Taxes

Integrated Tax Rates on Corporate Income in Europe

In most European OECD countries, corporate income is taxed twice, once at the entity level and once at the shareholder level. Before shareholders pay taxes, the business first faces the corporate income tax. A business pays corporate income tax on its profits; thus, when the shareholder pays their layer of tax they are doing so on dividends or capital gains distributed from after-tax profits. The integrated tax rate on corporate income reflects both the corporate income tax and the dividends or capital gains tax—the total tax levied on corporate income.

As an example, suppose that an Italian corporation earns $100 of profit. It must pay corporate income tax of $24, which leaves the corporation with $76 in after-tax profits. If the corporation distributes those earnings as a dividend, the income is taxed again at the individual level at a top dividend rate of 26 percent, resulting in $19.76 in dividend taxes. Thus, final after-tax income is $56.24, implying that the $100 in original corporate profits faces an integrated tax rate on corporate income of 43.76 percent. (The same calculation can be done for corporate income realized as capital gains.)

For dividends, Ireland’s top integrated tax rate was highest among European OECD countries, at 57.1 percent, followed by Denmark (54.8 percent) and France (52.8 percent). Estonia (20 percent), Latvia (20 percent), and Hungary (22.7 percent) levy the lowest rates. Estonia and Latvia’s tax on distributed profits means that the corporate income tax is the only layer of taxation on corporate income distributed as dividends.

For capital gains, Denmark (54.8 percent), France (52.7 percent), and Portugal (50.7 percent) have the highest integrated rates among European OECD countries, while Slovenia (19 percent), Switzerland (19.7 percent), and Turkey (20 percent) levy the lowest rates. Several European OECD countries—namely Belgium, Luxembourg, Slovakia, Slovenia, Switzerland, and Turkey—do not levy capital gains taxes on long-term capital gains, making the corporate tax the only layer of tax on corporate income realized as long-term capital gains.

Top Integrated Tax Rates on Corporate Income in Europe (European OECD Countries), 2021
OECD Country Statutory Corporate Income Tax Rate Dividends Capital Gains (a)
Top Personal Dividend Tax Rate Integrated Tax on Corporate Income (Dividends) Top Personal Capital Gains Tax Rate Integrated Tax on Corporate Income (Capital Gains)
Austria (AT) 25.0% 27.5% 45.6% 27.5% 45.6%
Belgium (BE) 25.0% 30.0% 47.5% 0.0% 25.0%
Czech Republic (CZ) 19.0% 15.0% 31.2% 15.0% 31.2%
Denmark (DK) 22.0% 42.0% 54.8% 42.0% 54.8%
Estonia (EE) 20.0% 0.0% 20.0% 20.0% 36.0%
Finland (FI) 20.0% 34.0% 43.1% 34.0% 47.2%
France (FR) 28.4% 34.0% 52.7% 34.0% 52.7%
Germany (DE) 29.9% 26.4% 48.4% 26.4% 48.4%
Greece (GR) 24.0% 5.0% 27.8% 15.0% 35.4%
Hungary (HU) 9.0% 15.0% 22.7% 15.0% 22.7%
Iceland (IS) 20.0% 22.0% 37.6% 22.0% 37.6%
Ireland (IE) 12.5% 51.0% 57.1% 33.0% 41.4%
Italy (IT) 24.0% 26.0% 43.8% 26.0% 43.8%
Latvia (LV) 20.0% 0.0% 20.0% 20.0% 36.0%
Lithuania (LT) 15.0% 15.0% 27.7% 20.0% 32.0%
Luxembourg (LU) 24.9% 42.0% 40.7% 0.0% 24.9%
Netherlands (NL) (b) 25.0% 26.9% 46.6% 30.0% 47.5%
Norway (NO) 22.0% 31.7% 46.7% 31.7% 46.7%
Poland (PL) 19.0% 19.0% 34.4% 19.0% 34.4%
Portugal (PT) 31.5% 28.0% 50.7% 28.0% 50.7%
Slovak Republic (SK) 21.0% 7.0% 26.5% 0.0% 21.0%
Slovenia (SI) 19.0% 27.5% 41.3% 0.0% 19.0%
Spain (ES) 25.0% 26.0% 44.5% 26.0% 44.5%
Sweden (SE) 20.6% 30.0% 44.4% 30.0% 45.0%
Switzerland (CH) 19.7% 22.3% 37.6% 0.0% 19.7%
Turkey (TR) 20.0% 40.0% 36.0% 0.0% 20.0%
United Kingdom (GB) 19.0% 38.1% 49.9% 20.0% 35.2%
Average 21.5% 25.2% 40.0% 19.8% 37.0%

Notes: Integrated tax rates are calculated as follows: (Corporate Income Tax) + [(Distributed Profit – Corporate Income Tax) * Dividends or Capital Gains Tax].

(a) In some countries, the capital gains tax rate varies by type of asset sold. The capital gains tax rate used in this report is the rate that applies to the sale of listed shares after an extended period of time. While the integrated tax rate on dividends captures subcentral taxes, this may not be the case for all integrated tax rates on capital gains due to data availability.

(b) In the Netherlands, the net asset value is taxed at a flat rate on a deemed annual return. Source: OECD, “Tax Database: Table II.4. Overall statutory tax rates on dividend income,” last updated April 2021, https://stats.oecd.org/Index.aspx?QueryId=59615; PwC, “Quick Charts: Capital gains tax (CGT) rates,” https://taxsummaries.pwc.com/quick-charts/capital-gains-tax-cgt-rates; author’s calculations.

Products You May Like

Articles You May Like

After the UK Super-Deduction: Assessing Proposals for the Reform of Capital Allowances
Here’s how persistent high inflation may affect your tax bracket next year
Hedge funds ramp up market bets as volatility brings the asset class back into favor
Stocks making the biggest moves midday: Lennar, Coinbase, Array Technologies and more
Ethereum Could Be In Trouble With The SEC

Leave a Reply

Your email address will not be published.