Final answer:
Capital income is the earnings received from foreign investments by financial investors and is an integral part of the current account balance. It is subject to corporate tax, much like taxable income for individuals, and represents financial trade in the capital market.
Step-by-step explanation:
Definition of Capital Income
Capital income refers to the money received by financial investors from their foreign investments. This includes funds flowing into the country, like income payments to U.S. investors from overseas investments, and funds flowing out, such as payments to foreign investors who have invested within the country. This type of income is just as significant as physical trade in goods and services because it represents financial transactions in the capital market. When it comes to where capital income is charged, many countries levy a corporate tax on the income of companies, which includes this type of capital income. This tax is typically based on net profits, and the income subject to taxation is determined in a manner similar to taxable income for individuals.
Capital income is essential to the current account balance as it is one of its components, indicating the flow of investment income payments. These include both revenue from foreign investment coming into the country and payments sent abroad for foreign investments.