United States Corporate Tax - Guide for international expansion

Considering a business expansion to the United States? Understanding how corporate income tax works is crucial for successful operation in this complex landscape.

This guide will demystify corporate taxes in the US, from understanding federal and state obligations to navigating compliance. Whether you're a startup or an established enterprise, grasping your tax responsibilities is fundamental for a smooth and profitable venture. And to help manage your international finances with ease, a Wise Business account can simplify cross-border transactions and save you money.

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This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

United States Corporate tax rate in 2025

The federal corporate income tax rate in the United States is a flat 21%¹. This rate was established by the Tax Cuts and Jobs Act of 2017 and applies to all corporate profits, regardless of income level. Before this act, the US had a progressive corporate tax system with rates as high as 35%¹.

Beyond the federal rate, companies also face state corporate income taxes, which vary significantly by state. Some states, like South Dakota and Wyoming, do not levy a corporate income tax at all², while others, such as New Jersey, have rates as high as 11.5%². The average state corporate income tax rate across the US is around 6,5%². This means the overall tax burden can vary greatly depending on where a business chooses to operate within the US. Both domestic and foreign corporations operating in the US are generally subject to federal income tax on their worldwide income. Foreign corporations are typically taxed on income effectively connected with a US trade or business³.

How to pay corporate tax in United States

In the United States, most corporations are required to pay federal income tax using the Electronic Federal Tax Payment System (EFTPS)⁴. This online system allows businesses to make federal tax payments electronically, including corporate income tax, estimated taxes, and other federal taxes. It’s a convenient and secure way to ensure timely payments to the Internal Revenue Service (IRS).

Corporate taxes in the US are paid in US Dollars (USD). Businesses are typically required to make estimated tax payments throughout the year if they expect to owe $500 or more in tax for the year⁵. These estimated payments are usually made in four equal installments, due on April 15, June 15, September 15, and January 15 of the following year, for calendar-year taxpayers⁶.

Failure to pay enough estimated tax by the due date can result in penalties, even if the company is due a refund when it files its tax return⁷. The penalty is calculated based on the underpayment period and the underpayment rate, which the IRS sets quarterly.

Let's consider a scenario: your company has an annual turnover of $1.5 million and operates with a profit margin of 10%, leading to a taxable profit of $150,000.

At the federal corporate tax rate of 21%¹, the federal tax owed would be:

$150,000 × 21% = $31,500

Now, if your company operates in a state with an average corporate tax rate of 5.8%, the state tax owed would be:

$150,000 × 5.8% = $8,700

The total corporate tax due (federal + state) would be:

$31,500 + $8,700 = $40,200

If your company misses an estimated tax payment deadline, interest and penalties may apply. For example, if an estimated tax payment of $10,050 (one-fourth of $40,200) is missed for 30 days, penalties and interest can accrue. The underpayment penalty rate can vary, but assuming a simple annualized rate for illustrative purposes, let's say 3% (this rate can change quarterly by the IRS)⁸.

The penalty calculation is complex and depends on various factors, including the amount of underpayment, the period of underpayment, and the applicable interest rate. The IRS provides specific forms and instructions for calculating penalties for underpayment of estimated tax, such as Form 2220, Underpayment of Estimated Tax by Corporations⁹.

When expanding your business to the US, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to expand internationally with local USD account details. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

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Tax Compliance in the USA

Understanding and following tax regulations is essential to avoid costly penalties and maintain good standing in the US business environment. Moreover, the US state corporate tax rate varies, ranging from 0% in some states to over 11% in others.

Some steps to stay compliant with corporate tax requirements in the US are¹⁰:

1. Register for taxes promptly: After incorporation, apply for an Employer Identification Number (EIN) with the IRS and register for any applicable state taxes.
2. Track filing deadlines: Federal corporate income tax returns (Form 1120) are typically due on the 15th day of the fourth month after the end of your fiscal year. State owing dates may vary.
3. Understand penalties: Late filing can result in fines starting at 5% of unpaid monthly taxes, while late payments may incur additional interest.
4. Maintain accurate records: Good corporate tax accounting practices help ensure accurate reporting and reduce the risk of audits.

