Companies in UK enjoy one of lowest Corporation Tax rates of major global economies

This publication was covered in City AM and Start-Ups on 10 May 2016.
  • Headline rate well below global, G7 and European averages
  • USA and Japan top table for highest Corporation Tax rates

According to our research, companies in the UK are enjoying one of the lowest Corporation Tax rates (accounting for just a fifth of their profits) of the major global economies included in our study.

The UK’s headline Corporation Tax rate was 21% on taxable profits of USD 1,000,000 for the financial year ending 2015*. Of the major global economies, only Russia has a lower rate, at 20%.

This is far lower than the global average Corporation Tax rate of 27%. For European economies the average is 25.3% and the G7 average is even higher at 32.3%.

Low Corporation Taxes can help countries create competitive advantage and fuel growth by freeing up more profits for re-investment, discouraging domestic companies from moving investment overseas and attracting foreign companies to locate there.

In the UK, the headline rate was cut by 3% from 24% the previous year**, and is set to decrease further, from 20% in 2015/16 to 18% by 2020, as the government seeks to bolster the economic recovery and create a more company-friendly environment.

Our tax professionals studied Corporation Tax data on taxable profits of USD 1,000,000 in 31 countries across our international network, including all members of the G7, as well as key emerging economies.

The UAE has the lowest Corporate Taxes of any country in the study – charging no Corporation Tax at all – followed by Ireland (12.5%) and several Eastern European countries including Romania, the Czech Republic and Croatia.

The USA is at the top of the table of economies with the highest Corporation Tax in the study, charging a headline rate of 41.1%. However, this is in fact mitigated by a variety of schemes and deductions which result in many companies’ effective tax rate being far lower.

Japan is next, despite reducing Corporation Tax by 2.5% in a year as part of Prime Minister Shinzo Abe’s “Abenomics” policy to stimulate growth in the Japanese economy following more than two decades of stagnation.

Roy Maugham, tax partner in our London office, said: “There is a global competition amongst countries to offer a lower Corporation Tax rate. It is not easy for a cash-strapped economy to do well in that competition but there are enormous advantages for those that can put themselves ahead of the pack.”

“Enabling companies to retain more of their profits encourages them to re-invest more capital back into their company helping to drive innovation.”

“At more than ten percentage points lower than the G7 average Corporation Tax rate, the UK now has one of the most competitive regimes in the world. This is benefitting UK-based companies of all sizes.”

“With further cuts planned over the next few years, the UK is looking to help its domestic company base grow, while at the same time making a play for more corporate investment from overseas.”

Of the 31 countries in the study, most (74%) have kept Corporation Tax rates the same over the last two years. Six (19%) lowered rates last year, while just two countries (Israel and India) raised it (see table below).

Global corporation tax rankings (by highest rate levied)

Rank Country 2014-15 Tax Year data % Change since 2013-14
Amount of corporation tax charged on $1,000,000 Rate
1 USA $411,000.00 41.1% 0.0%
2 Japan $385,793.00 38.6% -2.5%
3 France $377,748.00 37.8% 0.0%
4 Argentina $350,000.00 35.0% 0.0%
4= Malta $350,000.00 35.0% 0.0%
6 Belgium $339,900.00 34.0% 0.0%
7 Brazil $337,029.70 33.7% 0.0%
8 India $330,630.00 33.1% 0.6%
9 Pakistan $330,000.00 33.0% -1.0%
G7 Average $323,205.86 32.3% -0.8%
10 Italy $323,200.00 32.3% 0.0%
11 Nigeria $320,000.00 32.0% 0.0%
12 Australia $300,000.00 30.0% 0.0%
12= Mexico $300,000.00 30.0% 0.0%
12= Spain*** $300,000.00 30.0% 0.0%
15 Germany $287,700.00 28.8% 0.0%
BRIC Average $279,414.93 27.9% 0.2%
Global Average $261,534.73 27.0% -0.4%
16 Canada $267,000.00 26.7% 0.0%
17 Israel $265,000.00 26.5% 1.5%
Europe Average $233,294.57 25.3% -0.3%
18 China $250,000.00 25.0% 0.0%
18= Uruguay $250,000.00 25.0% 0.0%
20 Jamaica $250,000.00 25.0% -5.0%
21 Denmark $243,460.00 24.4% -1.6%
22 Netherlands $239,116.00 23.9% 0.0%
23 Egypt $225,000.00 22.5% -2.5%
24 UK $210,000.00 21.0% -3.0%
25 Croatia $200,000.00 20.0% 0.0%
25= Russia $200,000.00 20.0% 0.0%
27 Czech Republic $190,000.00 19.0% 0.0%
27= Poland $190,000.00 19.0% 0.0%
29 Romania $160,000.00 16.0% 0.0%
30 Republic of Ireland $125,000.00 12.5% 0.0%
31 UAE $0.00 0.0% 0.0%

 

*2014/15
**2013/14
*** In recent tax years, Spain has reduced the corporate tax rate from 30% to 28% in 2015 and to 25% in 2016, with start-ups paying a reduced 15% in their first year of profits.