How much taxes do corporations have to pay on dividends they receive from other companies?
"Summary: The corporation pays 33.3% tax on dividends it receives and gets a tax refund at the same rate when it pays dividends out. According to http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/TaxRates/Federal-and-Provincial-Territorial-Tax-Rates-for-Income-Earned-CCPC-2015-Dec-31.pdf the corporate tax rates for 2015 are: According to page 3: The federal and provincial tax rates shown in the tables apply to investment income   earned by a CCPC, other than capital gains and dividends received from Canadian   corporations. The rates that apply to capital gains are one-half of the rates shown in   the tables. Dividends received from Canadian corporations are deductible in computing   regular Part I tax, but may be subject to Part IV tax, calculated at a rate of 33 1/3%. If I understand that correctly, this means that a Corporation in Quebec pays 46.6% on investment income other than capital gains and dividends, 23.3% on capital gains and 33.33% on dividends. I'm marking this answer as community wiki so anyone can correct these numbers if they are incorrect. UPDATE: According to http://www.pwc.com/ca/en/tax/publications/pwc-facts-figures-2014-07-en.pdf page 22 the tax rate on taxable dividends received from certain Canadian corporations is 33 1/3%. Further, this is refunded to the corporation through the ""refundable dividend tax on hand"" (RDTOH) mechanism at a rate of $1 for every $3 of taxable dividends paid. My interpretation is as follows: if the corporation receives $100 of dividends from another company, it pays $33.33 tax. If that corporation then pays out $100 of dividends at a later time, it receives a tax refund of $33.33. Meaning, the original tax gets refunded. Note the first line is for the 2015 tax year while the second link is for the 2014 tax year. The numbers might be a little different but the tax/refund process remains the same."
This is the point of the article. Somehow a company which is so successful has, for tax purposes, such a razor thin margin. So their taxation clearly isn't in keeping with its actual ability to pay, passing along the burden to other businesses and individuals. It doesn't make much difference in the end. Imagine you have $100 of revenue in your company. You can either pay it to yourself as salary, meaning that you don't pay corporate tax on it, or you can keep it in the company, pay corporate tax on it, then pay yourself a dividend of what is left. While that dividend will be treated better than salary, remember that the company already paid tax on it. You paying less on what's left doesn't equate to paying less overall. Go ahead and run the numbers using your actual corporate tax rate and your personal income tax rate. Try doing your whole salary as dividends - not dollar for dollar, but as how much the company would have as profit to give you a dividend if it didn't spend (and deduct) salary money on you. You are unlikely to see any difference at all. The net final money in your pocket, and the amount that went to the government, will probably be the same. If paying dividends keeps your earned income low, you may find that you can't use RRSP or childcare deductions. You are also not getting CPP credit. That's an argument for salary, or at least a certain minimum amount of salary. You have to deduct taxes at source on salary and send it along to the government, which is an argument for dividends if you feel you could invest that money and use it well before the taxes get around to being due. Possibly you may discover an edge case where you move a few thousand from one marginal tax rate to another and clear a few hundred extra as a result. I don't discourage you from doing the math, I just point out that the various percentages (tax rates, grossups, deductions etc) have all been carefully chosen so that it pretty much works out the same, or gives a small preference to salary. We give excess money to ourselves as bonus rather than dividend having run the numbers a few times. There's no secret trick here. Does my prior answer here to a slightly different question help at all? Are there capital gains taxes or dividend taxes if I invest in the U.S. stock market from outside of the country? "Tax US corporate ""persons (citizens)"" under the same regime as US human persons/citizens, i.e., file/pay taxes on all income earned annually with deductions for foreign taxes paid.  Problem solved for both shareholders and governments.  [US Citizens and Resident Aliens Abroad - Filing Requirements](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad-filing-requirements)  &gt;If you are a U.S. citizen or resident alien living or traveling outside the United States, **you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.**  Thing is, we know solving this isn't the point.  It is to misdirect and talk about everything, but the actual issues, i.e., the discrepancy between tax regimes applied to persons and the massive inequality it creates in tax responsibility.  Because that would lead to the simple solutions that the populace need/crave.  My guess is most US human persons would LOVE to pay taxes only on what was left AFTER they covered their expenses." The upvoted answers fail to note that dividends are the only benefit that investors collectively receive from the companies they invest in. If you purchase a share for $100, and then later sell it for $150, you should note that there is always someone that purchases the same share for $150. So, you get $150 immediately, but somebody else has to pay $150 immediately. So, investors collectively did not receive any money from the transaction. (Yes, share repurchase can be used instead of dividends, but it can be considered really another form of paying dividends.) The fair value of a stock is the discounted value of all future dividends the stock pays. It is so simple! This shows why dividends are important. Somebody might argue that many successful companies like Berkshire Hathaway do not pay dividend. Yes, it is true that they don't pay dividend now but they will eventually have to start paying dividend. If they reinvest potential dividends continuously, they will run out of things to invest in after several hundred years has passed. So, even in this case the value of the stock is still the discounted value of all future dividends. The only difference is that the dividends are not paid now; the companies will start to pay the dividends later when they run out of things to invest in. It is true that in theory a stock could pay an unsustainable amount of dividend that requires financing it with debt. This is obviously not a good