Comment by adventured | Hacker News Reader

Comment by adventured | Hacker News Reader

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It was increasingly a problem for US competitiveness. The US was bleeding a lot of successful companies to other countries for tax purposes, and it was getting worse (Pfizer tried to flee to Ireland).

The average national rate in Europe is around 18%, and 21% for the EU.

France is competing with this:

Austria 25%, Spain 25%, Netherlands 25%, Italy 24%, Norway 23%, Denmark 22%, Sweden 22%, Portugal 21%, Slovakia 21%, Estonia 20%, Finland 20%, Iceland 20%, Russia 20%, Poland 19%, UK 19%, Czech 19%, Switzerland 18%, Ireland 12.5%

Armenia 20%, Belarus 18%, Ukraine 18%, Romania 16%, Lithuania 15%, Albania 15%, Moldova 12%, Bulgaria 10%, Hungary 9%

Staying up in the 30s would put France at a severe disadvantage vs the rest of the EU and Europe. Germany will also be forced to lower its rate eventually.

The world average was near 40% ~35 year ago. The rate in the US came close to matching with the world average in the late 1980s. After that, the world average began declining consistently while the US remained high. When the world average is 22% and you're at 35%, you have a problem.

You're comparing the maximum rate for France with average rates in the other countries, which isn't really fair.

The actual average in France is 23% (in 2016, it's probably lower now) so nothing really extraordinary. The maximum rate is also being progressively brought down from 33% to 25%.

What is the source of this information? In Estonia corporate income tax is essentially 0% - all re-invested income is tax-free, you only pay taxes when you eventually decide to pay out dividends (or salary). Which can be years, decades or never.

It's derived from KPMG's global tax tables for 2018, and confirmed from:

https://investinestonia.com/business-in-estonia/taxation/

Estonia's corporate income tax rate is not essentially zero, unless you plan to never distribute any profit. Otherwise it's 14-20%. It would be unusual for most businesses to never distribute profit.

Last year Estonia collected something like €368m in corporate income taxes. Or €283 per capita. Equal to about 4% of their budget. Not a huge sum, also not anywhere close to zero. In the US for 2018, corporate income taxes will be about 5% to 6% of tax revenue (4% to 5% of the budget). The US corporate income taxes collected, broken down on a per capita basis, will be around $650 to $700 for 2018, for comparison.

You can plainly see that Estonia collects corporate income taxes:

https://www.stat.ee/53719

https://www.oecd.org/tax/revenue-statistics-estonia.pdf

The primary unusual thing Estonia does, is not tax profit until distribution.

Estonia's corporate income tax is set at 20%: https://europa.eu/youreurope/business/vat-customs/company-ta...

As for the budget share, a significant part of that is going to be govt-owned corporations that are used as cash-cows, for example the energy production / distribution monopolies, national lottery, Tallinn Port etc. Last month's news - this year they contributed 157MEUR dividends: https://www.aripaev.ee/uudised/2018/04/19/riik-votab-ettevot...

In the end, "regular" companies end up paying less than you imagine. I think it could be a sign that the policy is working - companies are investing into the future and "paying it forward". Or they are doing creative feats like taking out profits as loans to parent companies, which is also known to happen, specifically the big Scandinavian banks here.

Specifically for startups, it is going to make a big difference if you do not need to pay yearly corporate tax at an arbitrary date (in relation to your business) and can a) postpone this until profitability or b) never pay a dime if your idea never pans out. You can even steer your company towards an exit without ever having to think about it.

Many people I know personally only distribute as much profit as they need for themselves. It is not double taxed with personal income tax, so it is spending money already after paying the corporate tax. This has lead to a debate as to whether this actually constitutes "entrepreneur salary" with entrepreneurs therefore paying less taxes than employees (the salary taxes are much higher: http://palk.crew.ee).

That is why for a startup you can "essentially" forego thinking about it. When you do, you know you have made it :)

I'm currently trying to understand estonian corporate taxes so your comment was helpful. Thanks.

The question I have is whether you're required to claim a salary (instead of capital gains) as a sole employee of your corporation if you're a full tax resident there.

This might be too specific for HN discussion, but feel free to email me.

Most corporate tax systems don't count re-invested income for the purposes of taxation. It's why Amazon has such a low tax bill.

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