At the G7 summit in Great Britain in June 2021, most members agreed on the introduction of a global corporate tax rate. While some leaders share their doubts, the agreed 15% for large multinational companies is supported by most. However, this proposal is not supported by many developing countries who are pushing for a higher rate for companies operating in many jurisdictions.
That is already known 130 countries support the ideaas if they should have a say in government affairs of other nations, but on the other hand it only takes one European nation to veto it at EU level – and at least 4 countries are very interested in it.
The argument is that for almost four decades global corporate taxes have fallen. Countries around the world are competing to attract companies to their countries through lower taxes. Some also say that the tax burden falls on smaller local companies while the larger multinationals pay minimum taxation.
Comparison of corporate taxes in the EU and the US
The most recent G7 summit focused on corporate taxation in the EU and the US
Current state of corporate taxes in the United States
President Biden’s proposal just before the US election was to raise corporate tax to 28% for domestic and multinational companies. This represents a 7% increase from the current 21% and the proposal has alarmed some legislators. According to the Tax Foundation, this would put the US in a higher corporate tax bracket than the average of other industrialized nations in the OECD of 23.51%.
It wasn’t until 2018 that President Trump introduced the Tax Cuts and Jobs Act, which lowered taxation from 35 to 21 percent. Currently, the rate of 21% comes to a combined average of 25.8% when state corporate taxes are added. These range from zero to 11.5%. Combined federal and state taxes are highest in New Jersey at 33.6%. States with the lowest reach 25% and include Texas, Nevada, Washington, Wyoming, and South Dakota.
Reforms proposed by Biden now include re-evaluating multinationals operating as offshore corporations and removing loopholes that impose certain deductions, taxes on their book income, etc.
Biden plans to increase federal government taxes and reduce the number of businesses fleeing the country into offshore tax havens. The plan is to use the additional taxes that will come into the federal treasury to narrow the wealth distribution gap in the US, create more jobs, and improve the country’s infrastructure.
Small business owners looking to set up a new LLC are watching these corporate tax developments with great interest. They rightly feel that leaders have ignored small business owners for too long while spoiling large corporations and allowing them to bypass tax hikes in a number of ways.
Current status of corporate taxes in the European Union
European OECD countries have an average corporate tax rate of 21.7%, which is below the global average. However, within the Union, tax rates differ from country to country. The highest income tax rate in Europe is Portugal with 31.5%, followed by Germany and France with 29.9% and 28.4% respectively. The lowest corporate tax in Europe is in Hungary at 9%. Ireland and Lithuania are also among the EU countries with the lowest taxes with 12.5% and 15% respectively.
Multinational corporations and large domestic companies in Europe are facing new rules and regulations adopted by the EU government in early June 2021. Companies must disclose all information about their income and taxes in each of the other 27 EU member states and other tax havens.
Current tax rates in some EU countries are believed to be conducive to job creation and much-needed economic recovery. Research by the EU Tax Observatory has shown that if a global tax rate of 21 percent were introduced, the Union could levy additional corporate taxes of $ 122 billion. In addition, the recently agreed 15 percent means a doubling of revenues, which not all EU member states approve.
GmbH formation and corporate taxation
Certain EU countries (e.g. Cyprus, Malta and Hungary) will always remain attractive for a start-up. Many US states will also remain attractive. Although a limited liability company (LLC) is not a separate tax entity like a corporation, many LLC owners opt for corporate taxation when forming an LLC. LLCs who benefit most from being treated like a corporation for tax purposes are those who wish to keep most of their profits with the company (also known as retained earnings).
“C” corporations are currently taxed at a flat rate of 21% of their non-reinvested profits, a much lower amount than the individual income tax rate.
Some LLC formation Services offer more than LLC formation packages. They also offer additional services to assist new LLC owners with compliance, legal services, and financial advice.