This guide is written for US corporations, US individuals who own foreign corporations, and Australian-based taxpayers or businesses with US tax filing obligations. If you fall into any of these groups and you're preparing a 2025 return in 2026, or planning ahead for a tax year that begins in 2026, the rules are not identical.
Tax years beginning before 2026 use one set of percentages and calculations. Tax years beginning after 31 December 2025 use another, following changes enacted in mid-2025. We'll flag both throughout, but always confirm the current figures against the latest Form 8993 instructions before you file.
Key Takeaways
- Form 8993 calculates the Section 250 deduction for FDII (or FDDEI in later years) and GILTI-related income; confirm the form title before filing
- Eligibility hinges on US tax classification, qualifying income, and any Section 962 election, not Australian residency alone
- Use Form 8992 for the GILTI inclusion and Form 8993 for the Section 250 deduction; they are not interchangeable
- Weak foreign-use substantiation, expense allocation, or the taxable income limitation drive most overstated deductions
What Is Form 8993 and Who Needs to File It?
Form 8993 is the IRS form that calculates the Section 250 deduction. That deduction links a domestic corporation's qualifying foreign-derived income and certain CFC-related income to its US income tax return.
It does not determine your foreign-derived income or your GILTI inclusion. It takes those figures from other forms and converts them into a deduction amount.
Who actually files it
Three groups typically file Form 8993:
- Domestic C corporations with qualifying foreign-derived income (FDII, or FDDEI for 2026-and-later tax years)
- Domestic C corporations with a relevant CFC-related inclusion (GILTI, or its net CFC tested income successor)
- Individuals with a valid Section 962 election, to the extent current rules allow access to the Section 250 deduction
Most individual taxpayers, S corporations, partnerships, and sole proprietors don't file Form 8993 directly. S corporations and partnerships generally pass relevant items through to owners rather than claiming the deduction at entity level. Check the current instructions for any pass-through exceptions that apply to your structure.
Australian residency doesn't create eligibility
This matters for cross-border clients: being an Australian resident, running an Australian company, or paying Australian tax doesn't, by itself, create Form 8993 eligibility. Eligibility is assessed under US entity classification, ownership structure, income type, and election rules. Where you live personally isn't part of that test.
Form 8993 attaches to the relevant income tax return. According to the Form 8993 instructions, corporate filers attach it to Form 1120, and Section 962 electing individuals attach it to their individual return. Confirm the correct attachment path each filing season, since instructions get updated annually.
Quick eligibility checklist
Ask yourself:
- Am I a domestic C corporation (not an S corp, partnership, or sole proprietorship)?
- Do I have qualifying foreign-derived transactions, such as foreign-use sales, licensing, or services?
- Do I have a CFC-related income inclusion that requires Form 8992?
- Have I made, or should I consider, a Section 962 election?
A yes to any of these means professional analysis is worth the cost before you file.
What Is FDII and What Income Qualifies for It in 2026?
FDII (Foreign-Derived Intangible Income) describes income a US domestic corporation earns from foreign markets, not simply foreign-source income in the general tax sense. It specifically covers property sold for foreign use, intangible property licensed for foreign use, and services provided to foreign persons or in connection with property located outside the United States.
For tax years beginning after 31 December 2025, the statute replaces FDII with FDDEI (foreign-derived deduction-eligible income) under the 2025 tax law. The underlying concept, qualifying foreign-market activity by a US corporation, stays similar. The computation mechanics change materially.
How the deduction-eligible amount is built
The general process runs like this:
- Start with gross income
- Remove statutory exclusions (Subpart F income, GILTI inclusions, financial services income, CFC dividends, domestic oil and gas extraction income, foreign branch income, and certain property-disposition exclusions)
- Subtract deductions properly allocable to the remaining amount
For tax years beginning after 2025, interest expense and research and experimental expenditures are statutorily excluded from the deductions allocated against gross deduction-eligible income, a change from the pre-2026 mechanics.
What makes income "foreign-derived"
Three categories typically qualify:
- Property sold for foreign use: the buyer uses, consumes, or disposes of it outside the United States
- Intangible property licensed for foreign use: royalties and licence fees tied to foreign exploitation
- Services: provided to a person located outside the United States, or related to property outside the United States
Customer location, end use, delivery destination, and whether a related party is involved all affect qualification. Keep contracts, invoices, shipping records, and delivery confirmations on file. These are the records that substantiate foreign use if the IRS asks.
