Corporate tax

From ArticleWorld


Corporate tax is what companies must pay on their profits, much like individuals pay taxes on earnings. Rates of corporate taxation vary wildly depending on the taxation regime within a given jurisdiction, and companies often register offshore or outside their main country of business to take advantage of these differences.

Factors affecting tax rates

There are some major factors that determine how corporate-friendly a tax environment is. For instance, companies sometimes get tax breaks for sharing profits with shareholders. At other times, the company is taxed on its gains regardless, and then the shareholders must again pay income tax on the part of profits paid out to them by the company, an example of double taxation. There are many variations on this classic tax rule, including partial taxation on shareholder earnings and advance corporation tax. There are other, more substantial ways to reduce tax liability could come from being allowed to reinvest profits – ploughing earnings back into the company reduces the tax burden – or count depreciation of assets

Offshore options

Due to the complexity of taxation regimes in most countries, and the often high corporate tax rates required to subsidize social security, companies sometimes opt to register in places known as offshore 'havens'. These tax havens are often islands, places with small population, and no real industry besides banking. Companies then open branches, local offices, or fully-owned subsidiaries in their main country of business where they can now get tax breaks.