Everything you want to know about world taxation but were afraid to ask.
The corporation is a common and established type of business entity that is available in many countries around the world. Most governments treat corporate entities as a distinct, separate identity from its owners. Other common business entities, like limited liability companies and partnerships, are usually associated directly with their owners for taxation purposes. Corporations are held to a higher degree of public accountability and they must meet various structural and management requirements.
Taxation on corporate profits is a primary source of federal income for many developed and developing countries, although there is significant variation in the type and amount of corporate taxation. “Industrial countries raise about four times as much from personal income tax than from corporate income tax,” according to an International Monetary Fund publication.
OECD Member Corporate Tax Rates
The Organization for Economic Cooperation and Development (OECD) is an international organization made up of over 30 developed countries. The OECD evaluates and compares economic data from national economies to develop global economic solutions and improve tax policies. The following table compares the corporate tax rates of OECD member countries to their United Nations Human Development Index (HDI) rating.
The HDI is a composite evaluation of a population’s well-being and development. This index is calculated based on three primary categories: health, education and standard of living. Health score is measured by calculating the average life expectancy of a country’s citizens when they are born. Education score is based on two statistics: the average amount of schooling the public receives and the amount they are expected to receive. Living standard score is measured by comparing national income to total population. HDI rating is a comparative tool that provides a simple way to compare the quality of life of different countries and economies.
| Country | Corporate Tax | HDI Rating |
|---|---|---|
| Australia | 30 | 0.929 |
| Austria | 25 | 0.885 |
| Belgium | 34 | 0.886 |
| Canada | 16.5 | 0.908 |
| Chile | 20 | 0.805 |
| Czech Republic | 19 | 0.865 |
| Denmark | 25 | 0.895 |
| Estonia | 21 | 0.835 |
| Finland | 26 | 0.882 |
| France | 34.4 | 0.884 |
| Germany | 15.8 | 0.905 |
| Greece | 20 | 0.861 |
| Hungary | 19 | 0.816 |
| Iceland | 20 | 0.898 |
| Ireland | 12.5 | 0.908 |
| Israel | 24 | 0.888 |
| Italy | 27.5 | 0.874 |
| Japan | 30 | 0.901 |
| Korea | 22 | 0.897 |
| Luxembourg | 22.1 | 0.867 |
| Mexico | 30 | 0.77 |
| Netherlands | 25 | 0.91 |
| New Zealand | 28 | 0.908 |
| Norway | 28 | 0.943 |
| Poland | 19 | 0.813 |
| Portugal | 25 | 0.809 |
| Slovak Rep. | 19 | 0.834 |
| Slovenia | 20 | 0.884 |
| Spain | 30 | 0.878 |
| Sweden | 26.3 | 0.904 |
| Switzerland | 8.5 | 0.903 |
| Turkey | 20 | 0.699 |
| U.K. | 26 | 0.863 |
| United States | 35 | 0.91 |
Table Information
The above table only shows the national government’s income tax rate on incorporated entities. It does not represent additional local taxes that may apply in some countries. In the United States, many state governments also levy income tax on businesses that are incorporated with the state. Several other nations, including Korea, Germany and Japan, also have significant local taxes on corporations.
The tax data in the table is from an OECD publication found on the Tax Database section of the official OECD website. Human Development Index ratings for non-OECD countries and comprehensive description of index rating procedures are found in the Human Development Report 2011, which is published through the United Nations Development Program.
Comparison: Lowest and Highest Corporate Taxes
The United States levies the highest federal tax on corporate income of all the OECD members, but this does not necessarily make it a hostile environment for business formation. “Although the U.S. statutory tax is higher, the average effective rate is about the same, and the marginal rate on new investment is only slightly higher,” according to Congressional Research Service publication.
In contrast, the small European country of Switzerland sports one of the lowest corporate tax rates in the world. Switzerland’s tax on corporate income is less than one quarter of the U.S. tax. It is interesting to note that both countries have high Human Development Index ratings. The United States was ranked 4th worldwide in 2011, while Switzerland ranked 11th.
