Double taxation

Corporate profit taxed once at the company level and again when paid out to shareholders as dividends. Retained profit escapes the second tax until it is distributed.

Where you will meet it

Double taxation appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain the legal forms a business can take and what each means for its owners
  CFA Level I · Corporate Issuers

  “A corporation gives shareholders limited liability, perpetual existence and transferable ownership, at the cost of separating ownership from control and, in many jurisdictions, double taxation of distributed profits.”

• Work out and explain the effective tax rate borne by each currency unit a company earns, under double-taxation, imputation and split-rate tax regimes
  CFA Level II · Corporate Finance

  “Under double taxation it is the corporate rate plus (1 − corporate rate) × the individual dividend rate, so 25% and 20% give 0.25 + 0.75 × 0.20 = 40%.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with D · Glossary