US not very tax-friendly
According to the Organization for Economic Cooperation and Development (OECD), the United States has the highest corporate income tax rate in the world. Corporate profits in the US are taxed at rather outrageous corporate tax rates, averagely 39,1%. Therefore, an increasing number of large American corporations, including Apple and Google, chose to relocate their businesses overseas to low-tax jurisdictions.
A corporate tax in the US is levied on resident company’s income received worldwide.The income derived from US sources by a non-resident company is subject to: (1)a standard US corporate tax rate if that income is effectively connected with the business of the company, and (2) a flat rate of 30% if that income is not effectively connected with the business of the company.
Corporate taxation in the US is imposed on three levels, namely, (1) federal, (2) state, and (3) local level. Below, we discuss each of these three levels.
The rate of the U.S. corporate income tax varies between 15% and 39% depending on taxable income.The table below indicates US federal corporate tax rates as of 2016.
|Taxable income (USD)||Tax rate|
|0 – 50.000||15% of the amount exceeding 0|
|50.000 – 75.000||7.500 USD + 25% of the amount exceeding 50.000|
|75.000 – 100.000||13.750 + 34% of the amount exceeding 75.000|
|100.000 – 335.000||22.250 + 39% of the amount exceeding 100.000|
|335.000 – 10.000.000||113.900 + 34% of the amount exceeding 335.000|
|10.000.000 –15.000.000||3.400.000 + 35% of the amount exceeding 10.000.000|
|15.000.000 – 18.333.333||5.150.000 + 38% of the amount exceeding 15.000.000|
Table 1. US federal corporate tax rates as of 2016
The US also levies an alternative minimum tax (AMT) at the flat rate of 20% on taxable income derived by certain types of individuals, C type corporations, estates, and trusts. AMT tax base is calculated by applying specific adjustments and exemptions to the income derived by qualifying natural or legal persons.
Shareholders’ profits are normally subject to dividend tax and not corporate income tax. However, shareholders of mutual funds and S corporations are taxed on the basis of corporate income and, therefore,do not pay dividend tax.
Special tax rules apply to companies operating as personal service corporations and personal holding companies.
State and local taxation
In addition to federal corporate tax, the profits derived by US companies are subject to state and local taxation. State and local tax rates vary between 0% and 13.30% depending on the jurisdiction. Most US states levy gross receipts taxes, whereas only two states (South Dakota and Wyoming) do not impose such taxes. State and local corporate taxes paid by a company are deductible for federal income tax purposes.