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DH~S Review July 8 1985 I 1 I I I I I I Personal Business Thoughts Exporting ideas for the small and ' growing business Many firms that are "at home" with business in the U.S. are uncertain where to begin when it comes to foreign trade. This article discusses some o~ the benefits of exporting and suggests s. teps to formulate an export prograrr,. Benefits of exporting More and more small businesses have been getting involved in foreign trade for a variety of reasons, including: (1) opportunities to develop broader market- ing bases, (2) higher growth rates in some foreign countries, and (3) extensions of product lives by exporting to countries with less-developed technologies. There are also distinct tax advantages for the qualified exporter. Per- haps the most significant is the ability to set up an "interest charge" Dom- estic International Sales Corporation (DISC) or a Foreign Sales Corporation (FSC). A portion of export net income may be allocated to the DISC (up to 50% of net income or 4% of gross receipts) or the FSC (up to 23% of net in- come or 1.83% of gross receipts). A DISC itself does not pay income tax but its shareholders are deemed, for tax purposes, to have received dividends equal to a portion, usually 1/17, of a DISC's income each year. Tax on the balance of the DISC's income is deferred, subject to an interest charge based on the T-bill rate, provided that the deferred income is reinvested in export-related activities. The FSC offers a permanent exemption from tax (as opposed to de- ferral) on approximately 70% of the FSC's allocated income from export transactions (65% if the shareholder is a corporation). The FSC's rer,~aining income is subject to U.S. taxation. The FSC, rather than the shareholder, must pay this tax. In add ition, the FSC must meet specific "foreign presence" requirements with respect to formation, management, and operations. These will often entail some additional administrative expenses. The interest charge DISC is available only for annual export receipts up to $10 million. Alternatively, businesses may elect "small" FSC status thereby obtaining an exemption from the foreign management and opera- tions requirements, but only for export receipts up to $5 million. I I I I Analyzing opportunities Because it is advisable to target one or two geographical areas in which to concentrate initial sales efforts, rather than chasing orders from around the world, it is important to obtain basic marketing data to determine which overseas markets provide the greatest potential for your product. It is prefer- able that you yourself perform the preliminary analysis to clarify your plans. Later, as a supplement to this basic research, you may want to engage an in- ternational marketing-research specialist. If you take the proper precautions in selecting a truly qualified organization, the cost to do so may outweigh the potential cost of a mistake. On the internal side, you should consider whether the firm will be able to absorb the cost of additional staff or a separate export department that may