How this calculator works
The effective tax rate divides the income tax a company actually records by its earnings before tax. It is not the headline statutory rate: deductions, credits, different tax rates on different income and taxes in several jurisdictions all pull the two apart. A rate below the statutory rate usually means credits or lower-taxed income; a rate above it can come from non-deductible expenses or a prior-year adjustment. Use the tax figure reported in the same statement as the earnings.
Formula
Effective corporate tax rate = income tax / earnings before tax × 100. Net income = earnings before tax - income tax.
Worked example
Earnings before tax of $500,000 and income tax of $125,000 give an effective rate of 25% and net income of $375,000.
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Frequently asked questions
How does this differ from the statutory rate?
The statutory rate is set by law for a jurisdiction. The effective rate reflects what the company actually paid after deductions, credits, foreign income and other adjustments, so it can be higher or lower than any single statutory rate.
Should I use tax paid or tax expensed?
Use the income tax expense from the income statement to match the earnings in the same period. Cash tax paid can differ because of timing, instalments and refunds, which is why cash and accounting taxes are often reported separately.
Can the effective rate exceed 100%?
Yes, when tax expense is larger than earnings before tax, for example because of a loss with a tax charge or a large non-deductible item. The net income then becomes negative.