Corporation tax is the amount companies and other commercial organizations pay in tax on their profits after deductions, and rates varying around the world. After a period of being one of the highest collectors of corporation tax in the world, the US has become one of the lowest in more recent years.
Other nations’ corporation tax rates often reflect the need for funds to pay for projects. For example, in South American countries such as Chile, recent hikes in corporation tax are designed to pay for social projects while other nations such as Norway has reduced the tax to encourage foreign investment.
Rates and circumstances for nations
Along with reporting the wages and payments made to employees using W-2 and other paperwork, companies have to carefully calculate their corporate tax bill once allowable expenses have been deducted.
The rate they pay which, as said above, varies worldwide and can change significantly through further deductions.
For example, some countries will reduce the corporation tax bill for certain industries by providing tax relief on research and development in areas of fast growth.
Balancing foreign investment with funding a nation’s needs
In general terms, countries will vary their corporation rates depending on the most pressing needs. If their economy is generally sound and they’re hoping to attract foreign investment, then corporation tax rates will be lower.
For example, countries such as Iceland slashed their corporation tax rates by a mammoth 40 per cent in the early 2000s, leaving companies paying a lowly 20 per cent and making the country an appealing place to do business in.
In the UK, corporation tax is predicted to reduce further from its already-low 19 per cent: the government claim this has and will continue to boost foreign investment and jobs, especially important as the country leaves the European Union.
The UAE (United Arab Emirates) now has the highest corporation taxation in the world at a huge 55 per cent – although this should be tempered by the fact some newer industries, such as tech, attract lower rates. The UAE is successfully transitioning from a reliance on oil for its wealth to other industries, including tech and aviation.
New Zealand charges 29 per cent corporation tax – which makes up 15 per cent of its overall tax revenue – and is focusing on ensuring multinationals who avoid tax run out of options. For example, Apple has paid no tax in New Zealand for well over ten years as its operations in the country are run by an Australian offshoot.
Hitting the low paying multinationals
Along with Apple, certain big name multinationals are careful where they locate foreign centers, regional HQs and offices and are often able to avoid paying tax in higher rate countries. The low taxes paid by the likes of Amazon, Apple and Google are well-documented, but things could change.
The OECD (The Organization for Economic Co-operation and Development) is planning a ‘safety net’ to ensure multinationals pay a minimum level of corporation tax regardless of other nations offering them low taxation rates.
Corporation tax at historical low
In 1980, corporation tax averaged just over 40 per cent worldwide, compared to the 2019 average of just over 24 per cent. So, in general, countries realize the effect high business taxation has on investing.
In reducing its tax burden on native companies, the US has fallen from amongst the highest in the world to more ‘middle of the road’. In general terms, European countries have lower rates while developing countries are higher as they seek the revenues to fund infrastructure improvements.
Overall most corporate taxation rates are below 30 per cent.