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Posts Tagged ‘company tax’

Exploding tax myths – Part 5

Posted by Stuart Nash on February 18th, 2010

Myth: Alignment between corporate and personal tax rates is required for a coherent tax system

Reality: only two countries in the world (Mexico and Slovenia) have an aligned company and top marginal tax rate.

Rate alignment is the major recommendation of the Tax Working Group’s report.  They believe that this is vital in the battle against tax minimisation, and non-alignment is one of the reasons why the system is ‘broken’..  As an aside, an interesting fact is that a person has to be earning $130k/ann or more at the flat 30% company rate to be better off than paying tax using the graduated personal tax regime.

If there is one structure that needs a comprehensive review it is the Trust vehicle.  Unlike company profits for individuals, which are taxed at marginal rates, the Trust rate of 33% is the final rate.   Many people have companies owned by Trusts, which will allow for tax minimisation.

Back to aligning the top marginal and the company rate: this is highly unusual internationally.   In the OECD, only Mexico and the Slovak Republic have top marginal and company rate alignment  In fact, some countries have gaps far wider than New Zealand.  Australia, for example, if you include the 1.5% Medicare levy, has a top tax rate of 46.5%, making a gap between the two rates of 16.5%.  If Australia does decide to further reduce their corporate rate, this gap will widen further.  I suspect that rate alignment between the top marginal and the company rate isn’t essential to fix a “broken” system.

1

 Ireland

28.5

2

 Netherlands

26.5

3

 Austria

25

4

 Poland

21

5

 Belgium

16.01

6

 Hungary

16

7

 Italy

15.5

8

 Portugal

15.5

9

 Australia

15

10

 Greece

15

11

 Turkey

15

12

 Germany

14.82

13

 United Kingdom

12

14

 Korea

10.8

15

 Luxembourg

9.41

16

 New Zealand

8

17

 Iceland

7.75

18

 France

5.57

19

 Finland

5.5

20

 Denmark

1.48

21

 Japan

0.46

22

 Mexico

0

23

 Slovak Republic

0

24

 Sweden

-1.3

25

 Canada

-2.32

26

 Norway

-2.7

27

 Spain

-2.87

28

 United States

-4.1

29

 Czech Republic

-5

30

 Switzerland

-7.97
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Filed under: Tax, Tax Working Group
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Exploding tax myths – Part 1

Posted by Stuart Nash on January 27th, 2010

There is a lot of misinformation and misconception out there about NZ’s tax system, our rates, global competitiveness, competitive advantage etc.

What I will do is post a series of blogs outlining the myth and then give the reality.  If people think this is worthwhile, or if you have ideas about other ‘myths’ you would like debunked or explained, please let me know.

Myth 1. New Zealand taxes corporate taxable income at a relatively high rate.

Reality. NZ’s company tax rate is 30%.  This is lower than in the US, Japan, Germany, France,  Canada, Korea, Italy, Spain, Belgium and Luxembourg.   Not small backwater economies.! Its the same as Australia and the UK, and just fractionally above the EU average of 29.4%. 

Also remember, we don’t have a capital gains tax, a payroll tax, stamp duty or a transactional tax, like a lot of OECD countries do.

Quite simply, our company tax rate is very competitive and uncomplicated.

Facts source OECD.

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Filed under: Tax
28 Comments