In general, the taxable income in the income tax for resident entities and resident individuals is equal to gross earnings minus deductions. In general, all expenses incurred to obtain, maintain and preserve taxable income are deductible unless expressly forbidden.
Non-resident entities and individuals are taxed on income of Argentine source by way of income tax. The local resident paying to a foreign entity or individual is obliged to withhold the income tax at a 35-percent (or 15-percent for some gains as capital gains) tax rate applied on a presumption of taxable income that varies in connection with the concept by which the payment is made. The presumption of taxable income can be from 35 percent up to 100 percent of the amounts paid.
For incomes connected to the transfer of shares, bonds or titles, or incomes connected with the rental of real estate or the transfer of assets located in Argentina owned by a non-resident, the non-resident individual or entity is entitled to choose to apply the presumption of income or to present evidence of all the expenses incurred and deduct those expenses from the gross amount to be paid.
Taxable income of a resident company is equal to assessable income less allowable deductions.
Taxable income of a non-resident equals Australian-sourced income less allowable deductions incurred in respect of that income. Residents of countries that have a DTA with Australia are only subject to income taxes on business profits in Australia if they carry on business in Australia at or through a permanent establishment. There is no branch profits tax in Australia.
The annual financial statements prepared in accordance with commercial/accounting law are the basis for determining the taxable income. Valuation methods may be used for both assessments pursuant to commercial/accounting law as well as for tax purposes, unless tax laws provide otherwise. Adjustment of profit or loss shown in the financial statements is to be made in order to level out any difference resulting from applying tax law or commercial/accounting law (Mehr-Weniger-Rechnung). Depreciation for tax purposes is generally in line with depreciation in accounting/financial statements. If depreciation stated in the financial statement exceeds the amount admissible under tax law, the provisions of tax law prevail, resulting in a difference between taxable income and the annual result. Goodwill acquired in the course of a takeover (asset deal) must be amortized over a period of 15 years for tax purposes. Buildings are to be depreciated. The depreciation rate ranges between 2.5 percent (eg, a factory) and 1.5 percent (eg, residential buildings) on a straight-line basis.
The taxable income of a corporation includes its worldwide income, less allowable deductions. For Belgian corporate tax purposes, taxable income is determined on the basis of the approved Belgian GAAP annual accounts, subject to certain adjustments in accordance with the Belgian Income Tax Code.
Non-resident entities can be liable to pay Belgian non-resident income tax on specific types of income. Computation of the taxable base is generally subject to the same rules that apply to the corporate income tax for resident companies.
Corporate income tax (IRPJ)
As a general rule, Brazilian legal entities are required to pay corporate income tax (IRPJ) in Brazil. The IRPJ may be calculated under two different methods, the actual profits method or under the deemed profits method.
Brazilian legal entities are taxed by the IRPJ on their worldwide income and capital gains, regardless of their origin.
Under the actual profits method, the IRPJ may be accrued and paid on a quarterly or annual basis. If quarterly, a 15 percent rate will levy over the net income of the period, plus a 10 percent surtax over the net income exceeding BRL60,000, per quarter.
On the other hand, if the IRPJ is calculated annually, taxpayers are required to anticipate monthly installments, which are calculated on an estimated income basis. The estimated income shall correspond to 8 percent up to 32 percent of the total monthly gross revenue, depending on the taxpayer's activity, in addition to any capital gains perceived in the period, as well as other revenues and positive results incurred by the company. Alternatively, taxpayers may calculate these anticipated monthly installments over the net balance accounted. Over the calculated basis, the IRPJ shall levy at a 15 percent rate, plus an additional 10 percent surtax over the estimated income that exceeds BRL20,000 per month.
At the end of the year, the taxpayer may request the reimbursement of overpaid amounts, or be required to pay the difference between the amount paid monthly and the one calculated based on the annual income.
Note that certain taxpayers are allowed to calculate the IRPJ under the deemed profits method, as long as certain thresholds set in the legislation are met (ie, maximum gross revenues in the prior calendar year not exceeding BRL78 million per year or fraction).
