The United Kingdom, Spain, and Norway Tax Structure

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The United Kingdom, Spain, and Norway Tax Structure

Overall, the tax structure for businesses in the UK, Spain and Norway is much simpler than the US. All of these countries tax at relatively flat rates, with no additional local or provincial taxes to factor in.

US vs. UK

Rates

  • The main rate for corporation (business) tax in the UK is falling to 17% later this year.
  • The US national corporation tax is 21%, but additional local/state taxes bring up the average.

Structure - Similarities

Structure — Differences

  • One difference is the simplicity of the UK corporation tax structure. It is charged at a flat rate, 17% for the year starting April 1, 2020, on profits. Profits from the exploitation of patents are taxed at a special rate of 10%. Four business types have special tax rules, which are banking, life insurance, tonnage and oil & gas.
  • Non-resident companies are only charged corporation tax on their UK income. There are no local or provincial taxes.
  • The US system is much more complicated, as taxes greatly depend on the type of corporation. Furthermore, states impose additional taxes anywhere from 1-12% or none at all. A complete chart of state taxes is available here.
  • Additionally, many US businesses find loopholes and exemptions to bring their tax rate down.
  • The US also has a pass-through exemption, which allows businesses to claim a 20% deduction on qualifying income. This exemption will end in 2025. S-corporations utilizing pass-through exemptions actually pay no corporate tax and instead pass the tax burden onto shareholders.
  • US businesses can claim interest expense deductions of 30%, deductions for depreciable assets and the alternative minimum tax no longer applies (this had set the minimum tax at 20%). According to one Congressional report, business in the US have become so good at working the system, the "effective" rate of taxes was only 18.6% in 2017.
  • The UK and the USA both tax the sale of items, but in different ways. In the UK, this is called value-added tax, or VAT. VAT is chargeable on most goods and services that are sold. Businesses charge the VAT to customers and then pay the money directly to the government.
  • Most items are charged at the standard rate, which is 15%. A few items are charged at reduced rates or zero. Companies are charged with ensuring the proper VAT amount is collected.
  • US sales tax is structured very differently to VAT. There are over 10,000 sales tax rates set by states and localities. Five states charge no sales tax. Furthermore, states set different rules about what is taxable.

US vs. Spain

Rates

  • In Spain, the corporate tax rate is currently 25%. However, newly-formed companies enjoy a reduced rate of 15% for their first two years. Taxes must be paid by installment three times a year. There is another 10% reduction eligible for profits put into a special reserve for no more than five years.

Structure — Similarities

  • Capital gains on the sale of property is also taxable in Spain. Spain also charges a property transfer tax (stamp duty).

Structure — Differences

  • VAT is also payable in Spain. Companies are in charge of collecting the appropriate VAT from customers on chargeable goods and services. The VAT rate is 21%, with reduced rates of 10% and 4% on certain items.
  • There are very few credits and exemptions for Spanish businesses. The tax system was significantly restructured in 2015 to eliminate most of these and simplify the system.
  • The country is expected to pass a new Digital Service Tax, which will be 3% on digital services like advertising or data transfer services, where income from those services exceeds €3 million.

US. vs. Norway

Rates

  • The corporate tax rate in Norway is 22%. Certain financial companies are taxed at 25%.

Structure — Similarities

  • Norway also charges capital gains taxes. Additionally, capital gains taxes are still payable even if the gains are taken out of Norway. The rate is 22%.
  • Norway also allows net income losses to be carried forward indefinitely, same as the US.

Structure — Differences

  • VAT is also payable in Norway. The standard rate is 25%, with reduced rates of 15%, 10% and zero.
  • Norway also charges a stamp duty for the transfer of real estate. The rate is 2.5%.
  • A 25% withholding tax is charged on dividends paid by a company to a non-resident. However, there are some exceptions to this rule.

Upcoming US Structural Changes Effects

  • Many of the changes to the US tax code have been discussed above. However, to summarize, businesses are most effected by: lower corporate tax rates (21%), the elimination of alternative minimum tax and pass-through allowances.
  • The weighted average for US corporation tax, when combined with state and local rates, will be around 26.5%.
  • The deduction cap for capital expenses was raised to $1 million, and the phaseout threshold was raised to $2.5 million. Additionally, assets can now be deducted in the first-year at 100% instead of a portion over subsequent years.
  • Pass-through income will now have a 20% deduction.
  • The cash accounting method can now be used by businesses with earnings up to $25 million, up from $5 million.
  • Foreign earnings will now be subject to 15.5% repatriation rate for cash, 8% for reinvested earnings.
  • Net operating losses can no longer be applied backwards, but now they can be carried forward for an indefinite amount of time.
  • The new tax laws are expected to help both small and large businesses alike. Small businesses will benefit from the new capital expenditure rules, pass-through deductions and higher individual standard deductions. Larger corporations will enjoy the much lower corporate tax rate, pass-through deductions and the new rules on cash accounting.
  • Experts feel like these tax changes create an extremely favorable business climate. Not only are they encouraged to spend more (due to capital expenditure deduction changes), but the effective tax rate has dropped significantly, to around 11.3%. Corporate tax receipts by the government fell by $96 billion in the first year of the new law, meaning US businesses were paying significantly less tax.
  • Some people are highly critical, however, saying the increased profit has not resulted in significantly higher investment in capital and equipment. Companies instead poured the money into record-levels of stock buybacks while cutting jobs and increasing dividends.
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