Chile reduced corporate tax rate the most worldwide during 2021 due pandemic

RIO DE JANEIRO, BRAZIL – Like during the first year of the pandemic, in 2021, several countries used tax relief measures to reduce the burden on taxpayers of different sizes, whether companies or individuals.

And one of the main facilities put in place by governments was to temporarily reduce the contribution of some taxpayers, at least until the health situation improves.

Chile was part of this global effort. It was reflected in a report prepared by the U.S. think tank Tax Foundation, which shows that Chile stood out among the nations that temporarily reduced their corporate taxes last year to face the economic crisis.

Thus, Chile temporarily reduced the First Category tax rate for small and medium-sized companies from 25% to 10%. That, for the business years between 2020 and 2022. The Tax Foundation considers the 10% rate since it is the one applied for most of the companies in the country, given that the tax rate for the largest companies in the semi-integrated regime remains at 27%.

The report shows that 20 countries made adjustments to their corporate tax rate in 2021, of which three increased it (Bangladesh, Argentina, and Gibraltar, from 25% to 32.5%, 30% to 35%, and 10% to 12.5%, respectively, compared to the previous year) and 17 others reduced it: Sweden, Colombia, Switzerland, Monaco, Congo, Turkey, Indonesia, France, Gambia, Laos, Sri Lanka, Angola, Congo, Bhutan, Kiribati, Tunisia, and Chile.

The adjustment ranges from a one-percentage-point drop in Sweden to 15 percentage points in Chile, making the decline in the South American country the largest among the 180 jurisdictions analyzed.

Tunisia also stands out in the sample, which cut its corporate tax by ten percentage points to 15%. Kiribati did the same but by five units, to 30%, while France applied an adjustment of 3.6 percentage points to 28.4%.

GLOBAL RATES

At the high end is Comoros, which taxes corporate profits at 50%, followed by Puerto Rico (37.5%), and Suriname (36%). At the other extreme are Barbados, with a rate of just 5.5% on corporate profits, while Uzbekistan levies 7.5%, and Turkmenistan 8%.

Fifteen jurisdictions in the sample do not tax corporate profits.

The average corporate rate among the 180 jurisdictions analyzed was 23.5% last year, while weighted by gross domestic product (GDP), it amounted to 25.4%. To take a long-term view, in 1980, the global average rate was 40.1% and 46.5%, respectively, with an accelerating decline starting in the 2000s.

By region, the lowest rates are recorded in Asia, with 19.6%. At the other extreme is Africa, with an average tax rate of 27.9%. Now, when weighted by the size of its economies, Europe is at the bottom of the sample, with an average corporate income tax rate of 23.9%. At the same time, the highest – under this same parameter – corresponds to South America with 31%.

At the blocs level, the average for the European Union is 21.3%, lower than the 23% of the member countries of the Organization for Economic Cooperation and Development (OECD) and 26.7% of the members of the G7.

In the coming years, several countries have planned tax changes. It is the case of Austria, which will reduce corporate income tax from 25% to 23% as of 2024. France, for its part, will reduce the rate to 25.8% this year. The United Kingdom, in turn, will increase the tax from 19% to 25% as of April 1, 2023.