Staying informed about the corporate tax rate in the US and state-level rules will help your company meet all obligations, avoid unnecessary costs, and operate confidently.

International Expansion to the USA

The United States is a global business powerhouse. It offers unmatched opportunities for companies looking to expand internationally. In 2024, the US recorded a nominal GDP of over $29 trillion, making it the largest economy in the world¹¹.

On a per capita basis, it ranks 11th globally, with GDP per capita at $85,809¹¹. This is well above the $60,320 average for advanced economies, showing stronger purchasing power. Real GDP grew by 2.3% in 2024, outpacing the 1.4% average for advanced economies¹². Businesses can expect better growth prospects in the US than in many other markets.

The US has a population of about 340 million¹³, making it one of the largest consumer markets globally. Personal consumption expenditures reached $56,202 in 2023, which was over 70% of the median household income of $77,719. Further, the median age is 39, and 36% of adults hold a bachelor’s degree. This indicates that businesses can benefit from a broad customer base and a skilled workforce¹⁴.

US capital markets are the deepest globally. They host roughly 41% of global equities and 40% of global fixed-income assets. They also fund more than 70% of economic activity for non-financial firms¹⁵. Ample liquidity means easier access to funding for expanding businesses.

Learning about corporate tax by country helps adapt to varying tax systems. The next step is engaging with corporate tax consulting early. It improves efficiency and ensures compliance with corporate tax requirements in the USA.

Below is a streamlined guide to launching a business in the US:

1. Conduct market research: Identify customers, competition, and gaps in the market.
2. Write a business plan: Define your structure, location, supply chain, costs, and talent needs.
3. Fund your business: Estimate required capital and explore financing options.
4. Choose a state: Compare tax policies, job incentives, and regulatory climates.
5. Register your business: File with the IRS and relevant state authorities.
6. Obtain tax IDs: Secure an Employer Identification Number (EIN) for tax compliance.
7. Open a bank account: Facilitate smooth operations and meet financial regulations.

A large consumer base, skilled population, deep capital markets, and solid growth make the US a desirable target for international expansion. Companies blending strategic planning with expert corporate tax consulting can thrive competitively in this lucrative market.

Incorporation of Business in the USA

Setting up a company in the United States involves federal and state-level requirements. Each state has its own incorporation process, but there are common steps every business must follow¹⁶. To start, you’ll need:

1. Choose a unique business name that meets your state’s naming rules.
2. Select the legal structure that best fits your business model.
3. Appoint a registered agent to receive legal and tax documents.
4. Provide a physical business address in the state of registration.
5. List the founders and directors responsible for managing the company.
6. Prepare an operating agreement or bylaws detailing how the company will operate.
7. State the number and type of shares to be issued, if applicable.
8. File incorporation documents with the Secretary of State or equivalent office.

Once the company is registered, apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is used to pay federal taxes and hire employees. Businesses must also register with state tax agencies to meet local obligations.

Common business entities in the US include¹⁷:

• C Corporation (C-Corp): A separate legal entity taxed independently from its owners. Profits are taxed at the US corporate income tax rate, currently 21% under the US corporate tax rate 2025. This structure is popular with large companies seeking investment, and understanding the US corporate tax rate history can help plan long-term growth.
• S Corporation (S-Corp): Allows profits and losses to pass through to shareholders’ tax returns, avoiding corporate-level taxation. Available only to U.S. residents and with shareholder limits.
• Limited Liability Company (LLC): Combines limited liability protection with flexible taxation. Profits can be taxed as a sole proprietorship, partnership, or corporation.
• Partnership: Owned by two or more people sharing profits, losses, and management. Partnerships do not pay corporate tax at the entity level.
• Sole Proprietorship: The simplest form, owned and operated by one person. No separate legal entity exists, so the owner is personally liable for debts.

When choosing an entity, consider liability protection, funding needs, and tax obligations. Review the US corporate tax rate by year and consult professionals for efficiency. You should also ensure compliance with federal and state laws to support smooth operations and long-term sustainability in the US market.

International corporate tax best practices

Navigating international corporate tax requires strategic planning and meticulous attention to detail. Here are some key best practices to help businesses ensure compliance, optimise tax efficiency, and minimise risks.

