Choosing the Right Location for My Business

If you own a business and are looking to expand globally, then one of the most important factors in your location decision is comparative tax rates and regulations.  One major tax is corporate tax, or the taxes that are levied on net income. Corporate tax rates vary across the world’s 250 countries.  There is a wide range in rates, with the global average currently at 25%.CorporateREVISED

The corporate tax rate in the United States is 35% which is relatively high. When looking at the map, the U.S. is amongst the 30%-39% category. Countries like Mexico, Brazil, Argentina, France, Spain, India, Japan and Australia are in the same category, and they all have a lower corporate tax than the U.S. (ranging from 30% in Australia to 34.4% in France).
Other countries with a 35% tax rate are concentrated in Africa: Angola, Ethiopia, Mali, Namibia, Zambia, and then Yemen, Pakistan and Laos amongst others. In contrast, countries with lower corporate tax rates include the United Kingdom (28%), China PRC (25%), South Korea (24.2%), Russia (20%), Canada (18%) and Germany (15.8%).
Scott Hodge of the Tax Foundation (www.taxfoundation.org) states that “the combined corporate tax rate for local, state and federal in the U.S. is approximately 39.3% which is only second to Japan amongst the OECD countries”. The map compares national or federal rates, and the total tax bite to a business can include a range of taxes levied at different government scales.
Taking a look at Canada, our biggest trading partner, their corporate tax rate is only 18%. To encourage more investment and businesses into Canada, the rate will be cut to an even lower rate at 15% in 2012, which will result in Canada becoming one of the lowest taxed amongst the OECD members (Dvorak 1). Canada has been on a path to lowering their corporate tax for the past thirty years, and this has occurred with different Prime Ministers leading different political parties. Or, tax rate changes have been the result of vigorous political debate occurring over a long period of time.
What about the story in Africa? The countries in this rapidly growing continent (population-wise) generally have a high corporate tax rate with the average for the continent at 30.4%. The countries with the highest in the continent may not be a good location for a business to expand to, as these countries are in the midst of a civil war (Libya and Sudan) or are scenes of constant guerilla warfare. The more likely countries for business expansion might be South Africa, Nigeria and Egypt. All three have a lower corporate tax rate than the United States.
Corporate tax research is certainly interesting as it generates many research questions: how and why are there certain tax rates in certain countries and what are the macroeconomic and microeconomic effects they have on existing business and businesses considering expanding and operating in these places. As for the United States, there is debate about changing our 35% to a lower rate, and expectations about what this might mean for encouraging more business investment, activity, and creation of new jobs.

Sources:
Dvorak, Phred. “Canada Slashes Business Levies.” The Wall Street Journal. 30 December 2010. Web.
30 August 2011.
<http://online.wsj.com/article/SB10001424052970203525404576050080874854882.html>

Hodge, Scott. “U.S. States Lead the World in High Corporate Taxes.” Tax Foundation. 18 March 2008.
Web. 30 August 2011. <http://www.taxfoundation.org/news/show/22917.html>