How Small Businesses Are Taxed in Every Country

As global trade becomes more interdependent, countries have increasingly used corporate tax rates as a way to attract international business and support domestic economic activity. Corporate taxes are designed to both generate tax revenue and incentivize certain industries. They have fallen around the world in recent decades as more countries compete to create a favorable tax environment.

Corporate tax rates vary across the globe and reflect the unique economic needs of every country. Countries rich in natural resources, for example, often generate a bulk of their tax revenue from high corporate taxes on oil and natural gas companies, allowing other industries to operate in a relatively low-tax environment.

Many island nations with few natural resources or production industries have essentially done away with taxes on international companies altogether, attracting foreign investment as effective tax havens.

To determine how small businesses are taxed around the world, we reviewed corporate tax rates and special corporate tax requirements for small companies in 200 countries.

Key findings

• Tax rates are lowest in the Middle East and Europe — at 17.9% and 16.2%, respectively.
• They are highest in Africa and South America –– with average rates of 27.6% and 26.1%, respectively.
• The highest effective tax rate is in Suriname (36.0%).
• A handful of small nations have established themselves as tax havens with effectively zero corporate tax rates — Bahamas, Bahrain, Monaco, Nauru, United Arab Emirates, Vanuatu, and Vatican City.

How Do Corporate Taxes Vary Around the World?

The map below shows tax rates around the globe. There is currently little international coordination on business taxation, and at the most recent G-20 conference, the leaders of the 20 largest nations called for a global minimum corporate tax rate of 15.0%.

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Countries are free to set corporate tax rates as high or as little as they like, which can create discord among nations and intense competition for foreign investment. The resulting patchwork of corporate tax rates can mean a difference of tens of thousands of dollars in taxes for a small company and is of interest to anyone curious about international business or politics.

Eastern Europe Has Some of the Lowest Tax Rates in the World

Europe has some of the most competitive business tax rates in the world, but tax laws vary from country to country.

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As the map shows, corporate tax rates are generally higher in Western Europe. Meanwhile, Eastern Europe has some of the lowest tax rates in the world. Vatican City and Monaco charge no corporate taxes to domestic companies, but the highest corporate tax rate on the continent is in Malta, where companies face a corporate tax rate of 35.0%.

Rates for North American Countries in Line With the Global Average

While the United States has a complex and often demanding corporate tax system, the country is surrounded by effective tax havens. On average, the corporate tax rate for North American countries is 25.1%, roughly in line with the global average.

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While the United States is home to high-tax states like New Jersey, Pennsylvania, and Minnesota, U.S. corporate taxes are lower than a majority of countries in North America on average. The average effective corporate tax rate in the United States is 25.6%, compared to the 30% tax rate in Saint Lucia, Costa Rica, Mexico, El Salvador, Haiti, Nicaragua, Saint Vincent and the Grenadines, and Saint Kitts and Nevis.

South America Has the Highest Corporate Tax Rates of Any Continent

While South America has the highest corporate tax rates of any continent on average, there is still a high degree of variation among countries in the region.

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While countries in the southern half of the continent — Paraguay, Chile, Uruguay — have some of the lowest corporate tax rates in South America, northern countries like Colombia, Venezuela, and Suriname have the highest rates in the region. Paraguay has the lowest effective corporate tax rate in South America, at 10.0%. Suriname has the highest, at 36.0%.

The Middle East & Central Asia Has the Lowest Corporate Tax Rate in the World

The Middle East is rich in natural resources and generates a significant amount of revenue from oil and gas operations. Many governments in the region generate a bulk of their revenue from national oil and gas companies, and as a result, offer low corporate tax rates to non-extractive companies. But while the Middle East & Central Asia has the lowest average corporate tax rate in the world, there is a good deal of variation across the region.

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Tax rates are lowest in Bahrain and the United Arab Emirates, where companies outside of the oil and gas sector operating in special tax-free zones are effectively exempt from taxes. Meanwhile, taxes are the highest in Turkey, Iran, and Syria, where corporations face effective tax rates of 25.0% and higher.

Small Businesses in Vanuatu and Nauru Are Effectively Exempt From Taxes on Profits

Asia is a large and diverse continent, with nearly five billion people and over 2,000 languages. Corporate tax rates are also richly varied throughout the region and can mean a difference of tens of thousands of dollars in taxes.

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Corporate tax rates in Southeast Asia and Oceania are the lowest in Vanuatu and Nauru, where small businesses are effectively exempt from taxes on profits. Other than those island outliers, most countries in Oceania have a flat corporate tax rate of about 30.0%. Tax rates in the region are highest in Japan, where the effective tax rate for small businesses is 33.6%.

Corporate Taxes in Africa Are Lowest in Somalia

While Africa has some of the least competitive tax rates of any continent, there is still a high degree of variation throughout the region.

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Taxes are the lowest in Somalia, where the effective tax rate is just 12.3%. Meanwhile, Zambia, Guinea, Comoros, Chad, Equatorial Guinea, and Sudan are all tied for the highest effective corporate tax rate in Africa, at 35.0%. Many countries in the region have gradual tax brackets that levy lower taxes on smaller, younger companies.

Effective Small Company Tax Burdens In Every Country

Tax law is one of the most complicated legal systems in the world, which makes comparing corporate tax rates from country to country relatively difficult. The ultimate tax burden a company owes the government can depend on the firm’s revenue, profit margin, employee count, and industry, as well as a host of local tax laws that vary by jurisdiction. In most countries, corporate income tax rates are determined on a graduated scale, whereby companies with lower revenue are taxed at a lower rate than companies with greater revenue.

Governments often levy a lower tax on newer, unestablished companies and a higher tax on mature firms that are listed on public exchanges. Taxes may be higher on polluting industries and lower on industries that use green technology. To better compare corporate tax environments around the world, it may be helpful to calculate an effective tax rate for each nation, applying each country’s unique tax law to a hypothetical small company with $1 million in revenue.

A Changing Tax Environment

As the ability for companies to redomicile and move to a different country increases with globalization, the competition to create a favorable corporate tax environment will likely increase — pushing effective tax rates even lower in a number of countries.

Corporate tax rates have fallen by nearly half over the past 40 years. They will likely continue to fall on average, even as leaders from the world’s largest economies call for global corporate tax minimums. Whatever the future may hold, corporate tax laws will no doubt continue to have far-reaching implications for international business and be of great interest to both foreign investors and the general public.

Methodology

Data for each country’s corporate tax rates and any special tax requirements that affect the amount of taxes owed by small companies came from KPMG, the Tax Foundation, Trading Economics, PricewaterhouseCoopers, Deloitte, and various government websites.

We applied each country’s tax laws to a model company with revenue of $1 million, profit of $100,000 a year, five to nine employees, is owned by a resident of the country in question, and earns a majority of its revenue from business operations within the country in question.

We multiplied the effective tax rate by the profit to get the taxes on model company amount.

We did not include companies in the oil, gas, and mining sectors or publicly traded companies.