Global tax rates

Posted on 10 Jan 2018
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Paying taxes has become easier over the past year for medium-sized companies around the world, with compliance time falling due to the use of more online reporting systems, while the overall tax rate stands at 40.9% say Harris & Co accountants Northampton #accountantsnorthampton

The latest World Bank report, Paying Taxes 2015, produced by PwC focuses on tax payments for a two-year old start-up SME, based on analysis of tax compliance and corporate tax rates in 189 countries.

The figures exclude most Crown dependencies such as the Cayman Islands, British Virgin Islands and Bermuda, however, certain countries have joined the survey by request including Luxembourg, San Marino and Gibraltar. The criteria for participating countries initially required a minimum population of 1.5m.

‘This report does not provide data which would shed light on the OECD BEPS project – it analyses the total tax rate borne by a local company. It is to help governments understand how to reform and extend their tax framework, according to PwC partner and joint report author Andrew Packman.

‘The whole point of the study is to draw out different regimes and to help governments reform their tax systems,’ he said. ‘A very detailed set of facts is applied to each distinct country, but we don’t take into account the level of natural resources. It is based on the total tax rates of a simple manufacturing company in the second year of operation. It includes accelerating reliefs, for example.’

The report chimes with the World Bank’s overall objectives to support developing countries to improve their tax compliance rates and strengthen the domestic tax framework.

The time it takes an average company to meet its tax obligations dropped by four hours last year. The total amount the average company paid in taxes and the number of payments it made also declined in the past year. This is a trend seen every year over the ten-year period covered by the research.

It does not attempt to probe global business tax affairs.

Rita Ramalho, manager of the Doing Business unit at World Bank, said:

‘There is a balance between what is practical and limitations on any work of this kind.’

‘It provides a basis of comparison to compare one regime with another.’

‘The report has multiple audiences – government and policy makers, to help them inform their decisions, and development agencies and researchers. The vast majority of the economies are developing economies – they need to increase tax compliance across very flexible economies.’

The UK is ranked 16th in the overall table with a total tax rate of 34%, down from 14th position in 2012. The effective tax rate for the UK includes corporation tax on profits, employers’ national insurance contributions and business rates.

This compares with the global average of 40.9%, while the EU and European Free Trade Area (EFTA) rate was even higher at 45%.

The top three countries around the world to run an SME and pay the least tax are all in the Middle East - Qatar, UAE and Saudi Arabia, mirroring the 2012 results when UAE was top of the table.

The report finds that on average, the standard company studied has a total tax rate (as defined under the World Bank’s Doing Business methodology) of 40.9% of commercial profits. It makes 25.9 tax payments per year and takes 264 hours to comply with its tax requirements.

In terms of compliance, it takes 110 hours for the average UK company to manage its tax affairs, while eight payments are required.

By contrast, a similar business in Brazil would take up to 2,600 hours to comply with local tax requirements despite making only nine payments.

The increasing use of online tax reporting has also had a major impact on compliance behaviour, reducing the time to comply significantly.

In Europe, the UK is ranked number ten in the list of best places to set up a business, based on the World Bank sample company. Croatia is top of the ranking with an effective tax rate of 18.8%, followed by Luxembourg (20.2%) and Cyprus (23.2%). Ireland comes in at number five with a rate of 25.9%. This rate would include early tax reliefs for new business start-ups, for example.

However, it does not include data on tax rates paid by multinationals and their subsidiaries. This report only focuses on local companies, not multinationals.

Although tax compliance levels are rising in developing countries, claims the report, local tax frameworks need to be developed.

Packham added:

‘If you talk to governments in the developing world they say they are still really dependent on multinational companies for local taxes – they have low compliance rates locally and flexible economies, which make it difficult.’

‘The latest results from the Paying Taxes study show many economies are continuing to make progress in tax reform, but there is still a lot of scope to streamline and simplify tax systems.’

‘Tax reform is set to remain an important topic for governments around the world for some years to come, and this will include the need to take on board the proposals from the OECD to modernise the international tax system to cater for today"s globalised business.’

Paying Taxes 2015 measures all mandatory taxes and contributions that a medium-size company must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and other small taxes or fees.

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