Corporation Tax (CT)

Table of Contents

1. Definition
2. Examples
3. Frequently Asked Questions (FAQs)
4. Related Terms
5. Online References
6. Suggested Books for Further Studies
7. Fundamentals Quiz

Definition

Corporation Tax (CT) is a levy placed on the profit of a firm, with different rates applicable depending on the size and type of business and the jurisdiction in which it operates. The primary objective behind Corporation Tax is to collect revenue to fund public services and facilities. Corporation Tax is typically applied to both domestic and foreign companies operating within a nation’s borders.

Key Elements:

• Profits: This refers to the earnings of a corporation after deducting expenses such as costs, salaries, and operational expenditures.
• Tax Rates: Differ based on jurisdiction, size, and the type of corporation.
• Legal Structure: Applied to various forms of corporations including public limited companies (PLCs), private limited companies (Ltd), LLCs, and multinational enterprises.

Examples

1. United States: In the U.S., the Tax Cuts and Jobs Act of 2017 (TCJA) set the federal corporate tax rate at 21%, down from the previous 35%. State taxes can also apply.
2. United Kingdom: The standard Corporation Tax rate in the UK is 19%. It applies to all profits except those from oil extraction and oil rights, which are taxed separately.
3. Japan: As of 2023, Japan levies a Corporation Tax at a rate of about 23.2%, excluding local taxes.

Frequently Asked Questions (FAQs)

1. What is the purpose of Corporation Tax?

   • Corporation Tax is primarily used to generate revenue to fund government services and infrastructure.

2. How is Corporation Tax calculated?

   • Corporation Tax is calculated on the company’s profits before tax. It involves taking the total revenue and subtracting allowable expenses and other deductions.

3. Do all businesses have to pay Corporation Tax?

   • Most incorporated businesses have to pay Corporation Tax. However, the specific requirements can vary by jurisdiction and the type of business.

4. Can Corporation Tax rates change?

   • Yes, Corporation Tax rates can change based on government policy and budget amendments.

5. What deductions can businesses claim against Corporation Tax?

   • Typical deductions include operational costs, depreciation, employee wages, and certain losses.

Related Terms

• Gross Profit: The total revenue of a company minus the cost of goods sold (COGS).
• Net Profit: The remaining profit after all expenses, taxes, and costs have been subtracted from total revenue.
• Value-Added Tax (VAT): A type of consumption tax placed on a product whenever value is added at a stage of production and at the final sale.
• Income Tax: Tax levied by governments directly on income, particularly an annual tax on personal income.

Online References

1. Investopedia’s Corporation Tax Overview
2. IRS: Federal Income Taxes on Corporations
3. HMRC: Corporation Tax

Suggested Books for Further Studies

1. “Corporate & Individual Taxation” by Thomas P. Loughran
2. “Corporate Income Tax Accounting” by C.P.A. J. K. Lasser
3. “Essentials of UK Corporation Tax 2023” by Robert Leach
4. “International and Comparative Taxation: Essays in Honour of Klaus Vogel” by Guglielmo Maisto

Accounting Basics: “Corporation Tax (CT)” Fundamentals Quiz

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