Like government dynamics, tax codes differ in every potential location depending on a variety of factors including the number of layers of government, constitutional responsibilities and national/regional initiatives.
The tax rate also differs substantially between jurisdictions (even within a country), or due to abatements, credits and other deductions. Tax rates may also depend on the size of business.
For example, in Canada the basic corporate tax rate is 38% of taxable income, or 28% after federal tax abatement. After the general tax reduction the net tax rate is 15%. If you qualify for the small business deduction the net tax rate drops to 9%. However, corporations are also subject to provincial taxes, which differ according to province. For example, in British Columbia the small business tax is 2% and the general corporate tax is 12%, whereas in Ontario they are 3.5% and 11.5%, respectively.
This collection of taxes may sound like a lot, but Canada offers the lowest tax rates in the G7 for small and medium sized businesses (businesses with fewer than 100 and 500 employees, respectively), and favourable exchange rates can translate to significant cost advantages for foreign companies.
The corporate tax rate is standard wherever you locate in Ontario, but additional taxes – such as property taxes – are applied to businesses at the municipal level and can differ – sometimes substantially – between communities.
While these examples are all Canadian in nature, the concept applies everywhere – the corporate tax rate in New York City is substantially different from the rates in Chicago or San Francisco. Understanding the local tax code is imperative before expansion because the differences between jurisdictions can mean the difference between success and failure in a new location.
Finally, explore incentives like funding programs and tax credits, as they can substantially reduce your tax bill. Examples in Canada include research and development assistance like the “Industrial Research Assistance Program” and “Scientific Research and Experimental Development (SR&ED) Program,” and new write-offs for manufacturing machinery and equipment.
Overall, tax codes – and available incentives – can provide a significant cost advantage for businesses looking to expand in a new jurisdiction. However, since the tax codes themselves can be quite complex – we only scratched the surface in this section – and the availability of credits and additional government funding change every few years, we highly recommend seeking the services of a corporate tax expert. Waterloo EDC is happy to introduce you to respected and qualified professionals.