Let’s explain this with a simple example: A specific deduction and minimum income threshold are available in some jurisdictions in the Rate regime. Under this, every individual or business with a taxable income is charged with a fixed rate, making it simple to apply, unlike other progressive tax rates where different tax rates are applied, many deductions can be availed.

Similarly, Individuals must pay tax on their taxable income after admissible standard deductions, if any.ĭownload Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others How Does it Work? After deducting permissible business expenses, the business needs to pay tax amount at the Flat Rate as determined by the jurisdiction to which it belongs. It is the same for both businesses as well as for individuals. Taxation is simple to understand and apply. ExplanationĪ flat tax implies taxation at a fixed rate irrespective of Income level.

Many countries around the globe use the Flat Tax system owing to its simplicity and easiness both in terms of operational flexibility as well as convenience on the part of the Taxpayer. Normally this tax system doesn’t provide any tax deductions and tax credits. It means everyone pays the same rate of tax irrespective of their income level, which in a way, avoids differentiating between taxpayers based on their Income level bracket. Flat tax refers to the tax system in which a flat percent rate is applied to the Taxable Income irrespective of income bracket.

Countries with flat tax