Under this method, the IRPJ is calculated on a quarterly basis. Similar to the monthly anticipations made under the actual profits method, the taxable basis of the IRPJ will vary from 8 percent up to 32 percent of the legal entity's revenues, depending on the taxpayer activity. Over such basis, the IRPJ shall levy at a 15-percent rate, in addition to a 10- percent surtax on the excess of deemed profits of BRL60,000, per quarter.
Please note that if the deemed profits method of taxation is adopted, the taxpayer will not be able to make any adjustments to the IRPJ's taxable basis.
Social contribution on net income (CSLL)
The CSLL is a social contribution that funds the social security system. The CSLL is assessed on net profits before income tax (ie, IRPJ) and after the adjustments for non-deductible items and deemed profits.
The rules for calculating the CSLL are substantially the same as those for IRPJ. In effect, CSLL is a true corporate income tax surcharge, that levies at 9 percent rate over taxpayer's net income specifically adjusted for CSLL purposes. It is important to notice that some financial institutions are subject to a 20-percent CSLL rate.
Together with the IRPJ, the combined corporate income taxes rate (ie, IRPJ and CSLL) for most companies is currently 34 percent.
Interest on net equity (INE)
INE is a hybrid instrument used by companies to pay its shareholders and, simultaneously, generate a deductible expense at the company level. Accordingly, INE may be paid or credited to the relevant shareholder, provided that the company:
- Duly deliberates the INE's payment or credit
- Has retained or current year earnings and
- Follows specific thresholds limits set in the legislation
The amount of INE to be paid or credited to the shareholder shall be calculated by applying the government long-term interest rate (Taxa de Juros de Longo Prazo - TJLP), calculated on a pro rata die basis, over the following net equity accounts:
- Corporate capital
- Capital reserve
- Profit reserve
- Treasury shares and
- Accumulated losses.
The withholding income tax shall be levied over amounts paid or credited at a 15 percent tax rate.
For purposes of corporate income tax (IRPJ and CSLL) deduction, the following limits must be adopted, whichever is higher:
- 50 percent of the taxpayer's net profit accrued at the end of the year before the INE deduction or
- 50 percent of the sum of the accumulated and reserve profits
We highlight that the Brazilian Government is studying possible changes to the rules regarding the payment of INE and its respective tax effects.
Taxable income of a resident corporation is generally equal to all gross income less applicable deductions.
Income earned in Canada (including one-half of capital gains arising as a result of the disposition of taxable Canadian property) is generally subject to Canadian income tax at general tax rates. Branch profits tax may also apply to income earned in Canada that is repatriated by a non-resident corporation. Income tax treaties can reduce or eliminate these taxes.
Corporate Income Tax (“CIT”)
The Chilean Income Tax Regime is structured as an imputation credit system in which CIT paid by companies may be used to offset the Personal Income Tax (PIT) or Withholding Tax arising for final shareholders on the dividends by companies subject to CIT.
CIT is paid by the entity on its income which must be assessed following Income Tax law pertinent provisions.
The taxable income is assessed by computing gross income (turnover) less applicable deductions (costs and certain expenses).
Foreign (“Withholding Tax”)
As a rule, withholding tax is imposed on the gross amount of the payments made abroad.
The taxable income of a resident enterprise is the balance of its annual gross revenue less all applicable deductions and losses.
The taxable income of a non-resident enterprise is either the balance of its China-sourced gross revenue less all applicable deductions when the income is derived by or effectively connected with its establishment or place in China, or the gross revenue derived from China when the income is not effectively connected with its establishment or place in China.
The taxable income for resident companies is equal to the gross income (ordinary and extraordinary) less costs and expenses authorized for tax purposes incurred in the income-producing activity. Taxable income may be adjusted for exempt or non-taxable income.
Non-resident companies may be subject to 3 different tax regimes in Colombia:
Tax on the gross payments through the withholding mechanism which results in its final income tax liability, if the tax is withheld in accordance to articles 407 to 411 of the Colombian Tax Code (eg, interest, royalties, services, and taxable dividends)
If non-resident entities obtain a different type of income, if the withholding tax is not applied, or if the payor is not a qualified withholding agent, they could be required to file an income tax return and, therefore, their Colombian-source income may be subject to income tax at a rate of 35 percent as of 2022.
