How the US Minimum Corporate Tax Rate Works

With Donald Trump back in the White House, it remains to be seen just how the US’s taxation system will be reformed.

Given Trump’s record, it’s a safe bet that it will be. He’s already called for lowering the corporate tax rate for certain companies. 

However, many entrepreneurs will be wondering about the 15% minimum corporate tax rate and whether this will change.

In August 2022, the Biden administration signed a law that brought in a 15% minimum for Corporations.  

With corporate tax reaching 21% in the US, the imposition of a 15% minimum was seen by the Democrats as a way to tackle tax avoidance and level the playing field for small businesses. 

In the run-up to the election, Biden’s administration and the Internal Revenue Service (IRS) were making considerable efforts to develop clear rules for implementing this tax across the board. 

In 2024, the US Treasury announced new rules, with a hearing set to take place on January 16, 2025, for all stakeholders and the public. 

What were the results? And what will change with Trump in office?

This comprehensive guide explores the minimum corporate tax law and what it could mean for high-net-worth US citizens. 

Is the US a Business-Friendly Country?

We’ve all heard of the ‘American dream’, where anyone can start a business, tap into the world’s largest economy and walk away a millionaire. 

Surely, this means the US is a business-friendly country?

Not exactly.

You’ll find many taxes in the US, such as federal income taxes, state taxes, and local taxes. The rates are high, the tax code is complicated and compliance is absolute.

No matter where you go in the world as a US citizen, you must report to the mighty IRS each year – thanks to the country’s citizenship-based taxation system.

One would think that a country so focused on success and entrepreneurship would make it easy for its people to grow and create more opportunities if they ever do make it big. But that’s simply not the case.

The more your assets grow, the higher your tax liability becomes. The government barely provides relief when you’re setting up a business or trying to make it profitable.

Still, the moment you cross a certain income threshold, they’ll come banging on your door demanding their fair share.

A few successful business years, and you’ll suddenly be considered wealthy enough to be good for thousands, or even millions, of dollars in taxes.

So, where does that leave you? Back to square one, trying to make it all back.

In the US, ‘tax the wealthy’ has long been the general government consensus, and the establishment has been doing just that.

With taxes rising each year, the US has lost its appeal as a business-friendly country.

As a result, many high-net-worth US citizens have found relief in other tax-friendly countries or those with a territorial tax system.

US Corporate Alternative Minimum Tax Rate

The Corporate Alternative Minimum Tax (CAMT) rate is part of the Inflation Reduction Act that Joe Biden signed into law in 2022. 

The law also includes significant reforms for climate control, healthcare and the energy sector. 

The CAMT came into existence as part of the 2022 Inflation Reduction Act, with the CAMT effectively the mechanism that implements a minimum tax for large corporations in the US.

We’ll soon see what President Trump makes of these reforms and whether he has the appetite to make changes. 

However, the bottom line is that businesses in America are facing ever-increasing tax obligations. 

Before we get into the details of new US corporate tax minimums, let’s first cover the basics of US corporate tax.

What is the US Corporate Tax Rate?

The US federal corporate tax rate sits at a flat 21%, which has been in effect since 2018. 

Additional taxes, like the corporate alternative minimum tax (15% on adjusted financial income) or state and local taxes, may apply on top of the federal corporate tax rate. This depends on specific rules and jurisdictions surrounding the business.

How Low is the US Minimum Corporate Tax Rate?

The US minimum corporate tax rate is 15%, introduced as the corporate alternative minimum tax (CAMT) under the Inflation Reduction Act of 2022. 

It applies to C corporations with adjusted financial statement income exceeding US$1 billion on average over three years. This ensures that large corporations pay a baseline amount of tax.

What is the Inflation Reduction Act?

The Inflation Reduction Act (IRA), signed into law on August 16, 2022, was a landmark US federal law which aims to reduce deficits, fight inflation, battle climate change and improve healthcare benefits.

On the tax front, it introduced a 15% corporate alternative minimum tax for large corporations and imposed a 1% excise tax on stock buybacks. 

Although considerable, the 15% minimum corporate tax isn’t the only noteworthy aspect of the bill. Some of the biggest points from the bill, including the minimum tax hike, are covered below. 

Biggest Climate Bill in US History

The Inflation Reduction Act was the biggest climate bill ever passed in US history, with a US$369 billion investment in the energy and climate change division. 

These climate change policies aimed to cut carbon emissions by 40% by 2030.

Healthcare Reforms

The bill worked to reduce health insurance costs with an investment of US$69 billion to extend the Affordable Care Act for three years. Moreover, under the law, Medicare can negotiate prescription drug prices with drug companies.

