Deemed Intangible Income for US Expats: What You Need to Know About FDII and Your Tax Returns
Here’s some relief: the Foreign Earned Income Exclusion increased to $130,000 for tax year 2025, and most US expats won’t owe additional taxes on deemed intangible income. According to current tax law, FDII is taxed at only 13.125% through 2025, which is significantly lower than standard corporate rates, and individual expats rarely encounter these calculations.
Deemed intangible income refers to profits your business earns above a 10% return on tangible assets, which the IRS considers income from intangible property like intellectual property, brand value, or proprietary processes. For most American expats, this only becomes relevant if you own a business abroad generating significant profits from intangibles, or work for a US corporation with complex international operations.
The good news? Greenback has helped thousands of expats file these complex returns, and our CPAs and Enrolled Agents know exactly how intangible income affects your specific situation. Whether you’re a corporate expat dealing with employer equity compensation or an entrepreneur building a business abroad, you can get this right without the stress.
What Is Deemed Intangible Income?
Deemed intangible income is generally calculated as the excess of total net income over a routine 10% rate of return on the adjusted tax basis of depreciable tangible property. Think of it as the “extra” profit your business generates beyond what you’d expect from basic physical assets.
Here’s how the calculation works: FDII is equal to foreign-derived profits in excess of the “normal” returns to qualified investments. More specifically, it is equal to foreign-derived income minus 10 percent of “qualified business asset investment”.
Key components:
- Your total business income
- Minus a 10% deemed return on the adjusted basis of tangible property
- Equals deemed intangible income
For example, if your expat consulting business has $20,000 in office equipment and earns $200,000 annually, the IRS considers $2,000 (10% of equipment value) as tangible asset income. The remaining $198,000 could be classified as deemed intangible income.
Does This Affect Individual Expats?
Corporate Expats:
If you work for a US multinational corporation, you might encounter deemed intangible income through your employer’s Foreign-Derived Intangible Income (FDII) calculations. This rarely affects your personal tax return directly, but may appear in employer-provided tax documents or equity compensation statements.
Entrepreneur Expats:
Business owners abroad face more direct implications. If your foreign business generates substantial profits relative to your tangible assets, you might need to report deemed intangible income. This becomes particularly important for:
- Consulting or service businesses with minimal physical assets
- Technology companies with valuable software or processes
- Businesses with strong brand recognition or customer relationships
Most expat businesses don’t reach the thresholds where these calculations significantly impact your US tax liability, especially when combined with Foreign Tax Credit or Foreign Earned Income Exclusion benefits.
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What’s the Difference Between FDII and GILTI?
The US tax code treats intangible income differently depending on where it’s generated:
- Foreign-Derived Intangible Income (FDII) applies to intangible income from sales to foreign customers by US businesses. FDII is taxed at a lower rate of 13.125 percent through 2025, providing a significant tax benefit for US companies with international sales.
- Global Intangible Low-Taxed Income (GILTI) applies to intangible income earned by foreign subsidiaries of US businesses. This is designed to prevent profit shifting to low-tax countries and affect US shareholders of foreign corporations.
For individual expats, GILTI is more relevant than FDII. If you own more than 10% of a foreign corporation generating intangible income, you might face GILTI inclusion in your US tax return.
The Foreign Tax Credit often eliminates or significantly reduces GILTI tax liability for expats in moderate to high-tax countries. Many of our clients end up owing nothing additional on GILTI income.
Real-World Expat Scenarios
Scenario 1: Tech Consultant in Germany
Sarah operates a software consulting business in Berlin with $150,000 annual revenue and $5,000 in computer equipment. Her deemed intangible income calculation:
- Equipment return: $500 (10% of $5,000)
- Deemed intangible income: $149,500
- German taxes paid: $45,000
- US tax liability after Foreign Tax Credit: $0
Scenario 2: Corporate Expat in Singapore
Mike works for a US tech company’s Singapore office. His employer’s FDII calculations don’t directly affect his personal return, but he receives equity compensation tied to the company’s intangible income performance. His tax treatment focuses on the timing and character of equity compensation, not the underlying FDII calculations.
In both scenarios, existing expat tax benefits (Foreign Tax Credit or FEIE) typically provide sufficient protection against additional US tax liability from intangible income.
When Do You Need Form 8993?
Domestic corporations use Form 8993 to figure the amount of the eligible deduction for FDII and GILTI under section 250. You’ll likely need this form if deemed intangible income affects your tax situation.
When Form 8993 is required:
- You’re a US business owner claiming the FDII deduction
- You own more than 10% of a Controlled Foreign Corporation (CFC)
- Your tax software or accountant identifies intangible income requiring specialized treatment
Common filing mistakes to avoid:
- Miscalculating the tangible asset basis
- Incorrectly applying the 10% deemed return rate
- Forgetting to coordinate with Foreign Tax Credit calculations
- Missing deadlines for CFC reporting requirements
The form itself is complex, with multiple worksheets and calculations that interact with other parts of your expat tax return. This is precisely why having an experienced expat tax professional makes such a difference.
What Are Your Next Steps?
If you’re wondering whether deemed intangible income affects your tax situation, start with these questions:
- Do you own a business abroad generating more than $100,000 annually?
- Are you a significant shareholder in a foreign corporation?
- Has your US employer mentioned FDII or GILTI in your tax documents?
If you answered yes to any of these questions, professional guidance will ensure that you handle intangible income correctly while maximizing your expat tax benefits.
The goal isn’t to eliminate all tax complexity from your expat life, but to handle it correctly so you can focus on the reasons you moved abroad in the first place. Whether that’s career advancement, lifestyle improvement, or new adventures, you shouldn’t worry about deemed intangible income calculations.
Whether you’re dealing with FDII calculations or GILTI inclusion or just want to ensure your expat business is structured properly for tax efficiency, our team has the comprehensive expertise to get it right. You’ll have peace of mind, knowing that your taxes were done right.
Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, click below to get a consultation with one of our expat tax experts.
This article is for informational purposes only and does not constitute personalized tax advice. Tax laws are complex and change frequently. Always consult with a qualified tax professional about your specific situation.
