Corporate taxation vs. personal taxation - Bite-Sized Legal #3

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Corporate taxation vs. personal taxation - Bite-Sized Legal #3
By Bite-Sized Legal • Issue #3 • View online
As an entrepreneur or freelancer, it is important to be able to know the differences between corporate and personal taxation.
Corporate taxes are the taxes your company pays (if you have one). When the rest of the money reaches your personal bank account, you need to pay the personal taxes.
Companies pay corporate taxes, individuals pay personal taxes.
Corporate taxes include:
  • income taxes
  • sales taxes
  • VAT, etc.
Companies pay corporate income taxes on the net revenue.
Individuals pay on personal income.
That’s why taxation may be different for entrepreneurs and freelancers, for example.

Depending on your jurisdiction, both the company and you could pay taxes
Depending on your jurisdiction, both the company and you could pay taxes
So, if you incorporate and your company owes taxes in its country or state, it will pay taxes there. Then, the rest of the money will be transferred to your personal bank account and you’ll pay personal income taxes on that money.
If your company is a pass-through entity (such as US LLC), then the tax duties are being passed to the individual, which means that the company does not pay any corporate income taxes.
If your company is incorporated outside of your state/country and you live in your home state/country, your company will owe taxes in the country of incorporation and you’ll owe taxes in your state/country of residence.
Here are two examples to clarify it:
  1. Let’s imagine that you reside in Texas and your company is incorporated in Delaware. The company pays taxes in Delaware, but you pay your personal taxes in Texas.
  2. If you are a citizen of India, but you have incorporated in the US, your US company will owe taxes in the US. You will owe personal income taxes in India. If your incorporation structure allows for 0% taxation in the US, then you’ll pay only taxes in India.
Do you have any questions about this? Let me know. I read all the emails and respond to them all.
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