October 19, 2022

The highest corporate tax rate in the world belongs to the United Arab Emirates (UAE), with a 2021 tax rate of up to 55%. Other countries at the top of the list include Suriname (36%), Iraq, Malta, Sint Maarten (Dutch), St Maarten, Sudan, and Zambia each with 35%. Brazil and Venezuela each tax corporations at 34%.1

There are ten countries that don’t charge corporations any tax at all. These include:

  • Anguilla
  • Bahamas
  • Bahrain
  • Bermuda
  • Cayman Islands
  • Guernsey
  • Isle of Man
  • Jersey
  • Turks and Caicos Islands
  • Vanuatu

The global average corporate tax rate is 23.64%.1

KEY TAKEAWAYS

  • The United Arab Emirates, Iraq, Malta, Brazil, and Venezuela are the countries that report some of the world’s highest corporate tax rates.
  • The ten countries with the lowest corporate tax rates include Anguilla, Bahamas, Bahrain, Bermuda, Cayman Islands, Guernsey, Isle of Man, Jersey, Turks and Caicos Islands, and Vanuatu—all at 0%.
  • Europe has the lowest average tax rate.
  • Bermuda, the Bahamas, and the Cayman Islands are appealing to many entrepreneurs and U.S. businesses because of their 0% tax rate combined with a simple structuring for setting up off-shore business.
  • The UAE has a strong economy but other countries, such as Suriname, are struggling even with high corporate tax rates.

Low Corporate Tax Rates 

In addition to the mostly Caribbean countries with no corporate taxes, many countries in Eastern Europe have lower than average corporate tax rates, including:

  • Hungary 9%
  • Montenegro 9%
  • Andorra 10%
  • Bosnia and Herzegovina 10%
  • Bulgaria 10%
  • Gibraltar 10%
  • Macedonia 10%
  • Moldova 12%
  • Cyprus 12.5%
  • Ireland 12.5%
  • Liechtenstein 12.5%1

By region, Europe has the lowest corporate tax rate at 18.98%, lower than the average tax rate in Asia (21.43%), the Americas (27.16%), and Africa (27.46%).1

Bahamas, Bermuda, and the Cayman Islands

These three Caribbean regions are three of the most popular countries for offshore investing, which makes them very appealing to business entrepreneurs and particularly U.S. businesses.

The Bahamas offers an expanded tax advantage because its government doesn’t tax profits, dividends, or personal income. It also lacks several other types of taxes, including capital gains, inheritance, gift, and unemployment. Some tax requirements that do exist include business licensing fees and some property taxes, as well as a value-added tax (VAT).

There are also many incentives for international investors and foreign investors to invest their money in the Bahamas. Foreign investors enjoy a shield of privacy. The country also offers an easily accommodating framework for setting up business structures that can take advantage of the 0% corporate tax rate.

Bermuda and the Cayman Islands also offer similar international and foreign investing advantages with their 0% corporate tax rate. Bermuda also doesn’t tax income, dividends, or capital gains. The same applies to the Cayman Islands. Here, businesses pay a licensing fee to the government rather than corporate taxes.

Many Caribbean countries are considered tax havens because of their low- to no-tax environments. Companies often use legal maneuvers to stash their money and avoid higher taxes in their home countries.

High Corporate Tax Rates 

Although the United Arab Emirates has a corporate tax rate of up to 55%, its tax framework is somewhat unique. The high tax rate is primarily only paid by oil and gas companies and subsidiaries of foreign banks. This is because the country divides tax brackets by income for both individuals and businesses. This leads to a tax structure that includes the following:

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Image by Sabrina Jiang © Investopedia 2020

The UAE has a strong economy with a relatively high per capita income of $66,771.3 Once highly dependent on oil, the government has diversified the economy over time to include tourism, finance, manufacturing, and air transport.

Other countries with high corporate tax rates are less economically sound. For instance, Suriname taxes corporations at a rate of 36%. The country’s per capita GDP in 2020 was $4,916.4 The country depends on its mining industry and, as such, is very susceptible to volatility in mineral prices. The country’s economy is facing pressure from rising unemployment, a reduction in investment, and high inflation to the tune of 59.1% in 2021.56

How the U.S. Compares 

The U.S. corporate was slashed from 40%—the second highest in the world as of 2017—to 21% in 2018 after the passing of the Tax Cuts and Jobs Act (TCJA). This is below the global corporate tax rate average of 23.79%.

The change in the U.S. corporate tax rate is one of the most dramatic decreases in any country since the beginning of the 21st century. Only Kuwait, which decreased its corporate tax rate from 55% to 15% in 2009, had a bigger percentage change.7

In contrast, it took Canada nine years to slowly decrease its corporate tax rate from 36.6% in 2003 to 26.5%. Japan also slowly decreased its corporate tax rate from 42% in 2003 to 30.62% in 2019.

 

What Is a Corporate Tax?

A corporate tax is a total tax applied to the profits of a company. Companies pay taxes on their taxable income. This figure includes total revenue less expenses, depreciation, operating costs, and other costs. These taxes vary by country with some taxing corporations heavier than others. Some don’t tax companies at all.

 

Which Country Has the Highest Corporate Tax Rate?

The country with the highest tax rate is the United Arab Emirates. Companies in the Middle Eastern country are taxed at a rate of 55%.1

 

What Is Corporate Tax Avoidance?

Corporate tax avoidance is a strategy that companies use to lower their tax burden. This may be done by shifting money and business units to offshore locations that have more favorable tax regulations. Although it may seem illegal, it isn’t necessarily illicit. Many companies take legal steps to maneuver their money to cut down their tax liability.

The Bottom Line

There’s been much debate—particularly in the U.S. with a historically corporate tax-friendly Republican party in power—over whether or not a lower corporate tax rate spurs economic growth. While the impact of the TCJA on the overall U.S. economy won’t be known for some time, it is likely that U.S. corporations will continue to park money in tax-free countries such as Bermuda, the Bahamas, and the Cayman Islands even as they create jobs in the U.S.

Source: Investopedia
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