If the non-resident entity has a permanent establishment (PE) in Colombia, they are subject to income tax on the worldwide income attributable to the PE at a rate of 35 percent as of 2022. The relevant rule indicates that the determination of the income and capital gains attributable to the PE shall be determined taking into consideration the functions, assets, risks, and people involved in obtaining said income or capital gain.
Unlimited tax liability refers to tax on worldwide income. Taxable profit is, roughly speaking, calculated as total income reduced by the costs generated by the business.
Limited tax liability triggers taxation in Finland for a foreign company on income attributable to a Finnish permanent establishment, income accrued from Finland (with certain limitations) and income related to Finnish real estate.
Taxable income is the net income as determined by the company's profit and loss statement, reduced by certain non-taxable items and increased by certain non-deductible expenses, such as the interest deduction limitation rules.
The Finance Act for 2019 has introduced from January 1, 2019 new rules regarding interest deductibility. In particular, net financial charges may be deductible up to the higher of the following 2 amounts:
- EUR3 million and
- 30 percent of the adjusted taxable income, before offsetting of tax losses.
Specific rules apply to members of a tax consolidated group as well as to thin-capitalized companies.
Moreover, other limitations on interest deductibility may be triggered, under certain conditions.
The Finance Act for 2020 has transposed into French law the provisions regarding hybrid mismatches of Directive (EU) 2016/1164 of 12 July 2016 (ATAD I) as amended by Directive (EU) 2017/952 of 29 May 2017 (ATAD II).These provisions aim at neutralizing the tax effects of hybrid mismatch arrangements, which exploit differences in the tax treatment of an entity or instrument under the laws of t2 or more EU member states. ATAD II extends the scope of these provisions to arrangements involving non-EU countries.
Foreign corporations are subject to French corporate tax on French-source income from profits derived from a business operated in France, real estate assets located in France, a share of profits in a French partnership (except for partnerships that are regulated investment funds – SLP or société de libre partenariat), dividends from a French source or services rendered in France. Tax treaties can reduce or eliminate these taxes. Specific tax rules apply to:
- Investors or payments related to a "non-cooperative jurisdiction" and
- Capital gains on "substantial participations" (more than 25 percent of financial rights).
Taxable income of corporations is based on the annual financial statements prepared under German accounting principles pursuant to the German Commercial Code, subject to adjustments for tax purposes.
A non-resident corporation is subject to corporate income tax only on income derived from German sources. Income from German sources includes, among other items, business income from operations in the country through a branch, office or other permanent establishment, including a permanent representative, and income derived from the leasing and disposal of real estate located in Germany.
Hong Kong, SAR
For profits tax purposes, a person is taxed on its assessable profits calculated as its income minus applicable deductions. Usually the starting point of the calculation will be the financial statements of the taxpayer adjusted in accordance with the tax legislation. Adjustments can be made for items of income – for example, excluding offshore profits – or items of deductions – for example, adjusting amortization claims.
Generally, assessable profits include only profits arising in or derived from Hong Kong ( ie, profits sourced in Hong Kong) from a trade, profession or business carried on in Hong Kong. Source is a practical, hard matter of fact.
Specific rules may apply to certain types of receipts. For instance, a person in receipt of an amount for the use or right to use certain intellectual properties or movable property is deemed to carry on business in Hong Kong and in receipt of income arising in or derived from Hong Kong. There are also specific rules for income from an intra-group financing business.
On January 1, 2023, the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Ordinance 2022 introduced a refined Foreign Source Income Exemption (FSIE) regime, under which certain foreign-sourced income, including interest, dividend, disposal gain and intellectual property income of a multinational enterprise (MNE) entity may be chargeable to profits tax when it is received in Hong Kong, subject to certain exception requirements such as an economic substance requirement, participation requirement or nexus requirement.
Expenses are generally deductible to the extent that they are incurred for the production of assessable profits and are not capital in nature, unless specifically prohibited. There are also specific rules for deductions of an intra-group financing business.
There is no special regime for nonresidents. A Hong Kong branch of a foreign corporation is treated the same way as a locally incorporated company and is subject to similar corporate and tax obligations as a resident company.
A resident company is subject to corporate income tax on all its income from sources anywhere in the world, including patent royalties, dividends, interest and capital gains. Taxable base is equal to the pre-tax profit as shown in the financial statements by effecting certain adjustments. Taxable profits comprise operational business profits, profits from financial transactions and other profits.
