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Available Incentives for Exporting and Selling to China

By Eunice Ku, Dezan Shira & Associates
Posted: 11th November 2013 14:25
Many countries have specialized agencies and schemes that provide assistance and incentives for exporting locally manufactured products and that help mitigate the risks inherent in exporting, e.g., buyers’ default of payment. We summarize some of them below.

United States

The U.S. Export Assistance Centers (USEACs), in conjunction with the Small Business Administration (SBA) and the U.S. Export Import Bank, support U.S. exporters in determining export finance options and insurance strategies. In terms of tax savings, export companies can apply to qualify as an Interest Charge Domestic International Sales Corporation (IC-DISC). An IC-DISC allows taxpayers to channel a portion of their export income (attributable to the first US$10,000,000 of gross export receipts) into a DISC by paying a “commission” to the DISC. The tax on the portion of the taxpayer’s income sheltered by the commission is deferred indefinitely, subject to a low interest charge. Taxpayers are permitted to deduct the commission paid to the IC-DISC against their ordinary income, which is taxed at up to 35 percent.
Any earnings of an IC-DISC in excess of those attributable to the first US$10,000,000 of gross receipts are deemed to be distributed by the IC-DISC in the year that they are earned and are characterized as dividends, which are taxed at 15-20 percent. To qualify as an IC-DISC, a domestic corporation must pass two main tests – the qualified export receipts test which requires that 95 percent of the gross receipts of the IC-DISC constitute qualified export receipts, and the qualified export assets test which requires that 95 percent of the assets of the IC-DISC be qualified export assets.
United Kingdom

The UK Export Finance (UKEF) is UK’s official export credit agency that plays an important role in helping boost Britain’s exports. It provides guarantees to banks that offer loans to overseas buyers for purchasing UK exports. This means that it takes on the risk of the loan from the bank so that the bank is more likely to offer it. It also provides insurance to UK exporters against non-payment by overseas buyers. UKEF also assists exporters overcome bonding and working capital constraints.
In 2012-13, UKEF provided £4.3 billion worth of support to British businesses, up from £2.3 billion in the previous year, reaching the highest in 12 years. This helped 66 exporters including 49 small and medium-sized businesses (SMEs) win contracts worth over £500 million. Recently, UKEF developed a £1.5 billion Direct Lending Scheme, which will provide overseas buyers loans of between £5 million and £50 million to finance the purchase of capital goods or services from UK exporters. Loans can be made in sterling, US dollars, euro or Japanese Yen.
UK Trade & Investment (UKTI) also offers services to businesses looking to export from the UK, including financial subsidies, export documentation, export training and market research.

Ubifrance, the French Agency for International Business Development, is in charge of promoting exports of all goods and services. SMEs can receive loans of up to €80,000 for developing export business from Oséo, the French agency for innovation whose mission is to promote innovation and growth of SMEs. Oséo provides guarantees and financing for SMEs in France with activities dedicated to exports as well as those that are prospecting foreign markets. It also provides export pre-financing to SMEs in France exporting capital goods or services, as well as loans for export. Oséo may also co-finance investments alongside banks.
Oséo often works with Coface Group, a globally operating credit insurer that acts as France’s Export Credit Agency. Coface manages guarantees for exports by French corporations and offers them solutions to protect them against the risk of financial default of their clients. Guarantees from Oséo generally complement those from Coface.

SACE is Italy’s export credit and project finance agency. SACE provides a wide range of insurance and financial products and services, including insurance against non-payment risk for Italian enterprises that export goods and supply services. SACE also guarantees loans granted by the bank to foreign buyers and to Italian companies.

In Germany, the Euler Hermes Deutschland AG and PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft manage the official export credit guarantee scheme on behalf of the Federal Government. These guarantees are widely known as “Hermes Cover” since Euler Hermes acts as leading partner in this consortium. Hermes Cover is an instrument for managing risks involved in export business (e.g., insolvency, unwillingness to pay, confiscation of goods) and it protects companies against bad debt losses. The application for an export guarantee should be made wherever possible before the export contract has been finally concluded.

Australia’s Export Market Development Grants (EMDG) scheme is a key government financial assistance program for exporters and encourages small and medium-sized Australian businesses to develop export markets. The EMDG scheme reimburses up to 50% of eligible export promotion expenses above A$10,000, as well as provides up to seven grants to each eligible applicant. Businesses should have an income of not more than A$50 million in the grant year. To access the scheme for the first time, businesses need to have incurred at least A$20,000 over two years on eligible export expenses. First-time applicants are required to satisfy grant entry requirements, which include providing financial statements and some information that explains your business and your product or service.
New Zealand

The New Zealand Export Credit Office (NZECO), New Zealand’s official export credit agency, sells a range of government-backed trade credit insurances and financial guarantees. This allows exporters and their international buyers to gain access to credit, thus facilitating export sales.

The Irish Exporters Association (IEA) assists Irish companies to maximise their export sales. It has developed a full range of services tailored to each business’ specific needs, both SMEs and MNCs. For SMEs, for example, IEA offers new members meeting to assist in developing export strategy and funded programs to assist with new export market entry strategies. Enterprise Ireland also provides various export assistance as it supports companies focused on growth through international sales. It has an online market research center that provides market and sectoral information in various countries. It also holds trade events and missions and offers various training programs.
This article was first published on China Briefing.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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