Stay compliant with local and international tax laws
It's crucial for businesses to fully register in every country where they operate, ensuring adherence to all local tax regulations. This includes filing all necessary tax returns accurately and on time to avoid penalties. Staying informed about evolving tax laws, both domestically and internationally, is paramount for continuous compliance. Furthermore, understanding and applying global standards set by organisations like the OECD, helps ensure transparency, prevent tax avoidance, and mitigate legal and reputational risks.

Leverage double taxation treaties (DTTs)
Double Taxation Treaties are vital tools for preventing the same income from being taxed twice across different jurisdictions. CFOs and directors must have a clear understanding of these treaties between the countries where their business operates. The US has DTTs with many countries, which can significantly reduce or eliminate tax burdens on cross-border income, dividends, interest, and royalties.

Maintain up-to-date and transparent financial records
Accurate and current financial records are the cornerstone of sound tax management. Well-organised records facilitate the preparation of precise tax returns, reducing the likelihood of errors that could trigger penalties or audits. Transparent financial record-keeping also streamlines the process during tax audits, allowing businesses to demonstrate compliance and provide necessary documentation promptly and efficiently.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to the United States efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.
• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.
• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.
• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.
• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

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FAQs - Corporate tax in the United States

Who is liable for corporate tax in the United States?

Generally, all domestic corporations, meaning those incorporated in the United States, are liable for federal corporate income tax on their worldwide income. Foreign corporations are liable for federal corporate income tax on income that is effectively connected with a US trade or business, as well as certain US-source income that is not effectively connected.

Are there any tax incentives for businesses in the United States?

Yes, the United States offers various tax incentives at both federal and state levels to encourage business activities. These can include tax credits for research and development (R&D)¹⁸, investment in specific industries, job creation, and certain energy-efficient investments. Many states also offer their own incentives, such as tax abatements, credits for new jobs, or deductions for specific types of business expenses¹⁹.

What is the tax treatment of dividends in the United States?

Dividends paid by a US corporation to another US corporation are generally eligible for a dividends received deduction (DRD), which can significantly reduce or eliminate the taxable portion of the dividend, depending on the percentage of ownership²⁰. For dividends paid to individual shareholders, they are often taxed at preferential capital gains rates if they are "qualified dividends". Dividends paid to foreign shareholders are typically subject to a 30% US withholding tax, though this rate can be reduced or eliminated under an applicable tax treaty²⁰.

What is the process for registering for corporate tax in the United States?

To register for corporate tax in the United States, a business typically needs to first incorporate in a US state and then obtain an Employer Identification Number (EIN) from the IRS²¹. Once the EIN is obtained, the corporation is then able to file its federal income tax returns (Form 1120 series) annually with the IRS and make estimated tax payments. Depending on the state, there may also be separate state tax registration requirements.

What are the common pitfalls to avoid regarding corporate tax in the United States?

Common pitfalls include failing to make timely estimated tax payments, which can lead to penalties and interest. Businesses also often overlook the complexities of state and local taxes, which vary significantly across jurisdictions. Misclassifying workers as independent contractors instead of employees can result in significant tax liabilities. International businesses should also be wary of not adequately addressing transfer pricing rules and double taxation issues without leveraging relevant treaties.

Sources used in this article:

1. H.R. 1, 115th Congress
2. State Corporate Income Tax Rates and Brackets
3. Effectively Connected Income (ECI)
4. Electronic Federal Tax Payment System (EFTPS)
5. Estimated Taxes
6. IRS Publication 542, Corporations
7. Penalties
8. Interest
9. About Form 2220, Underpayment of Estimated Tax by Corporations
10. How to Incorporate a Business
11. GDP (current US$) - United States
12. IMF Datamapper: Advanced Economies
13. U.S. Population Estimates
14. QuickFacts: United States
15. SIFMA: Our Markets
16. How to Incorporate a Business
17. Business Structures
18. State Research and Development Tax Credit
19. Job Creation Tax Credits: What You Need to Know
20. IRS Publication 542 (PDF)
21. About Form SS-4, Application for Employer Identification Number (EIN)

Sources last checked 20/08/2025