The Tax Foundation

May 5, 2006

Corporate Income Tax Rates Around the World

by Andrew Chamberlain

We've posted a new "Fiscal Fact" to the website this morning comparing statutory corporate income tax rates of the OECD countries. By this measure, the U.S. average statutory rate of 39.3 ranks second-highest, just behind Japan's 39.5 and well above the OECD average of 28.7.

Here's the full table of average statutory rates:

Country
Corporate Tax Rate in 2000[1]
Rank in 2000
Corporate Tax Rate in 2006
Rank in March 2006
Japan
40.9
3
39.5
1
United States[2]
39.4
6
39.3
2
Germany
52
1
38.9
3
Canada
44.6
2
36.1
4
France
37.8
7
35
5
Spain
35
11
35
5
Belgium
40.2
4
34
7
Italy
37
9
33
8
New Zealand
33
16
33
8
Greece
40
5
32
10
Netherlands
35
11
31.5
11
Luxembourg
37.5
8
30.4
12
Mexico
35
11
30
13
Australia
34
14
30
13
Turkey
33
16
30
13
United Kingdom
30
21
30
13
Denmark
32
18
28
17
Norway
28
26
28
17
Sweden
28
26
28
17
Portugal
35.2
10
27.5
20
Korea
30.8
20
27.5
20
Czech Republic
31
19
26
22
Finland
29
24
26
22
Austria
34
14
25
24
Switzerland
24.9
28
21.3
25
Poland
30
21
19
26
Slovak Republic
29
24
19
26
Iceland
30
21
18
28
Hungary
18
30
16
29
Ireland
24
29
12.5
30
OECD Average[3]
33.6
28.7
Note: Small changes are usually attributable to changes in sub-national rates.
[1] Rates for 2000 and 2006 are combined central and sub-central tax rates. Where sub-central income tax is deductible against central government tax, this is reflected in the net rate of the central government.
[2] The sub-central tax rate for the U.S. is calculated as a weighted average of state corporate income marginal income tax rates, 6.7 percent in 2000 and 6.6 percent in 2006, deductible in both years from federal taxable income.
[3] Unweighted average.

A cautionary note about comparisons. Within countries, some industries and corporate activities are penalized much more heavily than others—a fact that's masked by overall statutory averages. Average statutory rates can differ dramatically from average effective tax rates. And thanks to various tax preferences, both may differ sharply from marginal tax rates, which exert the most powerful influence on day-to-day investment decisions of companies.

For example, a recent KPMG study ranked the United Arab Emirates as having the highest average statutory tax rate of 55 percent among the 86 countries it studied. However, it turns out the UAE has no federal corporate tax, only provincial ones. The top rate for any industry may by 55 percent, but in practice it applies only to oil companies, and sometimes lawmakers "negotiate" special rates with individual companies as high at 85 percent. In contrast, foreign banks are taxed at just 20 percent, and some industries aren't taxed at all.

Here in the U.S., while the top federal corporate tax rate is 35 percent, state corporate tax rates add anywhere from less than 1 percent to 12 percent to that figure, resulting in vastly different statutory tax rates based on a company's location. U.S. companies unlucky enough to be headquartered in Iowa face a top statutory corporate tax rate of 47 percent, while Washington State corporations face only the 35 percent federal rate.

The lesson? Statutory average tax rates often differ substantially from effective rates. Even within countries, companies commonly face widely disparate effective tax rates based on location, industry, income—and whether lawmakers view them as worthy of special preferences or deserving of penalties.