A minimum tax rate for corporate income of 15% has been set forward by finance ministers from 20 of the world’s largest economies. They have also mentioned shifting the focus of certain taxes to meet the needs of a digital economy.

A series of meetings conducted by the G20, and the Organization for Economic Co-operation and Development saw 132 countries agree to this new tax system. The goal is to have this implemented by 2023 and will prevent large corporations from moving their profits to low-income countries. This will have an impact on all businesses, even a small LLC in Texas.

Suggested Video:

https://youtu.be/lFvjzxWcNoU

What the latest G20 news means

This new tax system will set an effective global minimum corporate tax of 15% for all multinationals generating a revenue of more than $890 million. Taxes will be redirected, resulting in nationals paying taxes in the regions where their goods or services are offered and not only the country that the business is based in. According to the Tax Foundation, 35 countries had a corporate tax rate of less than 15% in 2020.

The tax rate will increase for multinationals with revenue of more than $23.8 billion will find themselves paying between 20% to 30% of their profits above a 10% margin to the countries reaping the benefits of their offering. The exception to this rule being oil companies and financial companies.

To give you an idea of how things work, the U.S. will get less tax from Apple or Google, but other companies will soon reap the benefits of the sales done by these businesses in their regions. This also means that other businesses such as Volkswagen and Samsung will start paying taxes to the American government, even if they are not headquartered in the country.

US President Joe Biden has stated that companies based in countries not joining will be forced to pay higher taxes. This will be used as a tactic to persuade countries to join this new tax movement.

The Organization for Economic Co-operation and Development has stated that multinationals have deprived countries of between $100 billion and $240 billion – approximately 4-10% of global corporate income taxes – by identifying gaps in different tax systems and using them to their advantage. This has allowed businesses to pick and choose how they would like to be taxed and position their business accordingly, slashing corporate tax rates from 49% in 1985 to 24% in 2018.

Why US Corporate Incorporation Remains Attractive

As with most forms of tax, there are ways to make it work for your business, one of which is making your company a US incorporation. The benefits of doing this include filing tax as an individual which will allow you to spread out tax losses. Incorporated business owners can defer taxes. You can also deduct business costs from your taxes, and because you are doing so as an incorporated business, there is less chance of you being audited.

In terms of social security tax deductions, this will only need to be paid based on the salary that you receive which saves a lot of money. You can even deduct the benefits that you pay your employees from tax as well – this can include the insurance that you provide.

Another benefit of having incorporation is the fact that it protects your personal assets in the event that your business begins to experience financial difficulties. None of your personal assets are put at risk should something go wrong with the business, which is always reassuring. Additionally, instead of taking a salary that can be taxed, you can take income in the form of dividends. You have the flexibility to choose your income and navigate tax implications accordingly.

Incorporated businesses also make the business look more professional and trustworthy. As a result, you are taken more seriously and seen as a credible source. More trust equates to more business which equates to more revenue. Incorporated businesses are therefore primed to have tax benefits as well as have access to more lucrative opportunities. This is why US corporate incorporation remains an attractive option, especially as the G20 seeks to reimagine the tax system.

At this point, countries have been tasked with choosing to implement this new system or not, followed by laying out the best possible plan to do so. In October, the G20 will meet again to discuss this further. They will also be addressing the EU’s plans to tax digital services as they seek to potentially exploit a weaker UK that falls outside the idealistic “single digital market” that was touted as a benefit to Europeans.

It may well be that ecommerce Entrepreneurs will continue to avoid Europe over it’s tax policies and that can only benefit the U.S.