Corporation tax

Corporation tax also called corporate tax or company tax, is a type of direct tax on the income or capital of companies, corporations and similar organisations. The tax is usually set at the national level, but it may also be set more locally in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax.

The purpose of corporate tax is to make money for the government by taxing the profits earned by corporations. The tax rate varies a lot from country to country. It is usually calculated as a percentage of the corporation's net income or capital. Corporate tax rates may also differ for local and foreign corporations.

Some countries have tax laws that require corporations to pay taxes on their worldwide income, regardless of where the income is earned. Some countries have tax systems which only tax the income earned within the country's borders.

A country's corporate tax may apply to:

• corporations incorporated in the country,
• corporations doing business in the country on income from that country,
• foreign corporations who have a permanent establishment in the country, or
• corporations deemed to be resident for tax purposes in the country.

The rules are different in each country. International businesses often organise themselves to take advantage of the differences. For example, in Estonia, enterprise profits are not subject to corporate or income tax until they are distributed to the founders – all profits generated by the enterprise can be used in full for business development or reinvested to generate additional income.