In general, all expenses related to the operation of a business are deductible with certain exemptions (eg, fines and penalties).
Certain tax incentives are granted in the form of taxable base reductions in addition to the already-recognized cost deduction for accounting purposes.
A minimum alternative tax applies if a company cannot present a cost structure attached to the tax return.
Nonresident taxpayers are taxed on the income attributed to their Hungarian permanent establishments or on the income realized through alienation of participation in a Hungarian entity that qualifies as a real estate holding company.
Residents are taxed on their global income less any deductions. Income derived from a foreign source by a resident company is subject to the applicable domestic tax rates.
Foreign companies that have branches or similar establishments in India are taxed as foreign corporations. A permanent establishment of a foreign company in India may be taxed on the income attributable to such permanent establishment in India.
Further, the concept of “significant economic presence” (SEP) was introduced w.e.f. January 4, 2022, stating that transactions in respect of goods, services or property including provision of download of data or software in India or soliciting of its business activities in India through digital means carried out by a non-resident shall constitute SEP in India, whether or not the agreement for such transactions or activities are entered into in India or the non-resident has a residence or place of business in India or renders services in India. However, only so much income as is attributable to the transactions or activities referred above shall be deemed to accrue or arise in India from a “business connection” of the non-resident in India.
A foreign company will be liable to pay tax on international transactions that may indirectly affect ownership and control of Indian company subject to tax treaty.
Taxable income of an Irish tax resident company is calculated by deducting allowable deductions (expenses, allowances and reliefs) from the profits and other income.
The taxable income of an Israeli resident corporation is the income from the sources stipulated under law, including capital gains, as reduced by applicable:
- Offsets and credits and
The taxable income of a non-resident corporation that has business activity in Israel (or a permanent establishment in Israel in the case of a corporation entitled to treaty benefits) is generally similar to that of an Israeli resident corporation.
Taxable income of domestic corporations for corporate income tax purposes (IRES) is equal to their business income less applicable deductions.
Foreign corporations are taxed on the amount of income generated in Italy, generally without any deduction.
Taxable income of a domestic corporation is equal to all gross income less applicable deductions.
The scope of taxable income for a foreign corporation depends on the existence of its permanent establishment in Japan. If a foreign corporation does not have a permanent establishment in Japan, the tax liability of the foreign corporation is usually settled solely through a withholding tax. Under Japanese tax laws, if a foreign corporation has a permanent establishment in Japan, corporate tax is imposed on its income derived from sources in Japan, such as the taxable income of a domestic corporation. However, tax treaties may exempt a foreign corporation from taxation on industrial or commercial profits earned in Japan to the extent that the income is not attributable to its permanent establishment in Japan.
Taxable income is calculated based on the profit as stated in the commercial balance sheet, plus certain adjustments provided under the tax law (eg, non-deductibility of taxes, exemption for dividends).
A corporate non-resident entity is subject to corporate income tax only on income generated in Luxembourg.
Income from Luxembourg sources include commercial income realized by, for example, a permanent establishment/representative in Luxembourg, income from the lease of property and securities income.
In general terms, taxable income is determined on an accrual basis, and taxpayers are allowed to deduct most business expenses. There are certain exceptions on expenses that can be deductible, among them:
- Penalties and unauthorized donations
Increases to reserves for bad debts, obsolescence, contingencies and indemnities, and exempt salaries (percentage may be decreased to 47 percent if the exempt salaries are not reduced from previous year), among others
- Certain payments to tax havens or hybrid entities.
Outsourcing personnel payments for the outsourcing of services related to activities that form part of the main corporate purpose or economic activities of the service recipient
A foreign company with a PE in Mexico is taxable in Mexico on all income attributable to the PE. Basically, income is considered attributable to a PE if it derives from the activities of the PE. Foreign-source income is subject to Mexican taxation if it is derived by a Mexican PE, because domestic rules do not limit the “attributable” concept to income from Mexican sources. A foreign tax credit is also allowed for PEs with foreign-source income.
Persons classified as residents for IRPC purposes (ie, legal persons and other entities whose headquarters or effective management is located in Mozambican territory) are taxed on a worldwide income basis.
