The corporate tax rate is one of the top criteria for continuing businesses, new start-up companies, and investors who are choosing the jurisdiction for their businesses. Indeed, a high corporate tax could be disadvantageous for foreign direct investments. Among different opinions from various industries, some experts argue that the corporate tax is more important than other factors related to the business environment or the macroeconomic conditions.
What are the common corporate tax rates?
The value of the corporate income tax varies across the world with an average value of 19.71 percent in Europe, an average of 21.40 percent in Asia and a global average of 24.26 percent. The countries with no corporate tax are Bahamas, Bermuda, Cayman Islands, Guernsey (with some exceptions), Isle of Man or Vanuatu. Montenegro has a 9 percent corporate income tax while its rate in Paraguay and Qatar is 10 percent, which is not applicable to oil and gas companies. Serbia has a 15 percent corporate income tax, Romania has a 16 percent tax for companies, and Hong Kong has a 16.5 percent corporate income tax rate. Singapore and Taiwan have a 17 percent corporate income tax.
The countries with the highest corporate income tax rates are Argentina with 35 percent, Brazil and Colombia with 34 percent, Belgium with 33.99 percent and Germany with 33 percent or 30 percent in some cases.
Going back to the point that investors are looking for favourable conditions, there are some jurisdictions that imposed a low corporate income tax rate while others have a medium-value rate and other appealing tax incentives for doing business.
For instance, Hong Kong is among the Asian jurisdictions with the most appealing taxation regime. The corporate income tax rate in Hong Kong is 16.5 percent, and a lower 15 percent rate applies to unincorporated businesses. There is no withholding tax on dividend distribution or interest payments. Hong Kong does not impose a payroll tax or capital duty. Because of the overall low taxation regime, there are no special incentives for investments; however, certain tax deductions can apply.
Hong Kong is located in China, but the two jurisdictions are largely different in terms of taxation and the business environment. The corporate income tax rate in China is 25 percent, and the country has a large number of foreign investments, such as projects that encourage the use of new or advanced technology or those that are related to agricultural technology as well as many others. The projects in these categories benefit from preferential tax treatment.
Alternative competitive jurisdiction is Dubai that is an interesting destination for investments in the United Arab Emirates that does not impose a tax on company income, except for two fields: those related to gas exploration and production and branches of foreign companies. There are no withholding taxes, capital duty, and stamp duty or payroll tax in the UAE. There is an import duty tax of 5 percent except for particular products. From January 2018, there will be 5 percent VAT.
In the EU there are two places with favourable tax regimes: Cyprus and the Netherlands.
The most favourable tax regime in the EU is Cyprus with 12.5 percent corporate tax that is the lowest in the EU together with Ireland. With additional benefits of becoming a tax resident, IP regime, new rules on start-up visa schemes, Cyprus has become a top place for investors’ choice in Europe.
The Netherlands is an alternative location for investments in Europe because of its foreign-oriented business regime. The Dutch corporate income tax rate ranges from 20 percent on the first 200,000 EUR of taxable profits to 25 percent on the taxable profits exceeding that amount.