Frequently Asked Questions

What is FDDEI?

FDDEI stands for Foreign-Derived Deduction Eligible Income.

In simple terms, it is certain qualifying income earned by a U.S. corporation from foreign sales or services.

What was FDII?

IFDII stands for Foreign-Derived Intangible Income.

It was the prior Section 250 calculation used to determine the benefit for certain foreign-derived income.

Is FDDEI the same as FDII?

They serve a similar purpose, but the calculation changed in 2026.

The old FDII formula included Qualified Business Asset Investment, or QBAI, which measured certain tangible business property, and Deemed Tangible Income Return, or DTIR, which reduced the amount of income eligible for the benefit.

Those steps are no longer part of the calculation.

Who may qualify for FDDEI?

Domestic C corporations with qualifying foreign-derived income may be eligible.

That can include manufacturers, distributors, service providers, technology companies, and SaaS businesses.

Businesses that previously claimed the FDII deduction may notice a different name and a different calculation for 2026.

Beginning with tax years after December 31, 2025, Section 250 now focuses on Foreign-Derived Deduction Eligible Income, or FDDEI, instead of the former Foreign-Derived Intangible Income, or FDII, calculation.

This is more than a terminology change.

The way qualifying foreign income is calculated changed, several older calculation steps were removed, and the deduction is now generally 33.34% of qualifying FDDEI.

For U.S. C corporations with foreign customers, 2026 is an important year to understand how the new rules work.

WWhat Changed From FDII to FDDEI in 2026?

The biggest changes include:

• QBAI and DTIR were removed from the calculation
• Interest expense no longer reduces Deduction Eligible Income for Section 250 purposes
• Certain research and experimental expenditures no longer reduce Deduction Eligible Income
• Certain property disposition income is excluded
• The deduction is now generally 33.34% of qualifying FDDEI

At the current 21% corporate tax rate, that can produce an effective federal tax rate of approximately 14% on qualifying FDDEI.

A business that claimed FDII in prior years should not simply carry the old calculation forward.

What Does Deduction Eligible Income Mean?

Deduction Eligible Income, or DEI, is the pool of income that can potentially be considered for the Section 250 deduction.

From there, the business determines how much of that income comes from qualifying foreign transactions.

That qualifying portion becomes FDDEI.

This is why the calculation requires more than simply looking at total foreign sales.

What Types of Businesses Should Review FDDEI?

FDDEI is not limited to companies shipping physical products overseas.

A review may make sense for:

• Manufacturers and distributors selling property for foreign use
• Service companies working with foreign customers
• SaaS and technology companies with international revenue
• Businesses with certain foreign licensing income

The key question is:

How much of the company’s revenue comes from customers outside the United States, and what type of property or services are being provided?

Why Revenue Mix and Cost Allocation Matter

Foreign revenue alone does not determine the deduction.

Businesses also need to identify which revenue qualifies and which expenses should be allocated to that income.

Two companies with the same foreign revenue can have different FDDEI results depending on margins, transaction types, expenses, and the mix of domestic and international business.

What Documentation Should Businesses Keep?

Useful records may include:

• Customer location information
• Contracts and invoices
• Shipping records
• Service agreements
• Licensing agreements
• Revenue by country or customer
• Cost and expense allocation support

The goal is to support why the income qualifies and how the deduction was calculated.

When Should a Business Review FDDEI?

A review may be especially useful when:

• The company previously claimed FDII
• Foreign revenue has grown
• The company recently became profitable
• The business has significant R&E or interest expense
• The company changed how it sells internationally
• The business has never reviewed Section 250

How Specialty Tax Group Helps

Specialty Tax Group works with businesses and their tax advisors to review foreign revenue, transaction types, cost allocations, and supporting documentation.

The starting point is simple:

How much business are you doing outside the United States, and what are you providing to those customers?

From there, STG can help determine whether an FDDEI opportunity is worth reviewing.

Final Takeaway

FDDEI continues an important Section 250 benefit for U.S. C corporations doing qualifying business internationally, but the calculation changed in 2026.

The old QBAI and DTIR steps are gone, certain expenses are treated differently, and the deduction is now generally 33.34% of qualifying FDDEI.

Businesses that previously claimed FDII should revisit the calculation, and companies with meaningful international revenue should consider whether the deduction may apply.