The new healthcare reforms are expected to raise US$265 billion in revenue over the next decade.

15% Minimum Corporate Tax

According to the bill, corporations that report an annual income of US$1 billion in their financial statements will be subjected to a 15% corporate minimum tax rate and a 1% fee on stock buybacks.

The Biden administration also gave the IRS more power through this bill to conduct frequent audits on large corporations.

The tax reforms and IRS tax enforcement in the bill are expected to reduce the federal deficit by over US$300 billion over the next decade.

Since it was introduced, the CAMT rate has been a source of confusion for some people.  

First, why would the US need a 15% minimum tax on corporations if the headline corporate income tax rate is already 21%?

Second, is this tax related to the global minimum tax rate that 138 countries agreed to implement in 2024?

The answer to the first question is a bit technical, and we’ll discuss it shortly. 

The answer to the second question is simply no. 

The global corporate minimum tax and the US’ new minimum tax are two completely different taxes serving distinct purposes.

How Does the US Minimum Corporate Tax Work?

The US’s new minimum tax rate has confused some people on a couple of grounds.  

First, why would the US need a 15% minimum tax on corporations if the headline corporate income tax rate is already 21%?

Second, is this tax related to the global minimum tax rate that 136 countries agreed to last year?

The answer to the first question is a bit technical, and we will discuss it shortly. The answer to the second question is simply no. The global corporate minimum tax and the USA’s new minimum tax are two completely different taxes serving distinct purposes.

The headline tax rate for US corporations is still 21% and is imposed on corporate profits minus allowable deductions like wages, depreciation and interest.

The 21% corporate tax applies to the income companies report to the IRS for tax purposes.

With the US minimum corporate tax, large corporations in the US with at least US$1 billion in income also have to consider their book income before calculating their annual tax liability.

Book income refers to the income that companies publicly report to their shareholders on their financial statements.

The 15% minimum tax applies to the corporations’ book income. After calculation, the corporations have to pay whichever tax is higher.

What’s the Case for the US Corporate Alternative Minimum Tax (CAMT)?

If companies were already paying a higher corporate tax at 21%, what was the need for another corporate tax rate?

The minimum tax serves two primary purposes:

• It allows the government to raise corporations’ taxes without increasing corporate tax rates
• It aims to eliminate tax loopholes exploited by many large corporations.

Eliminating Tax Loopholes

The CAMT minimum tax rate was designed to close tax loopholes used by the wealthy to offset their income and avoid paying what they owe. It aims to do that by taking the book income into account.

The income companies report for IRS tax purposes usually differs from their book income.

Companies use strategies like accelerated depreciation, tax credits and stock options to downplay the amount of profit in their IRS financial reporting.

Accelerated depreciation is one of the most significant tax breaks in the US tax code, and many companies use this tactic to save millions, or even billions, of dollars in taxes.

In comparison, book income is far more transparent and closer to the Generally Accepted Accounting Principles (GAAP).

Why is that important?

In 2022, President Joe Biden cited a report by the Institute on Taxation and Economic Policy (ITEP) in his State of the Union address. 

It found that 55 of the largest corporations in the US paid US$0 in federal taxes on their 2020 profits despite earning considerable profits under the GAAP standards.

Not only did they not pay a dime, but they also received US$3.5 billion in tax rebates.

But here’s the thing – there’s a difference between tax avoidance and tax evasion. If done legally, there’s nothing wrong with wanting to reduce taxes.

That’s why the Biden administration decided to make the book income an unavoidable element of corporate tax collections.

Raising Corporate Taxes

The Inflation Reduction Act isn’t popular among the Republicans – it never was. 

On August 7, the bill was passed by the Senate Democrats without a single favourable vote from the Republicans.

Even some of the Democrats weren’t a big fan of the original tax reforms in the IRA. Why? Because of the tax raises.

The IRA aims to raise taxes on corporations without increasing the 21% headline corporate tax, hoping to keep both sides happy.

‘We never raised any taxes. We’re just saying close the loopholes and collect the taxes owed to the Treasury and the United States people,’ said Senator Joe Manchin, a West Virginia Democrat.

With this bill, the Biden government would raise more revenue without surpassing the headline tax rate for corporations.

It’s all as diplomatic as it can get.

Is 15% US CAMT Related to the Global Minimum Tax?

No, the two taxes are entirely distinct and serve two different purposes.

The US’ minimum tax was designed to tax the wealthy without raising the headline tax rate.

In contrast, the global minimum tax deal was designed to control Base Erosion and Profit Shifting (BEPS) by discouraging multinational corporations from moving their operations offshore for lucrative tax incentives.

