Governments worldwide are actively reshaping their tax systems to attract a larger share of global capital, introducing new incentives and adapting to international reforms like the OECD's global minimum tax. This strategic recalibration aims to boost foreign direct investment (FDI) and stimulate economic growth, with recent data showing significant shifts in investment flows and policy approaches across continents.
Global Tax Landscape Shifts
The global corporate tax environment has undergone substantial changes over the past decades. The average statutory corporate income tax rate across 181 jurisdictions currently stands at 23.58 percent, or 26.04 percent when weighted by Gross Domestic Product (GDP). This marks a notable decline from an average of 39 percent in 1980, though rates have largely stabilized in recent years.[taxfoundation+1]
A major development influencing this landscape is the implementation of the OECD's Pillar Two initiative. This framework introduces a global minimum corporate tax rate of 15 percent for large multinational businesses with consolidated group revenues exceeding EUR 750 million annually.While Pillar Two aims to establish a floor for tax competition, it does not eliminate it entirely, according to the OECD.This global minimum tax is projected to generate approximately $150 billion in new tax revenues globally each year.[deloitte+3]
Countries Recalibrate for Capital
In response to these global dynamics, several nations are actively adjusting their tax regimes to remain competitive and attract investment.
Ireland, for example, has enhanced its research and development (R&D) tax credit, increasing it from 25 percent to 30 percent, effective January 1, 2024. This change is expected to drive a 10-15 percent increase in FDI inflows in 2024.Additionally, Ireland reduced its capital gains tax for angel investors from 33 percent to 16 percent, aiming to foster its startup ecosystem. The country also raised carbon taxes, anticipating a 20 percent increase in green investment for 2024.[researchgate+1]
Europe as a whole has seen a 40 percent rise in announced greenfield FDI between the pre- and post-COVID-19 periods. In the first nine months of 2025, a dozen large-scale projects, each valued over €2 billion, were announced. These investments are largely concentrated in data centers and advanced manufacturing, including electric vehicle and battery production. European-focused private equity funds also raised a record €300 billion in the first nine months of 2025, representing about a third of global commitments.[mckinsey]
Inthe United States, legislation passed in July 2025 made permanent changes to the foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) regimes. These adjustments aim to enhance the country's appeal as a hub for international goods distribution and global services, fixing the FDII effective rate at 14 percent.[mckinsey]
Lithuania stands out with a notably competitive tax system. It maintains a low corporate tax rate of 17 percent, allows significant deductions for capital investment costs, and exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation.[bakerlaw]
Even developing nations are recalibrating. The Democratic Republic of Congo (DRC) is implementing fiscal reforms under an International Monetary Fund (IMF) program to mobilize tax revenue and diversify its economy beyond mining. The DRC anticipates economic growth exceeding 5 percent between 2026 and 2028, alongside an increase in government revenue.[taxfoundation]
The Evolving Face of Tax Competition[spglobal]
While tax policy is a crucial factor, it is not the sole determinant for investment decisions. Market access, macroeconomic stability, a predictable legal framework, skilled labor, and well-developed infrastructure also play significant roles. Studies suggest that, on average, foreign direct investment decreases by 3.7 percent for every one percentage point increase in the tax rate on FDI, although this impact can vary.[uscib]
The introduction of the global minimum tax under Pillar Two is transforming the nature of tax competition. Instead of a "race to the bottom" for the lowest corporate tax rates, countries may now engage in a "race to the top" by offering substantial subsidies and incentives. Refundable tax credits, which are not counted as a tax reduction under Pillar Two rules, are emerging as a popular method for governments to attract and retain multinational corporations. Vietnam and Bermuda, for instance, are developing such packages to maintain their competitive edge.[uscib+1]
However, tax incentives also come with potential drawbacks. They can lead to a loss of government revenue and may distort the allocation of resources. TheIMF often advises countries to prioritize simplicity in their tax codes, minimize specific tax incentives, and coordinate tax policies internationally. Theorganization also frequently recommends broadening the tax base and reducing exemptions, particularly in developing countries.[taxfoundation+3]
The ongoing recalibration of tax regimes reflects a complex global effort to attract and retain capital. Governments are navigating a landscape shaped by international agreements and fierce competition, constantly seeking the right balance between fiscal stability and enticing investment.[brettonwoodsproject]
