Corporation Tax
A corporation tax is a tax imposed on a corporation on the profits it earns. In the United States, the Federal tax rate for corporations is 35%, the second highest rate in the world, the highest being that in Japan. The tax varies significantly from jurisdiction to jurisdiction. While in some countries, depreciation may be allowed in calculating profit, for example, it may be disallowed in another.
In essence, double tax applies in the case of a corporation. The corporation is taxed and its shareholders are also taxed. As an alternative to double taxation, corporations can now avail themselves of another option made available by the US Treasury allowing them to “check the box” and elect to be treated as a pass-through entity. Those who elect this treatment will not be taxed at the entity level of 35%. Instead, the corporation’s income would pass through to the shareholders and only the shareholders would be taxed, each according to his income level. This is the same type of tax that applies in the case of an S-corporation.
In some jurisdictions, corporate distributions, for example, dividends, are fully or partially exempt from tax and in others they are not exempt at all. The Netherlands, for example, provides a participation exemption, according to which some distributions are tax-exempt. On the other hand, if a jurisdiction operates an imputation tax system, part of or even all the tax paid by the corporation may be attributed pro rata to the shareholders and the corporation may reduce its income tax liability payable on a distribution to shareholders by the amount of this “credit” granted a shareholder.
Britain followed a partial imputation system for a number of years. According to this system, shareholders could claim a tax credit for advance corporation tax (ACT) paid by a corporation upon issuance of a distribution. The corporation could then apply the ACT as a set-off to reduce its total tax liability.
For more infomation on taxes choose from the list below. |
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Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes
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