Corporate tax laws are one of the most important factors in a country for its development. Its activation differs from country to country. In USA, both the federal and the state governments impose corporate tax laws. Corporate tax laws integrate with many institutions of the mechanism of governance. Because of this reason, errors in corporate tax law activation influence on every other acts of governance.
Under the Corporate Tax Law, a business should be a corporation and located in the USA or activates in the USA to be subjected to corporate tax payments. Nevertheless, within some circumstances, the businesses, which are not corporation such as limited liability or partnership companies, are also treated as Corporation. The shareholders of corporation are also taxed under corporation tax rules. In the USA, corporate tax has to be paid by the corporation and their shareholders too.
Within certain conditions, the corporation tax law allows corporations to be exempt from taxes. To be eligible for tax exemption a corporation should meet with certain limitation with their capital and shareholders. These corporations are under S. Corporations. Even though S. Corporation is allowed not to pay taxes, its shareholders are taxed when they earn income from the corporation. The corporations that do not come under S. Corporation is called C Corporations.
Businesses that are not under category of corporations or taken as corporations are exempted from double taxation. These corporations do not have to pay income tax at the entity level although their equity owners have to pay taxes. Based on the shares of an equity owner, apportionment of losses of his/her is limited.
Under the USA Corporation Tax Law, the branches of foreign companies are taxed based on their profits. Other income such as royalties, dividends etc., are subjected to 30 percent withholding taxation. Nevertheless, submission of a tax treaty can stop this tax cut. The interest taken by foreign corporation from the US banks or persons is also not under income tax. The rental income is treated as business or trade in the USA.
The Corporation Tax Law of USA twice taxes a foreign subsidiary that is based in USA. Once under the country law and also when the dividend is passed to the parent company which is offshore. This inconvenience faced by subsidiaries has been curtailed by imposing another tax called 'branch profits tax'.
To ease the classification of corporations, IRS has introduced 'check-the-box' rule. This rule automatically takes domestic businesses under federal or state as well as some foreign companies as corporations. This automated classification could be avoided by filling Form 8832 of IRS. This has to be done within 75 days. An offshore company should get US Tax identification number before submitting the form.