The US tax system is comprehensive, with a federal corporate income tax rate of 21% and progressive personal income tax rates up to 37%. In addition to income taxes, the U.S. imposes significant gift and estate taxes at a maximum rate of 40%, though no wealth tax is applied. With a strong network of Double Tax Treaties (DTTs) and anti-avoidance measures like CFC and Transfer Pricing rules, the system is designed to regulate both domestic and international financial activities while offering avenues for investment protection and reduced tax rates under treaties.
US Tax System overview
| Corporate Income Tax: | 21% |
| Personal Income Tax: | 37%, progr. |
| Inheritance Tax: | 40%, progr. |
| Gift Tax: | 40%, progr. |
| Wealth Tax: | None |
Legal System
The US legal system is based on common law. This Fact Sheet addresses federal, not state, taxation.
Corporate Income Tax
Domestic corporations, which are created or organized under the laws of any state or the District of Colombia, are subject to Federal income tax on worldwide income at a rate of 21%. Foreign corporations are subject to tax on income effectively connected with a trade or business in the US as well as US source income.
Personal Income Taxation
US Citizens and US residents are subject to tax on worldwide income at progressive rates up to a maximum rate of 37%. The US has gift tax and estate tax, at progressive rates with a maximum of 40%, and a unified gift and estate tax exemption of $11.58MM (indexed annually for inflation).
Anti-Avoidance Rules
The US has Transfer Pricing rules, Thin Capitalization rules, and Controlled Foreign Corporation (CFC) rules. The US has no General Anti-Avoidance Rules (GAAR).
Controlled Foreign Corporations (CFCs)
A Controlled Foreign Corporation (CFC) is defined as any foreign corporation where more than 50% of the voting power or total value of the stock is held by US shareholders. US shareholders holding 10% or more of the shares of CFCs must include in their own income their prorated share of the CFC’s subpart F income.
Trusts
The US has not ratified the Hague Convention on the Recognition of Trusts. However, domestic trusts are widely used and are governed under State law, not Federal law. Domestic US trusts are subject to Federal income tax. For Grantor trusts, income is taxed to the Grantor at the Grantor’s marginal rate, up to a maximum of 37%. For non-Grantor trusts (simple or complex), tax on income is paid by the trust, except where current year income is distributed to a beneficiary. Trusts are taxed at higher compressed brackets than individual marginal rates, up to a maximum of 37%.
