How your US corporation is taxed

"In this world nothing can be said to be certain, except death and taxes," the great American statesman Benjamin Franklin wrote back in 1789 in a letter to Jean-Baptiste Leroy. Sadly, the same goes for your US company: the better business is for you, the better it is for Uncle Sam.

The good news for established and aspiring US entrepreneurs: at the end of 2017, Congress passed the 2017 US tax reform (Tax Cuts and Jobs Act), which cut taxes on corporate profits sharply. Its core elements were made permanent by the One Big Beautiful Bill Act of July 4, 2025.

Until 2017, the US had the highest corporate tax rate of any major industrialized country at 35%. Since 2018, the federal rate has been 21% (IRC § 11), plus the corporate tax of the state of incorporation. That makes business taxation in the USA cheaper in many scenarios than in much of Europe.

On this page you will find out which taxes to expect on the profits your US company earns. 

For more on the US tax system, see our beginner's guide, the guide to US income tax, and our quick introduction to US tax law for European entrepreneurs.

1Federal corporate income tax

A US corporation pays corporate income tax on its profits. There is no separate trade tax.

Until 2017, the top US corporate tax rate was one of the highest in the developed world. From 2018 on, rates were cut drastically. Corporate income tax is levied by both the federal government and the states. 

The federal corporate income tax rate is 21%. 

1.1Income from shareholdings

The US has a territorial tax system, much like the EU. As a rule, profits of foreign subsidiaries are no longer taxed again in the US when they are paid out to the US parent company.

Gains from selling shareholdings in foreign companies are also tax-free in the US parent company if the structure is set up correctly.

1.2Foreign income

Profits a US corporation earns from foreign customers (customers not based in the US) are taxed at only around 14% if structured correctly (FDII, or FDDEI since 2026: effectively 14% under the One Big Beautiful Bill; until the end of 2025 it was 13.125%).

Example: Corporation A, based in Texas, sells its apps to customers in the EU. The profits from these sales are taxed at only around 14% in the US.

1.3Income from foreign subsidiaries in low-tax countries

If a US company has subsidiaries in low-tax countries that earn profits from customers outside the US, those profits are taxed at the US parent at a maximum of around 12.6% (GILTI, called Net CFC Tested Income since 2026), and 90% of the tax paid abroad can be credited (until the end of 2025: 80%).

Example: A US corporation has a subsidiary on the Isle of Man whose profits are completely tax-free there. In the US, these profits are now taxed at around 12.6%.

Interestingly, the calculation is based on total foreign income. That can create welcome side effects when the corporation owns subsidiaries in both high-tax and low-tax countries.

Example: A US corporation has a subsidiary on the Isle of Man whose profits are completely tax-free there. The subsidiary makes €100,000 in profit.

The US corporation has another subsidiary in Germany that pays around 25% corporate and trade tax on its profits. It also makes €100,000 in profit and pays €25,000 in tax in Germany. Of that, 90% can be claimed in the corporation, so €22,500.

So on its total foreign income of €200,000, the US company owes very little additional US tax: 12.6% of €200,000 is €25,200; minus the €22,500 credit, that leaves €2,700.

2State corporate income tax

Corporate income tax varies widely from state to state. The following states levy no corporate income tax at all (corporations there pay only federal taxes):

• Nevada
• Ohio
• South Dakota
• Washington
• Texas
• Wyoming

Ohio, Texas, Nevada and Washington have no corporate income tax on profits, but they do have a kind of turnover tax (gross receipts tax). In Texas it is called the franchise tax; it is levied on the margin at 0.375% (retail and wholesale) or 0.75%. Below the no-tax-due threshold of $2.65 million in annual revenue (report years 2026/2027), no tax is due.

In the remaining states, rates range from 4.5% to 12%. They are not always due on the full gross profit. Florida, for example, has an exemption of $50,000. In other states, federal corporate income tax can be deducted as an expense.

You will find the current corporate tax for each state in our profiles of all US states, and the federal level under taxation of corporate profits in the USA.

3Sales tax

The states also levy sales tax, which is only partly comparable to VAT. It is not charged on services, only on the purchase of goods. For mail order into other states, the 2018 Wayfair ruling applies: if you exceed the economic nexus threshold there (usually $100,000 in annual sales; California, Texas and New York $500,000), you must collect and remit sales tax there too.

There is no offsetting of input tax against output tax. However, resellers do not have to be charged sales tax (similar to the EU reverse charge). The sales tax collected is paid to the state monthly or quarterly.

Almost all local governments add their own sales tax on top. In California, for example, the state sales tax is 7.25%, and local governments add another 2% on average.

A European-style federal VAT has been debated for years. Experts say it could be 1-2%, but it would come on top of existing sales tax.

The following states levy no sales tax at all:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

Sales tax in the other states ranges from 5% to 9% (combined state and local rate).

In 2026, combined state and local rates average 7.53%, weighted by population. The highest are Louisiana at around 10.1%, Tennessee at 9.6%, Washington at 9.6%, Arkansas at 9.5% and Alabama at 9.5%. California has the highest state-only rate at 7.25%. Details are on our page on sales tax in the USA.

4Payroll taxes

The US has payroll taxes which, as is usual in Europe, are withheld directly by the employer and paid over to the IRS.

These are the payroll taxes:

• Pension insurance (Social Security): 12.4% on earnings up to $184,500 (2026 wage base). Split equally between employee and employer.

• Health care in old age (Medicare): 2.9% on total wages, split equally between employer and employee.

• Unemployment insurance (unemployment tax): levied at both federal and state level. At federal level, the employer pays 6% on the first $7,000 of annual wages per employee; the credit for state unemployment tax usually brings that down to 0.6%, so a maximum of $42 (!) per employee per year. At state level, rates vary widely. They depend on the industry and on how many of a company's employees have claimed benefits. In plain terms: if you cut jobs, your contributions go up. Rates for new employers range from 1% to 3% in all states. In some states they can rise to as much as 10%, but they are only due on annual wages up to around $40,000.

5Quick tax comparison of the states we recommend

Further down this page, we present six US metro areas that we regularly suggest to clients as locations for their US company (though we support you in building your business anywhere in the US).

The table below shows the different tax rates in these states at a glance:

6Taking profits out of the corporation

Once you have built a successful business in the USA, the obvious question is how to get the profits out of the company. We have a dedicated page on this topic, which you can find here.

How we help you

• Form a CorporationThe US corporation (Inc) for growth, investors and your visa.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Sales taxRegistration and returns in the states where you have nexus.
• PayrollPayroll, payroll taxes and filings for your employees in the USA.
• US Tax ConsultationYour US tax question, answered by people who know both sides.