FDII versus GILTI: different income, same form
| Aspect | FDII / FDDEI | GILTI / NCTI |
|---|---|---|
| Source | US corporation's own foreign-market activity | Ownership of controlled foreign corporations |
| Calculated first on | Form 8993 (income side) | Form 8992 |
| Section 250 deduction calculated on | Form 8993 | Form 8993 |
Form 8993 brings both deduction calculations together, but the underlying income originates from entirely different places. Confusing the two is one of the most common filing errors.
How to Complete Form 8993: Parts I Through III
Despite older guidance referencing a four-part structure, the current Form 8993 (Rev. December 2025) has three parts: DEI and DII, FDDEI, and the deduction calculation itself. Check the line numbers on the version you're actually filing. Don't copy references from an older revision.
Part I: Deduction-eligible income (DEI) and deduction-eligible intangible income (DII)
Part I starts with gross income, then works through exclusions and allocable deductions. What remains is DEI.
Common exclusions include:
- Section 951(a)(1) income and GILTI inclusions
- Financial services income and CFC dividends
- Domestic oil and gas extraction income
- Foreign branch income
- Specified intangible-property and other-property disposition exclusions
For tax years in which the deemed tangible income return (DTIR) still applies, a line subtracts 10% of qualified business asset investment (QBAI) from DEI to arrive at deduction-eligible intangible income (DII). For tax years beginning after 2025, that calculation is removed entirely, according to IRS Bulletin 2026-40.
Example (illustrative figures only): A corporation with $10 million in gross DEI and a $6 million QBAI-based deemed tangible return would, under pre-2026 mechanics, reduce DEI by that $6 million before applying the foreign-derived ratio. Under post-2025 mechanics, this subtraction no longer applies. Confirm the correct treatment for your actual tax year before relying on any example.
Part II: Foreign-derived deduction-eligible income (FDDEI)
Part II separates foreign-derived receipts from total receipts, nets out cost of goods sold, and subtracts allocable deductions, including the interest and R&E carve-out that applies to tax years beginning after 2025. The result is gross FDDEI, then net FDDEI after deductions.
This is where contemporaneous records earn their keep. You need to cleanly separate transactions tied to foreign use from purely domestic transactions, backed by the documentation discussed above.
Part III: The Section 250 deduction
Part III calculates the foreign-derived ratio, applies it to DII to produce the FDII (or FDDEI) component, brings in the GILTI inclusion from Form 8992, and combines both amounts.
The taxable income limitation applies next. If combined FDII and GILTI exceed taxable income computed without the Section 250 deduction, both amounts are proportionally reduced. Only after that reduction do the statutory percentages apply, generally 37.5%/50% for tax years beginning before 2026, falling to 33.34%/40% for tax years beginning after 31 December 2025.
The GILTI-side deduction also needs the related Section 78 gross-up amount, pulled from Form 1118, Schedule A. That figure feeds into the deduction line separately from the base GILTI inclusion itself.
The final deduction flows to Form 1120, Schedule C for corporations. A Section 962 electing individual's reporting path runs through their own return and the associated election statement.
How Form 8993 Works With Forms 8992, 5471, and Section 962
The filing sequence
Three forms usually work together for CFC owners:
- Form 5471 reports the foreign corporation and its ownership structure, and feeds data (including Schedule I-1 tested income) into later calculations
- Form 8992 calculates the actual GILTI inclusion amount, or net CFC tested income under the renamed post-2025 terminology
- Form 8993 takes that inclusion and calculates the Section 250 deduction, alongside any FDII/FDDEI component
Do I need to file Form 8992?
If you have a relevant CFC inclusion, generally yes. Form 8992 needs to be completed before Form 8993 can pull in a GILTI figure. A corporation claiming only FDII, with no CFC ownership, may not need Form 8992 at all. Verify current exceptions each year, since thresholds do shift.
Section 962 at a high level
A Section 962 election lets a US individual CFC shareholder be taxed on certain CFC income at corporate-style rates, with access to related deductions and foreign tax credits. It does not automatically create FDII or FDDEI eligibility. That income category is specific to a domestic corporation's own foreign-market activity, not something an electing individual's structure can borrow.