Many Fortune 500 companies have successfully reduced or eliminated their tax payments legally by moving overseas and utilising foreign income tax incentives. 

The Organisation for Economic Co-operation and Development (OECD) estimated that the global tax deal would bring the participating countries US$220 billion in annual tax revenues.

Although it’s been some time since 138 countries signed and agreed to implement the global tax deal, the US Congress has not adopted the global agreement. This creates potential conflicts for American companies facing overlapping tax systems.

How is the Global Minimum Tax Being Implemented?

The Global Minimum Tax, part of the OECD’s Pillar Two framework, has been adopted by numerous countries since 2024. 

It sets a 15% minimum tax rate for multinational corporations with revenues above €750 million. The rules aim to reduce tax avoidance by ensuring profits in low-tax jurisdictions are taxed at least at this rate. 

Some of the key provisions include taxing under-taxed profits, requiring parent companies to pay additional taxes on untaxed foreign income and prioritising domestic minimum taxes.

By June 2024, 45 countries had enacted or proposed legislation for these rules, including all EU member states. 

What the US Corporate Alternative Minimum Tax Means for Businesses

Quite simply, the 15% corporate minimum tax was another way for the Biden administration to tax the wealthy. 

When it comes to large corporations in the US, the jobs they create, the non-corporate taxes they pay, the economic contribution they offer – nothing matters.

All that seemed to matter was that 55 companies paid no federal taxes back in 2020, and now all large corporations have to pay the price in the form of more taxes. 

The minimum tax targets billion-dollar companies currently, but who’s to say there won’t be more unfavourable provisions in the future?

It’s happened before, and it can happen again.

With that in mind, here are some significant concerns entrepreneurs and high-net-worth individuals must consider before doing business in the US.

Complicated Tax Code

The US has a citizenship-based taxation system, unlike the rest of the world (except Eritrea).

As a result, the US tax code is complicated and almost impossible to align with the international tax codes.

There are other high-tax countries in the world, but no country chases their citizens to the end of the earth, demanding its fair share.

Instead of working on the global minimum tax deal, the US got too busy inventing its version of a corporate minimum tax, which would only make the alignment with the rest of the world even messier.

Try running a multinational company from the US while considering an array of corporate tax rates and figuring out which applies to you and which doesn’t. Sounds like a nightmare.

The Impact on Inflation

Many prominent economists have argued that the bill will have a negative impact on inflation.  

US inflation is currently under control, but who’s to say it won’t climb again? The global picture is unstable and always subject to change. 

If the global economy nosedives again and US trade suffers, who’s to say a billion won’t depreciate drastically in a couple of years? What happens then? 

A large number of regular businesses will have to pay taxes that they never should have been subject to in the first place.

The government has the absolute power to make or break your business. If you still doubt it, just look at what happened during the pandemic.

The Center for Disease Control and Prevention (CDC) started rolling out moratoriums, essentially running people out of their businesses. All it takes is a new law, and you’ll be liable to pay millions, if not billions, of dollars in taxes.

The US has been hostile toward high-net-worth individuals and their businesses for years.

We don’t recommend waiting for a silver lining because, by then, it may be too late.

Will the US Minimum Corporate Tax Rate Change Under Trump?

With Donald Trump back in the White House again, US corporations will be wondering if it spells the end for the CAMT.

In short, that’s unlikely – the US still has an enormous debt hole to fill, regardless of who is in office.

Donald Trump’s tax plan includes a proposal to lower the corporate tax rate specifically for domestic production to an effective 15% by reinstating a modified version of the domestic production activities deduction (DPAD). 

This idea is to incentivise domestic manufacturing rather than introduce a blanket reduction in the minimum corporate tax.

However, Trump does not appear to propose changes to the global minimum corporate tax rules or the CAMT. 

Instead, his focus is more on targeted tax cuts for specific domestic activities. 

Trump’s broader tax policy proposals, such as repealing green energy credits and imposing tariffs, aim to offset the fiscal impacts of these targeted cuts. 

But, they likely won’t fundamentally change the broader minimum corporate tax environment.

US Minimum Corporate Tax: FAQs

Go Where You’re Treated Best

With so many countries competing for your business, there’s no need to stay in a country that’s doing its best to snatch your profits.

No matter what the high-tax countries tell you, if done legally, an offshore lifestyle could be the ultimate stepping stone to your success.

If you’re a US citizen and this article has struck a chord with you, you may want to explore your options. 

That’s where Nomad Capitalist comes in. 

We’ve helped thousands of high-net-worth individuals to lower their tax bills, build their wealth and better protect their assets via international diversification. 

Learn more about how our unique holistic Nomad Capitalist plans can help you here.