Corporate incometax
Corporate income tax
- What it is
- Tax on a company’s profits in its country of tax residence
- How it is calculated
- On profit, that is, income less allowable expenses
- The second layer
- When dividends are paid to the owner, a further tax arises
- What to look at
- Not the headline rate but the effective one — taking deductions and reliefs into account
- For the owner
- After a move, the company’s profits may fall under CFC rules
In plain words
Corporate income tax is the tax a company pays on the profit it earns in its country of tax residence. The base is not turnover but profit: income less the expenses allowable under local rules. That is why what matters is not only the rate but also which expenses the country allows to be deducted.
It is important to see two levels. First the company pays tax on its profit. Then, when the profit is distributed to the owner as dividends, a second tax arises — for the recipient. The total burden is made up of both, and comparing countries on the corporate rate alone is misleading.
For an owner who is changing country of residence, a third layer is added. After a change of tax residence, a foreign company may fall under CFC rules: its profits will have to be declared in your place of residence, even if they have not been distributed. That is why corporate taxes are calculated together with personal ones, not separately.
When it needs to be calculated
What the burden consists of
- Headline rate
- Allowable expenses
- Reliefs and regimes
- Tax on dividends
- Rate in the country of residence
- Credit for tax paid
- Controlled company rules
- Declaring profits
- Control thresholds
- Substance requirements
- Permanent establishment
- Transfer pricing
How to calculate the burden
- 01Determine the company’s residence
- 02Calculate the effective rate
- 03Add the tax on dividends
- 04Check the CFC rules
- 05Get the full picture
What you need to know
- The base is profit, not turnover
- Rules on allowable expenses strongly affect the result
- Dividends are taxed separately in the owner’s hands
- Double tax treaties may reduce the burden
- After the owner moves, CFC rules come into play
Common mistakes
- Comparing countries only on the headline rate
- Forgetting the tax on dividends for the owner
- Not taking CFC rules into account after the move
- Ignoring economic substance requirements
- Planning the structure without a tax adviser
What this means for a BRIDGES client
We always calculate taxes at two levels: the company and you personally after the move. An attractive corporate rate is often cancelled out by the tax on dividends and the CFC rules in the country of your new residence.
Frequently asked questions
01 /What is corporate tax levied on?
On the company’s profit: income less the expenses allowable under the rules of the company’s country of tax residence.
02 /What is the effective rate?
The real share of tax in profit, taking deductions, reliefs and special regimes into account. It may differ noticeably from the headline rate.
03 /Is tax paid twice?
The burden is made up of two levels: the company’s tax on profit and the owner’s tax on receiving dividends. Treaties may soften the second.
04 /What changes after my move?
The CFC regime may come into play: the foreign company’s profits will have to be declared in your place of tax residence.
05 /Is it enough to choose a country with a low rate?
No. You need to look at the effective rate, the tax on dividends, the CFC rules and economic substance requirements.
06 /Do tax treaties help?
Yes, they allocate taxing rights between countries and often allow tax paid to be credited or withholding rates to be reduced.
See also
Read next
This material has undergone editorial review by BRIDGES.
Have a company and plans to move?
We will calculate the full burden — for the company and for you personally — before the change of residence.