Research has uncovered the widening gap between the amount of taxes that are taken from businesses in different countries, and the tax burden placed on business profits can be up to 3 times more in some countries. This serves only to highlight the disparities between ‘low tax’ emerging economies, and most ‘high tax’ developed nations.
Pre-tax statutory profit:
A business that has a high profit margin is often one defined by how much pre-tax statutory profit it makes, and the definition usually includes a profit of US$100 million per year. The difference in the amount of tax collected between the highest taxing country that was surveyed, and the lowest taxing one – Japan an Ireland respectively – is US$29.5 million, meaning that the same business in Japan would be forced to pay more than 3 times the amount in taxes as an equivalent business in Ireland.
Reducing corporate tax rates:
Many tax professionals claim that some countries have been lowering their corporate tax ratesto try and make them more competitive and attractive to businesses that are mobile and multinational. With such differing tax rates, it’s clear that some countries need to work harder to make themselves more competitive and compelling to other businesses that are more mobile, and which do not have the geographical restraints of old.
No corporate tax?
Dubai in the UAE holds an economy that is a rapidly growing one, and which doesn’t charge any corporate taxes, neither does Estonia.
G8 countries corporate taxes:
This may come as a surprise to many, but tax professionals recently discovered that among the G8 countries, both Japan and the USA impose higher corporate taxes on some businesses than other countries in the European Union, such as France and Germany. These countries are typically seen as being high tax economies, and most G8 countries now demand a flat rate of tax irrespective of the profit that may or may not have been generated.
Progressive tax models are favoured by most countries in the G8 – except for Germany, Italy and Russia – where the tax rate in effect, increases as the profit does. This does enable them to give much needed assistance to smaller companies that are struggling to expand, but it makes their tax systems a lot more complicated.
Deterring business with high corporate taxes:
Economic growth can easily be stunted by businesses that have been deterred by high corporate taxes, and over the past 10 years, many countries in the EU have dramatically reduced their corporate taxes, acts which have left some nations with surprisingly high taxes when compared to theirs, such as Brazil and India.
Switching tax domicile:
Nowadays it’s quite straightforward for companies to switch tax domicile, leaving governments in a tricky position over their efforts to increase tax revenues to bolster public finances. Trying to solve this problem has seen some countries choosing to increase personal taxes while lowering corporate ones, however, once a large economy does this, it inadvertently applies pressure to other countries to do the same, in their desire to remain competitive.
Corporate taxes can be complicated, but if you see the help of a professional tax service, they will guide you through the entire process and advise you should you be looking to set up a business overseas.