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Abstract: 

When an investor analyzes the possible location of a project and looks into the tax environment, the statutory corporate income tax (CIT) usually stands out as a major variable. However, it can be a poor guide to the overall (all-in) tax rate an investment will bear. The author analyzes the overall rate burden imposed by corporate income taxation and its potential impact on investment. Using the Portuguese case—but extending the analysis to the broader international scene—he shows that central government additional taxes and surcharges, regional and local government surcharges, and other components (e.g., autonomous taxation of expenses) can substantially increase the total tax bill and should be carefully scrutinized by investors. A careful analysis of all applied rates—versus just the statutory CIT--is essential for a realistic assessment of the tax environment an investor faces in a given location. This is especially important in times of strong international tax competition.

Keywords: Corporate taxation; Investment; Tax rates; Effective taxation

Affiliations:  1: Coimbra University, Portugal.