By contrast, non-residents are subject to IRPC only on their income obtained in Mozambique. When the non-resident entity does not have a permanent establishment, it will be generally taxed through withholding tax or through appointment of a legal representative to comply with the respective filling and payment obligations (in case the income earned is not subject to withholding at source – eg, capital gains income).
Taxable income of a domestic corporation is equal to all net income less applicable deductions.
A nonresident corporation is subject to corporate income tax only on income derived from Dutch sources. Income from Dutch sources include, among other items, business income from operations in the country through a branch, office or other permanent establishment, including a permanent representative, and income derived from the leasing and disposal of real estate located in the Netherlands.
Companies that are tax resident in Norway are taxed on their worldwide income (unlimited tax liability). The taxable income is generally calculated as the total income reduced by the costs generated by the business.
Foreign companies with limited tax liability in Norway are generally taxable on their relevant net Norwegian source income in the same manner as domestic companies.
Interest deduction limitation rules
Norway has legislation to limit the deduction of interest on loans on both internal and external debt. In principle, tax deductions for interest are limited to 25 percent of the company's deemed Tax EBITDA. The application threshold is generally NOK25 million in net interest expenses on the Norwegian part of consolidated group. To certain related parties, the threshold may be only NOK5 million on a company level. Certain exemptions apply, based on the asset-to-equity ratio of the company compared to the group. For Norwegian entities that are not part of a consolidated group, the applicable threshold is NOK5 million for net interest on internal debt.
Corporate Income Tax
Regarding the CIT basis, profits are taxed on a yearly and an accrual basis at the time the business is entitled to receive a certain income.
However, according to Peruvian Income Tax Law, such amount of profits could vary by means of:
- The existing of exempted income that should not be considered in the tax base and
- The existing of expenses that are subject to quantitative limitations or legal requirements as well as existing of expenses that are expressly forbidden for income tax purposes.
Non-resident entities may be subject to tax but only for their Peruvian-sourced income.
Taxable income of a domestic corporation is equal to a sum of gross income from 2 separate sources of income: capital gains and other sources. Income from a given source is equal to the excess of the sum of revenues from that source over costs incurred to generate revenues during the fiscal year. A tax year is generally same as the financial year and can be a calendar year or any other 12 consecutive months.
Taxable income of a domestic entity is equal to gross income less applicable deductions.
Taxable income of a foreign entity is equal to the gross income of the business carried on through the Portuguese permanent establishment less any deductions applicable to that Portuguese business, or, when there is no permanent establishment, the amount of income sourced from Portugal.
The taxable income of a resident legal entity is represented by the difference between all gross income, less any non-taxable income and all expenses, less any non-deductible expenses, to which supplementary taxable or deductible items may be added or subtracted, as the case may be.
Taxable profits attributed to a Romanian branch or any other Romanian permanent establishment are subject to corporate income tax under similar rules applicable to a Romanian tax resident entity.
The taxable profit derived from the transfer of a real estate property located in Romania or from the disposition of any rights related to such real estate property are also subject to the standard corporate income tax rate.
Foreign entities may also be taxed in Romania for the taxable profits derived from the transfer of participation titles in a Romanian legal entity if the minimum holding conditions are not met.
Tax treaties can reduce or eliminate these taxes, provided that the documentation needed to apply such treaties is available locally.
Corporate profits tax is charged on income less the duly documented and economically justified business expenses.
Taxable income equals income less applicable deductions attributed to a permanent establishment in Russia or certain types of income from a Russian source less applicable deductions (where applicable). Double tax treaties can reduce or eliminate these taxes.
Taxable income refers to:
- Gains or profits from any trade, business, profession or vocation
- Income from investment such as dividends, interest and rental
- Royalties, premiums and any other profits from property
- Other gains that are revenue in nature
Deductions such as business expenses, capital allowances (tax depreciation) and reliefs can be claimed to reduce taxable income, which leads to lower taxes.
Taxable income of a resident corporate is equal to all gross income plus any deemed inclusions less applicable exemptions, deductions and allowances.
Foreign companies which operate through a branch or which have a permanent establishment within SA are subject to tax on all income from a source within SA. Tax treaties can reduce or eliminate these taxes.
