What is Form 8993?
Form 8993, Section 250 Deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI), is an Internal Revenue Service (IRS) domestic corporations use to figure out the amount of the eligible deduction for FDII and GILTI.
Section 250 of the Internal Revenue Code enables a domestic corporation to deduct 37.5% of its FDII and 50% of its GILTI.
Who should file Form 8993?
Domestic corporations, as well as United States individual shareholders of controlled foreign corporations (CFCs) making a section 962 election, should file Form 8993 to determine the allowable deduction under section 250.
Section 962 election allows individuals investing in foreign corporations to elect the same treatment had they invested through a domestic corporation doing business abroad. That means, they can pay tax on their pro-rata share of GILTI as if they were a U.S. C corporation.
How to fill out Form 8993?
Form 8993 is a single-page form that contains four parts: Determining Deduction Eligible Income (DEI), Determining Deemed Intangible Income (DII), Determining Foreign Derived Ratio, Determining FDII and/or GILTI Deduction.
Answer each item accurately to avoid any problems.
Part I Determining Deduction Eligible Income (DEI)
Line 1 Gross Income
Enter the amount from Line 11 of your Form 1120, U.S. Corporation Income Tax Return. Gross income is all income from whatever source derived.
Line 2 Exclusions
Enter all the asked amounts.
Line 2a Income Included under section 951 (a)(1)
Enter any amount included in the gross income of such corporation under section 951(a)(1). You must also include the section 78 gross-up with reference to the inclusion under section 951(a)(1).
Line 2b Income included under section 951A
Enter any amount included in the gross income of such corporation under section 951A.
Line 2c Financial Services Income
Enter financial services income as defined under section 904(d)(2)(D) of such corporation.
Line 2d CFC Dividends
Enter any dividend received from a Controlled Foreign Corporation (CFC).
Line 2e Domestic Oil and Gas Extraction Income
Enter all domestic oil and gas extraction income.
Line 2f Foreign Branch Income
Enter all foreign branch income.
Line 3 Total Exclusions
Add Lines 2a through 2f.
Line 4 Gross Income less Total Exclusions
Subtract Line 3 from Line 3.
Line 5 Deductions properly allocable to the amount on line 4
Enter all deductions, including taxes, properly allocable to gross DEI on Line 4.
Line 6 Deduction Eligible Income (DEI)
Subtract Line 5 from Line 4.
Part II Determining Deemed Intangible Income (DII)
Line 1 DEI
Enter DEI from Line 6 of Part I.
Line 2 Deemed Tangible Income Return (10% of QBAI)
Enter the amount when the corporation’s QBAI for the year is multiplied by 10%.
Line 3 Deemed Intangible Income (DII)
Subtract Line 2 from Line 1.
Part III Determining Foreign Derived Ratio
Line 1a DEI derived from sales, leases, exchanges, or other dispositions (but not licenses) of property to a foreign usee
Enter DEI derived from the sales, leases, exchange, or other dispositions of property to any person who is a foreign person which is established to the satisfaction of the Secretary is for foreign use.
Line 1b DEI derived from a license of a property to a foreign use
Enter DEI derived from the license of property to any person who is a foreign and which is established to the satisfaction of the Secretary is a foreign use.
Line 1c DEI derived from services provided to a person or with respect to property located outside of the United States
Enter DEI derived from services that are established to the satisfaction of the Secretary are provided to any person, or with respect to a property, located outside the United States.
Part IV Determining FDII and/or GILTI Deduction
Line 1 Deemed Intangible Income (DII)
Enter DII from Line 3 of Part II.
Line 2 Foreign Derived Ratio
Enter FDDEI/DEI from Line 4 of Part III.
Line 3a FDII
Multiply Line 1 by Line 2
Line 3b Global Intangible Low-Tax Income (GILTI) Inclusion
Enter the amount of GILTI from Line 5 of Part II of Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI).
Line 3c Total FDII and GILTI
Add Lines 3a and 3b.
Line 4 Taxable Income
Enter the taxable income amount of the domestic corporation.
Line 5 Excess FDII and GILTI over Taxable Income
Subtract Line 4 from Line 3c. If zero or less, enter -0-. You must also enter -0- on Lines 6 and 7.
Line 6 FDII Reduction
Divide Line 3a by Line 3c. Then, multiply by Line 5.
Line 7 GILTI Reduction
Subtract Line 6 from Line 5. The reduction is determined by the excess amount less the FDII reduction.
Line 8 FDII Deduction
Subtract the amount from Line 6 of Part IV from the amount on Line 3a of Part IV. Then, multiply the amount by 37.5% to obtain the FDII deduction.
Also, enter the amount on Schedule C of Form 1120, U.S. Corporation Income Tax Return.
Line 9 GILTII Deduction
Subtract the amount from Line 7 of Part IV from the amount on Line 3b of Part IV. Then, add any amount received by the corporation that is treated as a dividend under section 78 of the Internal Revenue Code which is attributable to GILTI, from Schedule A, Column 3(b) of Form 1118, Foreign Tax Credit — Corporation. Lastly, multiply the amount by 50%.
Also, enter the amount on Line 22 of Schedule C of Form 1120, U.S. Corporation Income Tax Return or on the comparable schedules of other corporate returns.
When to file Form 8993?
You must attach Form 8993 to your income tax return and file them by the due date of that return.
Important Reminders from IRS
Domestic corporation’s deduction
For tax years beginning on or after January 1, 2018, and before January 1, 2026, section 250 generally allows a deduction equal to the sum of 37.5% of the corporation's FDII plus 50% of its GILTI (thereafter, these deductions are reduced to 21.875% and 37.5%, respectively).
If the sum of FDII and GILTI exceeds taxable income, the deduction under section 250 is limited to taxable income.