Income tax is difficult to navigate when new to owning and operating a business, whether you have several employees or are self-employed. Are you trying to differentiate individual taxes on income from corporate taxes? Below, we will explore the differences between individual vs corporate taxes.
Individual vs Corporate Taxes
Corporate taxes on income, also known as corporate income taxes, company taxes, or corporation taxations, refer to a direct tax levied on a company’s income or capital by the government.
What Does Corporate Tax Apply To?
Corporate taxes apply to the following institutions:
- All corporations originated in the country (small, medium, and large)
- C-Corporations running a business inside the country
- Foreign enterprises with a permanent establishment in the country
- Corporations that are residents for tax purposes inside the country
Are Corporate Tax Rates the Same in Different Countries?
Unfortunately, there is no uniformed method of corporate taxation amongst different nations. Therefore, this becomes a difficult aspect to navigate across countries as each sets its own rules, rates, and taxation parameters. Furthermore, countries such as Fiji, Cyprus, and Curacao are heavily valued by corporations as these nations are considered as “tax havens” due to soft taxation regulations.
The current corporate tax rate for other countries is as follows:
- United Arab Emirates (UAE): 55%
- Brazil: 34%
- Venezuela: 34%
- France: 31%
- Japan: 30.62%
Ten countries with a desirable corporate tax rate of 0% include:
- Cayman Islands
- Isle of Man
- Turks and Caicos Islands
What is the Corporate Tax Rate in the United States?
In the United States, the current corporate tax rate rests at a flat rate of 21%. However, before the Trump tax reforms of 2017, the corporate tax rate was 35%. For reference, the global average corporate tax rate currently stands at 23.79%.
How are Corporate Taxes Calculated?
Essentially, corporate taxes are calculated based on a corporation’s operating earnings after expenses have been deducted. However, a company can lower the total corporate taxes owed with various deductions, government subsidies, and tax loopholes.
Individual taxes, also named personal income taxes, are a type of tax imposed by a government on an individual’s income. Essentially, the income tax is payable on an employee’s wages and salaries.
What Does Personal Income Tax Apply To?
Individual income taxes apply to the following entities:
- Self-employed individuals
- Full-time employees
Are Individual Income Tax Rates the Same in Different Countries?
Like corporate taxes, individual income tax rates vary from country to country due to varying regulations and government systems. Although, many countries employ a progressive income tax system, subjecting individuals who earn more to a higher tax rate in comparison to individuals earning a lower income.
The average individual income tax rate for other countries is currently as follows:
- United Arab Emirates (UAE): 0%
- Brazil: 27.5%
- Venezuela: 34%
- France: 45%
- Japan: 55.95%
What is the Individual Income Tax Rate in the United States?
In the United States, the current corporate tax rate rests at a flat rate of 37%. For reference, the 2020 global average individual income tax rate currently stands at 31.16%.
How are Individual Income Taxes Calculated?
The United States operates with a progressive income tax method involving higher federal tax rates for individuals with higher income levels. These “marginal tax rates” mean that they do not apply to total income, but only to the income within a specific range.
In most cases, individuals will not have to remit the full amount of federal income tax due as a result of tax exemptions, deductions, and credits. A series of deductions is offered by the U.S. Internal Revenue Service, e.g., deductions for healthcare and education expenses, which taxpayers benefit from to reduce their taxable income.
For example, an individual earning an annual income of $200,000 is qualified for $30,000 of tax deductions. After tax deductions, the adjusted taxable income now amounts to $170,000 ($200,000 – $30,000).
Navigate Individual and Corporate Taxes Today with Flynn & Company
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Do you have additional questions about our services? We are ready to help! Contact us today at (513) 530-9200 or via our online form to begin a conversation.