Extensive negotiations, directed by the OECD and agreed upon by over 140 countries, have led to the introduction of a uniform Corporate Tax rate of 15 per cent as a new global minimum.
For international entrepreneurs, this development could mean increased tax liabilities on their Corporation Tax, regardless of whether the local taxation is lower than the global minimum or not.
This is because the global minimum will apply over and above the local tax rate where it is less than the threshold.
So, if you pay 10 per cent Corporation Tax in one location, you could find yourself making up the additional five in another jurisdiction.
Global minimum tax explained
At its heart, the new tax rule aims to level the playing field by diminishing the advantages of shifting profits to low-tax nations – a common tactic among multinational corporations to reduce their tax liabilities.
Now, businesses, particularly those with annual turnovers exceeding €750 million, must prepare for a minimum 15 per cent tax rate on their profits.
So, if your enterprise enjoys a lower tax rate in one country, you might need to brace for additional taxes to align with this global benchmark.
The broad scope of the regulation
The global minimum tax isn’t exclusive to a select few countries – its reach is very extensive.
Major economies like the EU, UK, Japan, Canada, and even traditional tax havens such as Ireland and Luxembourg, are on board with the scheme.
However, it’s noteworthy that the US and China are yet to agree or enact the relevant legislation.
How to navigate this new taxation challenge
The regulations are complex and vary across different jurisdictions.
A crucial element to watch for is the ‘top-up’ tax that could come into play if your profits are taxed below 15 per cent in one jurisdiction, inviting additional taxes in others.
Whether or not your business reaches the threshold for the global minimum tax rate, the changes call for a revaluation of your tax strategies and a proper look into your financial situation.
As an entrepreneur, staying informed, adapting your strategies, and ensuring compliance are more crucial than ever in the face of this changing legislation.
We advise that you consult with your tax adviser to ensure that you do not pay more tax than is necessary and that your liabilities are minimised across jurisdictions.
Reanda UK is a subsidiary of leading independent accountancy firm Grunberg & Co Limited. Our aim is to help businesses and individuals to navigate the UK’s world-renowned business and tax infrastructure, and to support them with their international ambitions. To find out how we can help you, please contact us.