Definition of Foreign Sales Corporation (FSC)

tax term for a company incorporated in a foreign country that the United States qualifies as a host country. A country qualifies by entering into an exchange of information agreement of the type that allows tax benefits, such as the Caribbean Basin Initiative. Nonexempt income and certain foreign trade income, which would be taxable on a distribution, are subject to ordinary income treatment. There is a 100% dividends-received deduction for distributions from earnings attributable to foreign trade income of an FSC. There is also an 85% deductible for dividends from earnings attributable to qualified interest and carrying charges derived from a transaction resulting in foreign trade income.