What is FDDEI (formerly FDII) on Form 8993 for tax year 2026?

For tax years beginning in 2026, FDII is renamed foreign-derived deduction eligible income (FDDEI), and GILTI is renamed net CFC tested income (NCTI). The section 250 deduction remains a domestic C-corporation deduction, but current-year forms and calculations must use the 2026 terminology and percentages rather than prior-year labels.

The former FDII framework used a deemed 10% return on qualified business asset investment (QBAI). That QBAI exclusion is repealed for tax-year 2026. Do not continue a legacy FDII worksheet by simply changing a percentage; use the current-year Form 8993 instructions to determine the FDDEI and section 250 calculation.

For your software services, the income qualifies as FDDEI if the services are provided to a person located outside the U.S. (a foreign person) or with respect to property located outside the U.S. The IRS has issued detailed regulations defining what constitutes a service provided to a foreign person versus a U.S. person, including specific rules for electronically supplied services. Documentation requirements include: evidence that the recipient is a foreign person, the location where the service benefit is received, and that the transaction was for a foreign use. For business-to-business services, the analysis focuses on the location of the recipient.

The 2026 draft Form 8993 reflects the FDDEI and NCTI terminology. It computes the section 250 deduction and is attached to Form 1120 when the taxpayer qualifies. Only domestic C corporations can claim this deduction; it is not a pass-through deduction for partnerships, S corporations, or ordinary individuals.

The section 250 deduction is still limited by taxable income. For tax-year 2026, the FDDEI deduction percentage is 33.34% and the NCTI deduction percentage is 40%. The former scheduled 21.875% FDII and 37.5% GILTI figures are not the 2026 rule.