The highest corporate tax rate in the world belongs to the United Arab Emirates, with a 2018 tax rate of up to 55%, according to KPMG. Other countries with higher than average corporate tax rates include India (35%), Venezuela (34%), Brazil (34%) and Japan (30.86%).
Six countries levy 0% corporate tax: Anguilla, Bahamas, Bahrain, Bermuda, the Cayman Islands and Turks & Caicos. The global average corporate tax rate is 24.03%
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 Uzbekistan (7.5%), Hungary (9%), Bulgaria (10%) and Bosnia and Herzegovina (10%). By region, Europe has the lowest corporate tax rate at 14.48%, significantly lower than the average tax rate in Asia (21.21%), the Americas (28.03%) and Africa (28.26%).
For example, the Bahamas doesn't tax profits, dividends or income. It also lacks capital gains, withholding and sales taxes. The only tax requirements are business licensing fees, property taxes, and import and stamp duties. Most offshore businesses are exempt from business licensing fees and stamp duty. Depending on market cap, multinational corporations pay an effective tax rate between 5% and 15%. (For related reading, see: How are Effective Tax Rates Calculated from Income Statements?)
Bermuda offers no corporate tax rate with multinationals averaging an effective tax rate of 12%. The Cayman Islands offers no corporate tax rate with multinationals averaging an effective tax rate of 13%. These are the lowest averages, which makes them so appealing to U.S. companies.
High Corporate Tax Rates
Although the United Arab Emirates (UAE) has a corporate tax rate of 55%, in practice that tax rate is typically only enforced on foreign companies engaged in oil exploration and production and foreign banks. Taxes are enforced individually by the seven emirates that makeup the UAE; there is no federal corporate income tax. The UAE has a strong economy with a high per capita income. Once highly dependent on oil, the government has successfully diversified the economy to include tourism, finance, manufacturing and air transport.
Other countries with a high corporate tax rate are economically unsound. Venezuela has a high corporate tax rate at 34% in 2018 but the country is in an economic crisis, with the International Monetary Fund predicting that Venezuela's inflation rate could hit one million percent in 2018. Preventing an economic collapse will require significant reforms. Brazil also has a high corporate tax rate at 34% and its economy in 2018 is struggling. The Brazilian real is weak against the U.S. dollar and its GDP growth in the second quarter of 2018 was only 0.2%. For both countries, reducing the corporate tax rate won't have much of an impact on the local economy. (For more, see: Is Venezuela Close to Collapse?)
How to U.S. Compares
With the Tax Cuts and Jobs Act (TCJA) of 2017, the U.S. corporate tax has been slashed from 40% — the second highest in the world as of 2017 — to 21% in 2018, below the global average 24.03% corporate tax rate. The decrease in the U.S. corporate tax rate is one of the most dramatic decreases of any country since 2003, according to KPMG. Only Kuwait, which decreased its corporate tax rate from 55% to 15% in 2009, had a bigger percentage change.
In contrast, it took Canada nine years to slowly decreased its corporate tax rate from 36.6% in 2003 to 26%. Canada's corporate tax rate is 26.5% in 2018. Japan also slowly decreased its corporate tax rate from 42% in 2003 to 30.86% today.
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, its likely that U.S. corporations will continue to park money in tax-free countries such as Bermuda and the Cayman Islands even as they create jobs in the U.S.