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A foreign sales corporation was a US export tax device, and it no longer exists. The IRS says no corporation could elect to be one after 30 September 2000, so nobody can set one up today, in Canada or anywhere else.
What was a foreign sales corporation?
It was a special corporation that US exporters used to cut the tax on part of their export income. The rules sat in sections 921 to 927 of the US Internal Revenue Code, and Congress repealed them in the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, signed on 15 November 2000. Wikipedia’s article on foreign sales corporations gives the same short history.
Companies already using the structure got a transition. The IRS says existing corporations could keep applying the old rules to transactions entered into before 1 January 2002.
Picture a small manufacturer in Windsor reading an old US business book that praises FSCs. The advice was fine in 1995. Today it’s a museum piece, and any site still selling “set up your FSC today” is out of date, so be wary of it. Nothing here is a review of any firm’s offer.
What replaced it, and what came next?
The replacement was the extraterritorial income exclusion, which applied to transactions after 30 September 2000, and it didn’t last long either.
The IRS says the American Jobs Creation Act of 2004 then repealed that exclusion for transactions after 2004, with phase-down rules. Taxpayers could claim 80% of the exclusion for 2005 and 60% for 2006.
A different US vehicle, the interest charge domestic international sales corporation, is still in the IRS materials we read. It needs at least 95% of receipts to be qualified export receipts and at least 95% of assets to be qualified export assets. It defers tax rather than removes it, and interest is due when the income is finally distributed. If you’re a US taxpayer, that’s a matter for a US adviser.
| Date | What happened |
|---|---|
| 30 September 2000 | Last day to elect FSC status |
| 15 November 2000 | Repeal Act signed |
| 1 January 2002 | Transition for old FSC transactions ends |
| 2004 to 2006 | Exclusion phased out |
What does a Canadian exporter get instead?
No special export rate, as far as the CRA pages we read show. A Canadian-controlled private corporation pays the ordinary rates: 9% federal on the first $500,000 of active business profit, 15% above that, plus a provincial rate. The CRA’s corporation tax rates page lists both federal rates.
Take $300,000 of profit in Ontario. The corporate tax calculator shows $35,088 of tax for a calendar 2026 year, $27,000 federal and $8,088 Ontario, whether the customers are in Toronto or Tokyo. Ontario cut its small business rate on 1 July 2026, so that is a blended rate.
Where does the export relief sit in Canada?
In sales tax. The CRA says most goods and services that carry GST/HST in Canada are zero-rated when exported, meaning taxed at 0%. A registrant may then claim input tax credits on what it paid to make those sales.
Here’s a simple case with made-up round numbers. A registrant in Alberta buys $40,000 of materials and pays 5% GST, which is $2,000. It sells the finished goods to a buyer in Detroit for $90,000 and charges no GST at all. The $2,000 paid on materials can come back as an input tax credit, so the export sale costs the business nothing in GST. Use the GST/HST calculator for domestic sales, and don’t apply it to exports without checking the paperwork you need to keep as proof of export.
What if you own a company abroad?
Different question. The CRA defines a foreign affiliate as a non-resident corporation where you hold at least 1% of the shares and, with related persons, 10% or more. Canadians with such interests may have to file Form T1134, and the CRA’s form page sets out the conditions.
Profits paid up to you also count, and if a foreign company pays you a dividend that you must report in Canada, the dividend tax calculator shows the Canadian side, though it doesn’t model foreign tax credits or the affiliate rules. On $100,000 of non-eligible dividends with no other income in Ontario, it shows $12,201 of extra tax.
Can a Canadian company still use an FSC?
No. The structure was a creature of US law, and the US ended it. A Canadian company with a US subsidiary may still deal with US export rules, but that’s a cross-border question for a professional in both countries.
Mistakes and limits
Don’t copy a US structure into a Canadian plan. It won’t get the same treatment here, and the CRA pages we read don’t describe any equivalent. Would you trust a tax plan built on a repealed law?
Check dates.
The corporate calculator has boxes for associated companies sharing the limit and for passive income, but it ignores large taxable capital. We also couldn’t confirm the current status of every US export incentive after 2006, so check the IRS before relying on any.
Our sources
US dates and rules come from IRS materials, including the manual section on ETI, IC-DISCs and FSCs. Canadian rates, the export rule and the foreign affiliate test come from CRA pages, with tax figures from our calculators using 2026 data rechecked on 29 September 2026. This site has no connection with the CRA, the IRS or any other government body.
Frequently asked questions
Can you still form a foreign sales corporation?
No. The IRS says no corporation could elect FSC status after 30 September 2000.
What replaced the foreign sales corporation?
The extraterritorial income exclusion for transactions after 30 September 2000. The IRS says a 2004 law then repealed it for transactions after 2004, with phase-down rules.
Does Canada have a foreign sales corporation?
The CRA pages we read describe no such regime. A Canadian-controlled private corporation pays 9% federal tax on its first $500,000 of active business profit.
Are exports taxed for GST/HST?
The CRA says most goods and services that carry GST/HST are zero-rated when exported, so the rate is 0%.
What is a foreign affiliate?
A non-resident corporation where you hold at least 1% of the shares and, with related persons, 10% or more. Form T1134 may then apply.
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