In 2011, five years into an economic slump in Puerto Rico, designers Ricardo Álvarez-Díaz, AIA, and Cristina Villalón thought seriously about packing up their San Juan–based firm, Álvarez-Díaz & Villalón, and moving to Miami. But then, in 2012, Puerto Rico passed Act 20, which lowers the corporate income tax rate to 4 percent for local companies that export services. Suddenly, Álvarez-Díaz says, it made much more sense to stay.
Álvarez-Díaz & Villalón then started getting commissions in Latin America and the Caribbean. Those led to commissions further afield—in the Middle East. Its overseas work began to increase, as did its local projects. Now, about 25 percent of the firm's work is outside of Puerto Rico, but that work accounts for more than 50 percent of its invoices.
"As soon as you start getting work someplace else, people that may have known you for years will look at you again like, ‘Whoa, these guys, apparently they're great for some reason because someone else is hiring them. We should take a look at them again,' " Álvarez-Díaz says. "Automatically it gives you credibility locally."
In the U.S., architecture firms can establish an interest–charge domestic international sales corporation (IC-DISC), a separate corporate entity that allows a company to filter profits from exports, converting taxable income into long-term capital gains that get redistributed in the form of dividends taxed at a lower rate.
"[Y]ou're basically getting a dividend treatment on the tax of what would otherwise be ordinary income," says Dean Zerbe, a Washington, D.C.–based national managing director of the tax services provider Alliantgroup. An IC-DISC benefits business owners by allowing overseas profits to be taxed at dividend gains rates of 23.8 percent rather than individual rates that can be as high as 39.6 percent, resulting in tax savings of roughly 15 percent.
For architecture firms doing work overseas, "it's really a no-brainer," Zerbe says. "It's shocking how many [firms] don't know about it. Probably 80 percent of the companies that are eligible aren't taking advantage of it."
Kansas City, Mo.–based Jünk Architects recently formed a IC-DISC for its growing practice in designing radiology facilities abroad. So far, the firm has only used IC-DISC tax savings on a few relatively small billings, but Jünk Architects founding principal Robert Junk, AIA, expects to see significant savings on projects in the pipeline. The IC-DISC savings “make it more palatable to be going after some of these bigger projects that we’re looking at” in foreign markets, Junk says.
Jünk Architects has benefited from other programs at the state and federal levels that helped pave its way into foreign markets. Through the Missouri Department of Economic Development's Global Market Access Program, Junk was able to claim partial reimbursements for the costs of attending a major trade fair in Dubai that put his firm in contact with key players in the booming medical facilities industry in Saudi Arabia. State Trade and Export Promotion grants available through the U.S. Small Business Administration also helped defray costs like travel, booth registration, and translation of marketing materials. "[These] things help because obviously you want to make the most of the cash you have," Junk says. "When it comes to international work, getting there and making those initial contacts [are] the hardest step[s] in the process."
Though venturing into foreign markets can seem precarious, these programs and incentives are helping architecture firms to reduce the risk of looking beyond their own country's borders.