000 x 37.5% = $75,000. At the 21% corporate rate, that saves you $15,750 in federal taxes.

GILTI: How It Reduces Your Tax

GILTI applies when you own 10% or more of a controlled foreign corporation. The 50% deduction reduces the effective tax rate on GILTI from 21% to 10.5%. Individual shareholders can access this deduction through a Section 962 election.

Example: Your foreign subsidiary generates $150,000 in tested income with $20,000 in qualified business asset investment (QBAI). Your GILTI inclusion is $148,000 ($150,000 minus $2,000 deemed tangible return). The Section 250 deduction is $148,000 x 50% = $74,000. At the 21% corporate rate, that saves you $15,540 in federal taxes. Foreign tax credits can reduce or eliminate any remaining liability.

Take Note

Most American expat entrepreneurs encounter GILTI rather than FDII, since GILTI captures income from foreign corporations, while FDII applies to domestic corporations that sell abroad. Your Greenback accountant can determine which deduction applies to your specific business structure.

Who Needs to File Form 8993?

Your Situation	Need Form 8993?	Why
U.S. C corporation with foreign sales	Yes	Calculate FDII deduction on foreign-derived income
U.S. C corporation that is a shareholder of a CFC	Yes	Calculate GILTI deduction on CFC income
Individual CFC owner with Section 962 election	Yes	Election gives access to corporate-level Section 250 deductions
S corporation	No	S corporations are excluded from the Section 250 deduction
Sole proprietor or freelancer abroad	No	Use Form 2555 (FEIE) or Form 1116 (FTC) instead
Partnership (as an entity)	No	Partners may claim the deduction on their individual returns if they are domestic corporations

Pro Tip

If you are an individual who owns a foreign corporation and wants to claim Section 250 deductions, you must make a Section 962 election on your individual tax return. Without this election, individuals cannot claim the GILTI deduction and will be taxed at ordinary individual rates (up to 37%) instead of the effective 10.5% corporate rate.

What Are the Filing Deadlines for Form 8993?

Form 8993 is filed as an attachment to your income tax return. The deadline depends on the type of return:

Return Type	Standard Deadline	Extended Deadline
Form 1120 (C corporation)	March 17, 2026 (for 2025 tax year)	September 15, 2026 (via Form 7004)
Form 1040 with Section 962 election	April 15, 2026 (domestic) or June 15, 2026 (expats abroad)	October 15, 2026

Unlike individual expat returns, C corporations do not receive the automatic June 15 extension. You must file Form 7004 to request additional time. The extension only extends the filing deadline, not the payment deadline. Any estimated tax owed must be paid by the original due date.

Why Is the Section 250 Calculation So Complex?

The Section 250 deduction is not a straightforward percentage of your income. Form 8993 requires a multi-step calculation that involves several interconnected concepts:

Part I determines your Deduction Eligible Income (DEI): This starts with gross income, excludes certain categories (Subpart F income, GILTI, financial services income, certain dividends, and foreign branch income), and then subtracts allocable deductions to arrive at DEI. From DEI, you subtract the Deemed Tangible Income Return (DTIR), which is 10% of your Qualified Business Asset Investment (QBAI). The remainder is your Deemed Intangible Income (DII).
Part II determines your Foreign-Derived Deduction Eligible Income (FDDEI): This requires documenting which sales and services are to foreign persons for foreign use. You must track foreign-derived gross receipts across three categories: general property, intangible property, and services.
Part III calculates FDII: Your DII is multiplied by the Foreign-Derived Ratio (FDDEI divided by DEI) to determine FDII.
Part IV applies the taxable income limitation: If the sum of FDII and GILTI exceeds your taxable income, the IRS reduces both amounts proportionally before applying the deduction percentages.

The IRS estimates that Form 8993 takes corporations over 25 hours to complete. The calculations require meticulous documentation, and errors can result in disallowed deductions or IRS scrutiny. This is one of the most complex areas of U.S. corporate tax law, and professional preparation is strongly recommended.

What Are Common Expat Business Scenarios?

Low-Tax Country: U.S. Corporation Selling Abroad

Scenario: You run a U.S.-based software company from Singapore. Your company earns $400,000 total, with $320,000 from sales to clients in Asia and Europe.

How Form 8993 helps: The FDII deduction reduces your effective tax rate on foreign-derived income from 21% to 13.125%. Your Greenback accountant calculates the precise FDII amount based on your foreign-derived ratio and deemed intangible income, potentially saving $20,000 or more.

Foreign Corporation Owner: Section 962 Election

Scenario: You own 100% of a UK consulting company that generates $200,000 in annual profit. The UK charges a 25% corporate tax rate.

How Form 8993 helps: With a Section 962 election, your GILTI inclusion qualifies for the 50% Section 250 deduction, reducing the effective U.S. rate to 10.5%. Because the UK’s 25% corporate tax rate exceeds the 13.125% threshold where foreign tax credits fully offset U.S. tax, you likely owe $0 in additional U.S. tax on this income.

