Corporate tax stands for a tax imposed on the corporate profits, and it can greatly vary between jurisdictions. The system of corporate taxation is very complex, and there are certain advantages and disadvantages for an individual taxpayer who decides to incorporate his business. The main advantage is that a shareholder can leave the funds in the corporation and use them as a vehicle of investment, thus avoiding some taxes until a later date. However, if losses are experienced, which usually happens when the business if young, a taxpayer is better off if the business in not incorporated so that the losses cannot be applied directly against personal income.In the U.S., although the federal corporate rate accounts to 35%, the “check the box” system, which was introduced in 1999, allows corporations to choose the status of a pass-through entity. Due to this system, 35% corporate rate can be skipped and all income can be divided among the shareholders. Corporate dividends in the U.S. are taxed at a lower rate than those of other countries, especially Europe.

Canadian companies and associations are subject to Canadian corporate income taxes, which may include federal and/or provincial business taxes. The amount is determined on the basis of general business income. Since 2001, the corporate tax in Canada has been reduced to 27%, with the subsequent annual reduction down to 21% during the five year period. To encourage small businesses, some types of Canadian corporations, such as CCPC (Canadian controlled private corporations) were granted even a lower tax rate.

Therefore, a great care should be exercised in the process of corporate tax planning and a prudent business person must seek an expert advice about financial and tax legislation in relation to corporate business in her state (if in U.S.) or a province (if in Canada).