solution. If you see a company that pays dividend while at the same time obtaining more cash from taking more debt or from share issues, think twice whether you want to invest in such a company. What you need to do to valuate companies fairly is to estimate the amount of dividend that can sustain the expected growth rate. It is typically about 60% of the earnings, because a part of the earnings needs to be invested in future growth, but the exact figure may vary depending on the company. Furthermore, to valuate a company, you need the expected growth rate of dividends and the discount rate. You simply discount all future dividends, correcting them up by the expected dividend growth rate and correcting them down by the discount rate. "The $100,000 is taxed separately as ""ordinary income"". The $350,000 is taxed at long-term capital gains of 15%. Capital gains is not taxed at 20% until $415,050. Even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. The total ordinary income tax burden will be $31,986 if single, in California. Caveat: By creating a holdings corporation (C-corp), you can section 351 that $100,000 into the C-corp for tax deferment, which won't be taxed until you take money from the corporation. Since you will hold 100% of the voting stock, all distributions will be considered pro rata. Additionally, you can issue yourself a dividend under the rules of 26 USC §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). As long as that dividend doesn't trigger §§1.243-246 of The Regulations by keeping the distribution just under 10% of E&P i.e. $10,000. Wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the CA franchise tax. You don't have to pay yourself any money out a corporation to use the money." Wow 35% I never realized that the American corporate tax rate was so high.  In my province in Saskatchewan Canada I pay 13%(as the owner of a small corporate business).  It's no wonder American corporations want to move.   Does it not make more sense to lower the corporate tax rate while reducing loop holes etc... to make the American corporation more competitive.  Just my 2c "Has anyone ever proposed significantly lowering the US corporate tax while simultaneously raising dividend taxes for high income earners? Hell, many economists believe that corporate income should be taxed at 0%. If you do this but are worried about ""teh evil corporations"" becoming too big and powerful, that's what a high tax on dividend income is for. You can't personally become rich from a corporation without earning dividend or salary income from a corporation's coffers." Corporate profits are currently taxed twice. Once at the corporate level, and a second time when the corporation's owners get paid via dividends or capital gains.   The alternative is simply to eliminate the corporate-level taxation and raise the dividend and capital gains taxes back up to normal levels. Instead of (1-35%)*(1-15%) we'd just have (1-45%) or something No, dividends are not included in earnings.  Companies with no earnings sometimes choose to pay dividends.  Paying the dividend does not decrease earnings.  It does of course decrease cash and shows up on the balance sheet.  Many companies choose to keep the dividend at a fixed rate even while the business goes through cycles of increased and decreased earnings. "The way the post is worded, coca cola wouldn't count towards either, although it's not entirely clear. If the dividends are considered under capital gains (which isn't technically an appropriate term) he's earning only 500Million a year from his stake in coca cola. If he sold his shares, he'd receive capital gains of ~15Billion, which would probably outpace his operations business.   The best graph would probably be something like ""net worth of operations vs net worth of equity in other companies""" What do you propose a fair share should be?  They pay nearly $900 million per year in income taxes. Their effective rate is reduced due to them paying higher taxes in years prior, plus they lost money and can deduct that as well.   Not to mention, they are double taxed as a corporation and payroll taxes are not part of that $900 million, so they're paying even more than that.   Part of what makes the US awesome is an environment that helps business grow. What do you think will happen when a business pays let's say 20% on revenue generated in other countries and then another 20% tax on that revenue here?  Either companies will move to a country with a lower tax rate or they pull back on global trade. Both are bad for the economy. "Be careful here: If ACME were in California, I would pay taxes on USD 17,000 because I   had revenue of 20,000 and expenses of 3,000. To CALIFORNIA. And California taxes S-Corps. And, in addition, you'd pay $800 for the right of doing business in the State. All that in addition to the regular Federal and State taxes to the State where you're resident. Suppose that ACME is in Britain (or anywhere else for that matter). My   revenue and expenses are the same, but now my money has been earned   and my expenses incurred in a foreign country. Same thing exactly. Except that you'll have to pay taxes to the UK. There may be some provision in the tax treaty to help you though, so you may end up paying less taxes when working in the UK than in California. Check with a licensed tax adviser (EA/CPA licensed in your State) who won't run away from you after you say the words ""Tax Treaty"". Does it even make sense to use my S-Corporation to do business in a   foreign country? That should be a business decision, don't let the tax considerations drive your business." Yes, this extra income would be taxed at your marginal rate because it is increasing your total income. This does not necessarily apply to all income, however. Capital gains are taxed at a different rate. Depending on the amount of extra work, you may wish to consider setting up a corporation. Corporations are taxed entirely differently. This would also give you the opportunity to write off far more of your expenses, but be aware of double taxation. Investopedia has a good article on double taxation. The issue is that the corporation must pay taxes on the revenue and then, when you take out the money either as salary or dividends, you personally will pay tax. It may leave you better off, even with the double taxation. Dividends are taxed at a lower rate than your marginal tax rate, generally. And you can write off much more inside a corporation. If considering this, talk to an accountant and discuss your expected revenue from consulting. The accountant should be able to quantify the costs and benefits. You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf