Places With The Lowest and Highest Corporate Tax Rates in 2024
Governments worldwide are mandated by law to levy mandatory contributions on both individual citizens and business corporations. These contributions, otherwise known as taxes, fund public projects such as Medicare, Social Security, and infrastructural development. Tax authorities can be local, regional, or national. Tax paid by corporations is known as corporate tax.
What Is a Corporate Tax Rate?
In the United States, the federal government charges a 21% corporate tax on the taxable income recorded by all American-based corporations. A company’s taxable income is the total profits made by the business within a fiscal year- in other words, revenue minus expenses. Expenses such as overhead costs, administrative expenses, cost of goods sold, product research & development, marketing, etc.
Corporate tax rates vary from one tax jurisdiction to another. The average corporate tax rate globally is 23.37%. Most developed countries such as Britain and the USA have higher corporate deductions than developing economies such as the Cayman Islands, the Bahamas, etc. Countries with low and friendly tax rates, e.g. the Bahamas, are known as tax havens. The American government has put in place measures to ease the burden of corporate taxes on businesses by offering government subsidies.
Understanding Corporate Tax
Corporate tax rates change from time to time with changes in tax laws.
Let’s start with the USA- a corporate high tax rate country. Here, the federal corporate tax rate which is currently at 21% came into effect in 2018. This was in the aftermath of the Tax Cuts and Jobs Act (TCJA) that was signed into law by President Donald Trump in 2017. Before 2018, the corporate income tax rate was 35%.
American businesses have corporate tax years. When the tax year ends, they wait for four months and then file corporate tax returns by the 15th day of the fourth month. This period can be extended to 6 months upon filing for an extension request. Businesses can sometimes make installment corporate tax payments. This happens in the middle of April, June, September, and December.
Let’s now look at Hong Kong, a low corporate tax haven. This city ranks among the world’s simplest and most business-friendly tax regimes. Hong Kong’s tax regime doesn’t impose a tax on all profits as is the case in the USA. Hong Kong’s taxation falls into the territorial system. The taxman here considers the source of the profit before making deductions. Only the profits arising from the operations happening inside Hong Kong are deemed taxable. In simpler terms, corporations established in Hong Kong don’t pay a dime in taxes for the profits they make from doing business outside of Hong Kong.
Jurisdictions With the Lowest Corporate Tax Rate
- Hong kong
Hong Kong’s corporate taxes range between 0% to 16.5%. Onshore businesses that make profits within the territory of Hong Kong pay a corporate tax of 16.5% for profits above HKD 2 million. Profits under HKD 2 million aren’t taxed. Offshore businesses as well as onshore businesses with operations overseas pay 0% tax on offshore profits. However, businesses that utilize their operations in Hong Kong to make profits abroad have to pay corporate taxes. A good example of such businesses is manufacturing firms that produce goods in Hong Kong but sell them internationally.
Considering the ease of company registration in HK and the friendly tax regime, it’s no surprise that many businesses choose Hong Kong as their gateway to the Asian market. Hong Kong is friendly for both onshore and offshore. Government schemes and incentives make Hong Kong even more attractive for international business. Moreover, the ease of access to talent in Hong Kong stamps the city’s status as a business hub in Asia.
- Singapore
One of Asia’s fastest-growing economies, Singapore is also known for its friendly tax regime. The current corporate tax rates in the country range between 4% to 17%, with a handful of tax exemptions. One of the notable exemptions is on income below SGD 200,000. i.e. 75% of the first SGD 10,000 of chargeable income and 50% of the other SGD 190,000. The tax on capital gains is 0%. The government also offers attractive incentives to ease the burden of corporate tax. The Development and Expansion Incentive, for instance, gives exemptional tax rates for startup businesses for up to 15 years. The local tax regime has also put in place measures to shield corporations- and individuals- from double taxation.
- Switzerland
Businesses in Switzerland pay a total corporate tax of between 11%-21%. The federal corporate tax rate is 8.5%. Other taxes are cantonal or communal, which are similar to the taxes charged by individual states in the USA. Corporations can also apply for exemptions and reductions as per Switzerland’s double taxation treaties.
- Hungary
Hungary ranks 4th on our list with a corporate tax rate of 9%. This country has one of the EU’s lowest corporate tax rates. Unlike in Hong Kong, Hungarian-based businesses pay corporate taxes for profits made both within the country and from overseas. Foreign companies that utilize the Hungarian market to make profits are not exempted from tax. In a nutshell, all businesses, both resident and non-resident, pay a flat rate of 9% corporate tax.
- United Arab Emirates
United Arab Emirates (UAE) has the lowest corporate tax rates among the Middle East economic powerhouses. Corporates here pay a corporate tax of between 0% and 9% for all profits exceeding AED 375,000. Businesses also pay a 9% capital gains tax.
- British Virgin Islands
British Virgin Islands is a tax haven for foreign businesses. The territory imposes zero corporate tax, capital gain, and withholding tax on both onshore and offshore businesses. All a company has to do is pay annual license fees and a payroll tax of 10% -14% and they are good to go. The British territory does this in full compliance with international tax cooperation standards.
- Bahamas
Last on our list is the Bahamas, where corporate tax is below 0.25%. Revenues below 1 million USD attract an annual corporate tax of $2,500 while revenues above $1 million attract a tax of $100,000. However, even with such an attractive tax regime, the Bahamas had its reputation damaged by its association with illegal financial activities. Money launderers and tax evaders have in the past used the Bahamas as a haven for their unscrupulous business dealings. It’s for this reason that the country ranks this low on our list.
Other Considerations
When choosing a country to invest in, the friendliness of the country’s tax regime has to be a consideration. But you should consider more than just taxation. The ease of doing business in a high-tax country can make it more favorable than in a low-income country with a harsh business environment. Here are some other considerations you ought to make alongside a country’s corporate tax rates:
- Infrastructural development- ports, road networks, etc.
- Ease of market access- the level of bureaucracy in company registration.
- Economic and political stability.
- Availability of talents and other professional services.
- Financial reputation.
- Availability of international/reliable banking facilities.
Conclusion
A friendly tax regime is one of the many attractive features of any market as it enables corporates to optimize their profits. Corporate tax rates vary significantly from country to country and from state to state. From as high as 21% in the USA to less than 0.25% in the Bahamas. However high or low tax rates are in a country, it’s important to note that compliance is king. Paying your corporate taxes in a timely fashion will save your business from unnecessary penalties and lawsuits.
