TL;DR: A tax break for US corporations that sell goods or services to customers abroad: that slice of profit is taxed at about 14% instead of 21%.

FDDEI is the carrot to NCTI's stick. NCTI taxes profits US companies park in foreign subsidiaries; FDDEI rewards them for keeping the business in the US and exporting from here. From 2018 to 2025 it was called FDII (“foreign-derived intangible income”). The 2025 tax law renamed it for tax years starting in 2026 and changed the formula.

The idea: work out how much of a US corporation's income comes from sales, licences or services to foreign customers for use abroad, and give it a 33.34% deduction — so it's taxed at roughly 14% (21% × 66.66%). Key 2026 changes: the old carve-out for a 10% return on tangible assets (QBAI) is gone, so more income qualifies; interest and R&D costs no longer have to be allocated against it; and gains from selling intellectual property or depreciable property no longer count. Only US C corporations can claim it — so in fund land it matters at the portfolio-company level, not to the fund or its LPs directly.

How FDDEI splits a US company's profitA US corporation earns $1,000 of eligible profit: $600 from US customers taxed at 21% and $400 from foreign customers taxed at about 14%.US C corporation$1,000 eligible profitUS customers$600 of profitForeign customers$400 of profit = FDDEI$600$400Tax rate21% on $600 = $126≈14% on $400 = $56Total $182 instead of $210 — the export slice saves $28
Same company, same profit — the share earned from abroad gets the lower rate.

Worked example

A US software company owned by a buyout fund has $1,000 of eligible profit, 40% from licences to customers outside the US. FDDEI is $400; the deduction is 33.34% of that, about $133. Tax falls from $210 (21% × $1,000) to about $182. Simplified: the real calculation runs through eligible income ratios, documentation of foreign use, and the taxable-income limit in Section 250.

Where you'll see it: Portfolio company tax provisions, Form 8993, and diligence on whether a target's export claims are documented.

Code: IRC § 250 (as amended by Pub. L. 119-21, 2025); Form 8993 · Related: NCTI (“necktie”), CFC

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This glossary is general information, simplified for learning. It is not tax, legal or investment advice, and real structures turn on facts and documents not shown here.