Corporate tax rates in leading economies worldwide have fallen to an average of just 25.1%, but the trend of declining corporate tax rates worldwide is likely to be over for the foreseeable future.
Corporate tax rates have been steadily decreasing
Our new study of 33 countries worldwide shows that corporate tax rates have been steadily decreasing over recent years. The G7 average for a business recording profits of 1 million USD falling from 32% in 2014/15 to just 25.7% in 2020/21. Many countries sought to incentivise businesses to invest in their economies with attractive tax rates. France, often seen as a higher tax European economy, has lowered its headline rate from 31% to 26.5% in just the past three years.
However, with the Covid-19 pandemic leaving a gaping hole in the public finances of countries around the world, some countries are already beginning to raise their corporate tax rates.
UK government intention to raise corporation tax rates
The UK government already announced its intention to raise corporation tax rates to 25% from April 2023, more than two percentage points higher than the European average. Argentina already increased its headline corporate tax rate from 30% to 35% in 2021. US President Joe Biden has also pledged to raise federal corporate income tax to 28%, after it was cut to just 21% by his predecessor Donald Trump in 2017.
Australia’s corporate tax rate (non SME’s) of 30% places us 26th out of 33 countries – our rate remains unchanged over the last year.
Lower rates for SMEs remain vital
We believe governments worldwide should ensure that any move to raise corporate tax rates does not affect the lower rates used to encourage the growth of SMEs. The Netherlands has recently reduced its corporation tax rate to just 16.5% for companies with taxable income under $450,000, while Croatia now offers a rate of just 10% for companies with a turnover of less than $1,125,000.
SMEs form the foundation of economies worldwide, employing millions of people and a path to sustainable economic growth. Encouraging SME development with tax incentives will be crucial to the post-covid recovery of both developed and developing nations.
Australia’s corporate tax rate for SME’s is 25% – our rate has decreased by 1% over the last year.