Mixed Scenario: Both FDII and GILTI

Scenario: You own a U.S. C corporation that sells products to European customers (generating FDII) and also own a foreign subsidiary that produces GILTI.

How Form 8993 helps: Both deductions apply simultaneously. Form 8993 calculates each deduction separately, and the taxable income limitation in Part IV ensures the total deduction does not exceed your taxable income.

What Mistakes Should I Avoid with Form 8993?

Claiming Section 250 without a C corporation or Section 962 election: The deduction is only available to domestic C corporations and individuals who properly elect under Section 962. If you operate as a sole proprietor, LLC (disregarded entity), or partnership, you cannot claim this deduction.
Failing to document foreign use: For FDII purposes, you must establish that your sales are to foreign persons for foreign use. The IRS requires specific documentation under Regulations Section 1.250(b)-4, including customer certifications, shipping records, and evidence of foreign delivery.
Ignoring the taxable income limitation: If your combined FDII and GILTI exceed taxable income (determined without regard to Section 250), the deduction is reduced proportionally. This prevents the deduction from creating or increasing a net operating loss.
Not coordinating with foreign tax credits: The Section 250 deduction and the Foreign Tax Credit interact in complex ways. The FDII deduction amount must be allocated between U.S.-source and foreign-source income for foreign tax credit limitation purposes on Form 1118. Getting this wrong can reduce your available credits.
Missing the Section 962 election deadline: If you are an individual shareholder, the Section 962 election must be made with your original return or by the extended due date. Late elections are difficult to obtain and may require a private letter ruling.

How Are Rates Changing After the 2025 Tax Year?

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, makes significant changes to both FDII and GILTI for tax years beginning after December 31, 2025:

Provision	2025 Tax Year (Current)	2026 Tax Year (OBBBA Changes)
FDII deduction rate	37.5%	33.34% (FDII renamed “FDDEI”)
Effective rate on FDII	13.125%	~14%
GILTI deduction rate	50%	40% (GILTI renamed “NCTI”)
Effective rate on GILTI	10.5%	12.6%
QBAI exclusion	10% of tangible assets excluded	Eliminated
Foreign tax credit on GILTI	80% of foreign taxes paid	90% of foreign taxes paid

These changes mean that the 2025 tax year represents the last year of the more generous deduction rates. For detailed guidance on 2026 changes, see our guide on NCTI (Net CFC Tested Income).

How Does Form 8993 Coordinate with Other Expat Tax Benefits?

Form 8993 does not exist in isolation. It works alongside several other forms and elections that your Greenback accountant will coordinate:

Form or Election	How It Relates to Form 8993
Form 8992 (GILTI calculation)	Calculates the GILTI amount that flows into Form 8993, Part IV
Form 5471 (CFC reporting)	Reports CFC income used in GILTI calculations; required for all 10%+ shareholders
Section 962 election	Allows individuals to claim Section 250 deductions at corporate rates
GILTI high-tax exception	Can exclude high-taxed CFC income from GILTI entirely, reducing what flows into Form 8993
Foreign Tax Credit (Form 1116)	Credits for foreign taxes paid can further reduce or eliminate U.S. tax after the Section 250 deduction
Tax treaty benefits	Treaty provisions may affect withholding rates and income classification

The interaction between these forms and elections is where the real tax savings happen. A small miscalculation on Form 8992, for instance, can cascade through Form 8993 and cost thousands. This is precisely the kind of complexity where Greenback’s CPAs and Enrolled Agents deliver the most value.

What If I Am Behind on Filing?

If you have unfiled returns that should have included Form 8993, you may still be able to claim the Section 250 deduction. The IRS Streamlined Filing Procedures allow qualifying taxpayers to file late returns with reduced or no penalties. You can also file amended returns (Form 1040-X for individuals or Form 1120-X for corporations) to claim previously missed deductions, generally within three years of the original filing deadline.

No matter how late, messy, or complex your return may be, we can help. Our Streamlined Filing package is designed specifically for situations like this.

Let Greenback Handle the Complexity for You

Form 8993 involves some of the most intricate calculations in U.S. corporate tax law. Between FDII documentation requirements, GILTI coordination with Form 8992 and Form 5471, Section 962 election strategy, taxable income limitations, and the interaction with foreign tax credits, this is not a form where guesswork pays off.

If you own a foreign business, our CPAs handle Form 8993, GILTI calculations, Section 962 elections, and all complex business tax requirements as part of our comprehensive small business tax preparation services.

You’ll have peace of mind, knowing that your taxes were done right. Have questions about the process or next steps? Contact us, and one of our Customer Champions will be happy to address all your concerns. If you’re ready to be matched with a Greenback accountant, click the get started button below.

Reduce Your Corporate Tax Rate the Right Way

We’ll prepare Form 8993 and ensure your foreign-derived income qualifies for the FDDEI deduction.

This article is for informational purposes only and does not constitute legal or tax advice. Section 250 deductions involve complex calculations with significant interactions between corporate and individual tax provisions. For guidance on your specific situation, contact Greenback to speak with an expat tax specialist.

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