Corporate Tax

Corporate tax is also sometimes known as corporation tax. Corporate tax is that type of a tax, which is imposed by different authorities on the profits or gains received by institutions or companies. In terms of common rules and regulations, corporate tax differs to a considerable extent from one area to another.
To be specific, the capital expenditure leeways or adjustments and the amount paid as interest, which is deductible from the gross profits at the time of the calculation of tax liability, change to a significant extent. In addition, the corporate tax rates can also differ according to the circumstances where distribution of profit may or may not be carried out to the shareholders. Re-investment of profits is not taxable.

In simple terms, a company has to pay income tax calculated according to the rules and regulations of the Income Tax Act. However, the profit and loss account of a company is designed in accordance with the Companies Act. In the United Kingdom, the principal corporate tax is termed as corporation tax.
In this case, depreciation on a large number of capital assets (barring financial leases and specific nonphysical properties) is not deductible in the calculation of taxable gains. Rather, a claim can be made for capital adjustments (commonly at 25% per year on a diminishing balance method).
Nevertheless, depreciation is deductible in France in specific rates per categories of properties as delineated by the tax laws.

According to the imputation tax system, a portion or the entire amount of the tax, which the company has paid out can be assigned to the stockholders on a pro rata basis with the help of a tax credit for decreasing the amount of income tax that should be paid on distribution. Over a number of years (1973-1999), the United Kingdom maneuvered the imputation system (partial) and under this system, the stockholders had the opportunity for claiming a tax credit by manifesting ACT or Advance Corporation Tax that a company pays at the time of a distribution. A company has the option of setting off Advance Corporation Tax with the yearly corporation tax liability of the organization.

On the other hand, in some territories, distributions in the form of dividends or others are entirely or in part relieved from tax, such as particular countries like Germany and Austria. These countries regulate a double income infrastructure for distributions where 50% of the distribution is taxable or similarly, the rate of tax is divided. In the Netherlands, a participation exemption scheme is functional and according to this, specific distributions are relieved from tax. Dividends that are subject to tax for qualified stockholders can be eligible for a dividend tax credit to counterbalance for taxes that have been previously paid by the company.

In the U.S., the federal rate of corporate tax is 35%. However, after 1999 when the ‘check the box’ arrangement was declared by the United States Department of Treasury, a number of companies have the option to be considered as a transit organization and because of that they are able to omit the 35% entity level tax and the entire income can be passed over to the shareholders. This type of tax handling is availed by the S corporations in the United States. However, a large number of corporations are also able to avert double taxation with the help of “checking the box” arrangement. Dividends are taxable at a lesser income tax rate in the U.S.

Among the highest developed economies in the world (including the Organization for Economic Co-operations and Development or OECD), the federal corporate tax rate of the United States ranks as the second highest rate after Japan. The average is 30%.

The corporate tax rates are remarkably low for the companies that are headquartered in the following countries:


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Last Updated on : 27th June 2013

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