When you switch to independent work, you also change the tax situation and you are faced with new types of taxes. Below you will find a brief overview.
Income and substance tax
Income from independent employment is subject to income tax in the same way as income from employees. This is normally the basis for determining taxable income if there is an adequate accounting system. The profit of the individual firm is therefore considered as income. Registering GST for sole-proprietorship businessis the first step towards raising a start-up.
The separation of commercial substance and private assets is important
The profit is calculated by deducting from the revenue generated all commercial expenses (e.g. expenditure on materials, rent, interest, etc.). Private expenses (e.g. payment for weekend purchases through the individual firm) cannot be deducted and must therefore be clearly distinguished from business expenses. In this regard, the most frequent problems are company cars, catering expenses or telephone charges. The tax administration should be able to determine which part of the expenditure has been used for private purposes and which for business purposes. Registering GST for company should be done prior to launching the domain name of business.
As far as the entrepreneur’s assets are concerned, the commercial substance must be divided from private assets. What is predominantly or completely linked to independent work belongs to the commercial substance, even in cases where purchases have been made with private funds. In the case of commercial substance, value reductions (e.g. depreciation and provisions) are taken into account for tax purposes and reduce the profit of the individual company.
Many entrepreneurs can be overwhelmed by the large number of administrative tasks it means to start a new business. Economic pressure, in addition to all the legal obligations involved, can result in bad financial decisions often being made that will have accounting repercussions that could undermine the performance of the business. If you want to go for Registering GST for company, seek help from professional firms for affordable services.
Follow these simple tips to stay on the right side:
- Avoid informality.
One of the first temptations many entrepreneurs face in our country is informality. This is a false door that you should avoid opening at all costs, because if you start in these terms, returning to legality will perhaps be the eternal purpose of the new year, or in its fault what you will always leave for tomorrow. Registering GST for sole-proprietorship business is an important step as it helps in reducing the additional burdens of starting a new corporate.
- Don’t do it all.
Many entrepreneurs tend to be allologists,in the mood to have all the details under control, absorb many more tasks than they can handle efficiently. The case of taxes is no exception, as there are even those who decide to keep the accounting of their new business on their own without asking for advice. It is true that the Tax Administration Service (SAT) has been bringing accounting tools closer to taxpayers for some time, facilitating self-service in a remarkable way, mainly with electronic accounting. But when it comes to a business, it will always be better to have the support of an accountant to make the most of the tax advantages.
- Choose the regime that suits you best.
Try to make a plan about the expectations you have for the first year. If your business is going big, look for a regimen that allows you to deduce more. If this is the case, you may already be associated with someone else, so it is better to establish a society and tax as a moral person.