Corporate tax for income from the business year is levied for taxable net income of businesses in each business year.
Foreign corporations are subject to corporate tax at regular tax rates on a net income basis. A branch tax may be added on the corporate tax in accordance with the applicable tax treaty.
Taxable income of a domestic corporation is equal to all net income less applicable deductions.
Foreign corporations operating in Spain through a permanent establishment (PE) are subject to Spanish tax at regular tax rates, as a general rule on a net income basis, with limitations on the deductibility of certain expenses (eg, interest and royalties paid to the head office). Branch profits tax may also apply to income repatriated to a foreign entity.
An unlimited tax liable company is taxed on its worldwide income. The taxable income is generally calculated as the total income reduced by the costs generated by the business.
A limited tax liable company is taxed on income deriving from a permanent establishment in Sweden and real estate located in Sweden.
Resident companies are subject to corporate income tax on their worldwide income with the exception of income attributable to foreign permanent establishments or foreign immovable property. The taxable income is determined based on the statutory standalone Swiss generally accepted accounting principles (GAAP) financial statements. Such income is excluded from the Swiss tax base and is only considered for rate progression purposes in cantons that still apply progressive tax rates.
Nonresident companies in general are subject to tax only on Swiss source income (ie, income and capital gain derived from Swiss business partnerships, permanent establishments (a fixed place of business through which the business activity of an enterprise is wholly or partly carried out) or immovable property.
The taxable income of a domestic company is its worldwide net income, which is defined as gross annual income less costs and expenses, losses and taxes.
A foreign company is subject to income tax only on its Taiwan-source income, which is either computed in the same manner as a Taiwan company or subject to withholding tax at a prescribed rate.
Taxable income includes all profits arising from relevant income with the exception of applicable exemptions.
Taxable income of a nonresident company includes
- Fees professionally obtained in Turkey
- Profits derived by enterprises conducting commercial, agricultural and/or industrial activities which have an establishment or a permanent representative in Turkey
- Income derived from lease of real properties, movable properties and rights in Turkey
- Securities income and
- Other turnover (income) obtained from Turkey.
Taxable income of a resident is defined as profit calculated under local GAAP or IFRS, whichever is applicable, subject to adjustments envisaged in the Tax Code.
Generally, all expenses supported by primary source documents may be deducted upon the computing of taxable income.
Ukraine-sourced income of a nonresident generally consists of passive income paid by Ukrainian residents.
Where a nonresident has permanent establishment in Ukraine, profit attributable to such permanent establishment is calculated under one of the following methods:
Under the same rules applicable to Ukrainian residents (ie, the direct method)
As total revenues of permanent establishment multiplied by 30 percent (ie, the indirect or deemed profitability method)
Under a separate balance sheet of nonresident approved by local Ukrainian tax authority (ie, the separate balance sheet method)
United Arab Emirates
There is currently no federal UAE corporate income taxation. The existing income tax decrees at Emirate level (the UAE consists of 7 Emirates, including Abu Dhabi and Dubai) are not applied in practice.
Currently, income taxes are only imposed at Emirate level on the following:
- Oil and gas producing companies and
- Branches of foreign banks.
Over the past years, there have been discussions to introduce corporate income tax at the UAE federal level, although this has not yet materialized in any proposed legislation.
Taxable income of a resident company is equal to all gross income and gains less applicable deductions.
Taxable income of a nonresident company is equal to the gross income of the business carried on through the UK permanent establishment less any deductions applicable to that UK business.
Separate rules apply to determine the amount of taxable income under the diverted profits tax and ORIP rules. The digital services tax is calculated by reference to revenue, rather than profit.
Taxable income of a domestic corporation is equal to all gross income less applicable deductions.
Effectively connected income is subject to US tax at regular tax rates on a net income basis. In addition, a branch profits tax at a rate of 30 percent may apply to foreign corporations operating through a branch in the US. Gross FDAP income is taxed at a flat 30-percent rate and cannot be reduced by deductions. Tax treaties can reduce or eliminate these taxes.
Taxable income is calculated, for both local and foreign entities, on all gross income earned from a Zimbabwean source, except for exempt income, less allowable deductions.