A compact decision path
- Domestic C corporation with qualifying foreign sales or services → likely files Form 8993 for the FDII/FDDEI side
- Domestic C corporation with CFC-related income → files Form 8992, then Form 8993
- Individual CFC owner with a Section 962 election → may access GILTI-related deductions through Form 8993, but not FDII
- Individual or pass-through taxpayer without corporate status or election → generally no direct Form 8993 filing
Once the inclusion and deduction path is set, foreign tax credits add another layer. Corporations use Form 1118 to compute the credit, and Section 962 electing individuals use the same form for credits against their separately computed liability. None of this replaces the underlying Form 5471 reporting obligation. It runs alongside it.
Filing Deadlines, Documentation, and Common Form 8993 Mistakes
Form 8993 doesn't have its own due date. It's filed with the related income tax return and follows that return's original or extended deadline.
For a calendar-year C corporation, that's generally the 15th day of the fourth month after year-end, with a six-month extension available via a timely Form 7004. Confirm the exact 2026 dates for your return type, including any extension provisions for taxpayers residing abroad, before relying on them.
Documentation checklist
Keep these on hand:
- Revenue detail by customer location and transaction type
- Contracts, invoices, shipping records, and delivery evidence supporting foreign use
- Licensing and service-location records
- Expense allocation workpapers
- Asset and QBAI schedules, where still relevant for your tax year
- Supporting data from Forms 8992, 5471, 1118, and the underlying income tax return
Where filers go wrong
The most common mistakes:
- Applying 2026 percentages to a 2025 return filed in 2026, or the reverse
- Confusing Form 8992 (GILTI inclusion) with Form 8993 (the deduction)
- Claiming FDII/FDDEI without documented proof of foreign use
- Omitting a required exclusion from gross DEI
- Misallocating interest, R&D, or general expenses
- Overlooking the taxable income limitation entirely
If you discover an error after filing, expect to file a corrected Form 8993 with an amended return rather than as a standalone replacement, writing "Corrected" at the top.
The right remedy depends on your filing year, the statute of limitations, and which related international forms need amending alongside it. Don't treat older online examples as current guidance once the law or form design has moved on.
When Should an Australian-Based Taxpayer Seek Professional Form 8993 Help?
Form 8993 is genuinely harder for cross-border businesses than the instructions let on. An Australian-based taxpayer with US filing obligations is often juggling several issues at once: US corporate classification, Australian operating entities, foreign customers on both sides, possible CFC ownership, currency conversion, foreign tax credits, and linked US information returns.
Consider professional review if you have:
- Mixed domestic and foreign revenue streams
- Related-party transactions between Australian and US entities
- Intangible property licensing arrangements
- Complex service delivery crossing multiple jurisdictions
- A Section 962 election under consideration
- A CFC structure feeding into GILTI calculations
- A loss year or unusually low taxable income
- Incomplete foreign-use documentation
This is where VJM Global's cross-border advisory work typically comes in. The firm supports international businesses with:
- Tax structuring and foreign tax credit relief aligned to Form 1116
- Transfer pricing documentation covering Master Files, Local Files, and CbCR reports
- CFC mitigation planning
- Payroll and withholding compliance, including Form W-8/W-9 and 1042-S filings
If your Form 8993 workflow touches any of these areas, have someone review the full picture rather than the form in isolation.
This guide is educational, not personalised advice. US tax law changes, sometimes mid-year, and Form 8993's mechanics are a clear example of that.
Australian taxpayers should coordinate any US filing position with appropriately qualified Australian tax advisers where Australian tax consequences are also in play. The services referenced above cover tax compliance, accounting, and cross-border advisory, not IRS representation or Australian tax advice.
Frequently Asked Questions
Who needs to file Form 8993?
Domestic C corporations with qualifying foreign-derived income or a CFC-related inclusion generally file Form 8993. Individuals with a valid Section 962 election may also claim the deduction when eligible for that tax year.
When do I file Form 8993?
Form 8993 has no standalone deadline. It accompanies your income tax return and follows that return's original or extended due date. Verify the applicable 2026 deadline for your specific return type before filing.
Do I need to file Form 8992?
If you have a relevant CFC income inclusion, generally yes, since Form 8992 calculates the GILTI amount that flows into Form 8993. FDII-only filers with no CFC ownership may not need it at all.
What is FDII and what income qualifies for it?
FDII covers a domestic corporation's income from foreign-use sales, qualifying licences, and services to foreign persons. Customer location and end-use documentation determine whether that income qualifies under current rules.
What is Form 8993?
Form 8993 is the IRS form used to calculate the Section 250 deduction tied to qualifying FDII (or FDDEI) and applicable GILTI-related income. It calculates the deduction itself, not the underlying income inclusions.
