Which Country Has The Highest Corporate Tax Rate

PUBLICATIONS / Newsletters / 2015 / Newsletter September

Which Country Has The Highest Corporate Tax Rate?

Much has been said lately about multinational corporations not paying enough corporate taxes.
But nobody ever asks: how much do they actually have to pay in the countries they are located?
That is what we are going to find out today (and there is a surprising answer).
 
An overview of the amount of national corporate taxes per country can be found in the report “Corporate Tax Rates 2015” by Deloitte [can be found here].
The first thing that you can observe is that there is a huge difference in the corporate tax rates that countries charge. It goes from 0% to 35%.
 

Highest National Corporate Tax Rates In The World

There are a number of countries that have the same highest corporate tax rate of 35%:
Zambia, Argentina, Chad, Congo (Dem. Rep.), Equatorial Guinea, Guinea, and The United States of America .
Seeing something interesting? “Free market economy” US is right on top of there in the highest bracket. Even slightly above “socialist” Venezuela (34%).
 

Lowest National Corporate Tax Rates In The World

There is a similar bracket of “low” countries as well.
In fact, all these countries have a zero percent tax rate:
Anguilla, Bahamas, Cayman Islands, BVI, Bahrain, Bermuda, Isle of Man, Nauru, Palau, Turks & Caicos, Vanuatu and the UAE.
 
What do we notice?
The only country with zero percent taxes that is not a small island but in fact a well developed economy is the United Arab Emirates.
But let’s look at the effect of these policies.
 

The Effect Of High Corporate Taxes In The US

Companies in the US are blessed with some of the highest corporate taxes in the world.
And if you thought that 35% is not enough? In addition, all but five States also have a corporate tax rate of up to 12%, giving the US an average corporate tax rate of 39.1% when including state taxes [number from this OECD Report].
And that is not all, the US has a two-tier corporate tax system, meaning that the shareholders usually pay 15-20% income tax when they receive dividends from the company. Single tier corporation tax systems are very uncommon (Cyprus is one of the few countries which has one for non-domiciliaries, as we explained in Revolutionary Tax Reform Cyprus). But it is the fact that the US has a two-tier system in combination with the highest corporation tax rates in the world that results in an enormous corporate tax burden.
It must be said that businesses rarely ever pay the statutory corporate income tax rate, due to a wide variety of tax exemptions, preferences, and deductions.
But according to the OECD the US is still the number four of highest effective tax rates in the world [according to the graph on this site].
This also explains the whining of the US of “unfair tax competition”. Compared to the highest rate in the world, everything else easily appears unfair.
 
So what are the effects of these high corporate tax rates?
There are a number of them:
  • Moving of head quarters. A number of companies have simply moved away from the US. The way they do it while avoiding the taxes is merging with similar sized companies abroad. When politicians discovered that this loophole existed, those companies where called “unpatriotic”.
    Of course, the main purpose of a company is to look after the interest of its shareholders. It’s purpose is NOT doing what someone else considers patriotic or “creating jobs” or anything like that.
  • Capital flight. A lot of US companies keep their capital out of the US in order to prevent having to pay these excessive taxes. About 2 trillion (according to CNN) is stored in subsidiary companies in other countries. This capital would otherwise have been invested inside the US economy.
  • Reduced investment inside the US. In economics in one lesson Henry Hazlitt explains the concept of “what is not seen”. A government might put up a tax burden that prevents an individual person to start a business. But it is very difficult to measure what did not happen. All we can proof is that we have had actual entrepreneurs that spoke about staying away from the US simply because of the tax burden. There will be a lot of others.
  • Price of goods. Companies need to make a profit. And in the end, the consumers pay the bill for all these increased costs.
Although one cannot quantify what can not be seen, it is clear that the US experiences a negative influence on the economy because of their high taxes.
How is the US able to get away with this? Partly because it offers the biggest market and spans a large geographical area. As a result it is a big hurdle to move to a place with a more attractive tax regime.
For the same reason the Eurocrats are eager to have one uniform corporate tax rate in the EU. They will be able to charge much more than now, where countries are able to compete with each other with their corporate tax rate. It is only waiting for one the next manufactured euro-crises until this becomes a reality.
 

What About The Countries With A Low Corporate Tax Rate?

We saw that there are a number of countries that have zero percent corporate taxes.
Why don’t they also just charge 35% if the US can get away with it?
The governments of these countries have figured that when you are friendly to capital, it will flock to your shores. They use their low tax rates to in fact “compete” for capital.
 
As mentioned, the UAE does not impose any corporate taxes.
Let us make a quick comparison between how the UAE performs in some of the areas that the US is lacking.
  • Is there a capital outflow? No. The capital inflow is unprecedented. Capital is not taxed and secured by a solid financial sector. So this problem is non-existent.
  • Moving away of companies. Dubai is a very important destination for (regional) head-quarters and small businesses alike. The amount of businesses here is steadily growing every year. So no problems there either.
  • A lot of the capital in Dubai is reinvested in new developments and the local economy. So another problem that is non-existent.
Now, there might be other reasons why people come to places like this. But taxation is a, if not the, major reason. We have heard this from hundreds of clients.
 

Worldwide Corporate Tax Rates – Conclusions

There is a huge difference in national corporate tax rates in different countries around the world.
The US has one of the highest corporate tax rates in the world. This is causing harm to the economy because it reduces capital inflow.
At the same time there are countries that have 0% corporate tax. These countries don’t suffer from the economic problems that are caused by high taxes. Because capital is actually flowing in.
 
 
You might also be interested in this:
 
Territorial Income Tax – How To Eliminate Income Taxes As An Individual.
 
Did you know that a lot of tennis players also avoid taxes? Read Where Do Tennis Players Pay Taxes.
 
Six Things You Have To Understand Before Setting Up A Business In Dubai.

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