It's certainly not everyone's favourite topic, but a firm grasp of your tax situation as a startup is critical for future growth. While some companies choose to incorporate themselves as an LLC or S corp right off the bat, some opt for becoming a C corp instead. You may have heard rumours about the stipulations involved in C corporation taxes, but we're here to set the record straight. So let's look at the Taxation companies in Kuwait advantages and disadvantages of formalizing your organization as a corp.
Advantages of Corporate Tax
Source of Revenue: Corporate taxes can be used as an instrument for the government to yield higher revenues as corporations are the most significant money makers in the economy. The government can therefore create a steady and robust cash flow by targeting those making large profits.
Distribution – Taxing companies that are making profits helps redistribute the benefits to society through the provision of public services that private corporations generally would not provide. It still allows for businesses to function and grow and does not overly inhibit companies' ability to make a profit.
Disadvantages of Corporate Tax
Transfer the tax burden – Although corporate taxes are meant to tax wealthy companies, the costs are transferred elsewhere in reality. The groups that experience the burden of these taxes are none other than the normal consumer and the employee. Workers are affected in that the tax costs either reduce their salaries or hiring. While consumers are involved, the company passes on the tax on their products and services by making them more expensive.
Attack on Corporations: Another con of the corporate tax system is that it takes away funds from companies/corporations. This is inefficient because, in an economically efficient situation, no one can be made better without making someone else worse off. So corporate taxes end up making companies worse off than if they were not taxed.
Scares Business away– Lastly, one must consider the economic growth in a country. Companies try to pick the best place to facilitate their development, where they could be the most profitable. By introducing a corporate tax in a particular country, companies may avoid it and search for other alternatives.
The government may be forced to lower taxes to earn additional revenues from resident individuals earning income abroad.