When starting a business, one of the first and most important steps is to register and declare the form of economic activity, which depends on the types, amount and administration procedure of taxes payable to the state.
Tax planning and management is important in every business, especially for new businesses, because properly organized accounting can help keep track of the company’s financial situation, evaluate the company’s profitability, avoid mistakes, and contribute to the company’s financial stability and growth.
Are you also planning to start or have you just started your own business? Then continue reading this article, where we explain the most important information about tax planning and management – the basics of tax planning, the types of taxes, how to build a planning strategy and the benefits that new companies can take advantage of.
Basics of tax planning
One of the most common mistakes made by new companies is not paying enough attention to tax planning. It should be understood that tax planning is very important because it directly affects the financial health of the company. With smart and efficient tax planning, you can reduce your tax burden and keep more of your profits while complying with the law.
The most important taxes that every business faces, incl. new companies:
Corporate income tax
A tax imposed on a taxpayer’s profits when they are distributed. This tax rate is 20% of the distributed profit (calculated dividends, costs equated to dividends and conditional dividends) and conditionally distributed profit (expenses not related to economic activity, etc.).*
Individual income tax (IIN)
The tax with which the income of natural/legal persons is taxed, i.e gross salary. This tax rate is 20% for income up to 20,004 euros, 23% for income from 20,004 euros to 78,100 euros, and 31% for the part of income that exceeds 78,100 euros.*
State social insurance contributions (VSAOI)
Mandatory payment into a special budget account is established by law, which entitles a socially insured person to receive social insurance services as defined by law. If the employee is insured for all types of social insurance, this tax rate is 34.09% of the gross salary, of which 23.59% is paid by the employer, while 10.50% is paid by the employee.*
*Information from the website of the State Revenue Service.
Understand tax obligations
Depending on the chosen form of economic activity, the company may also be obliged to pay other taxes:
Excise tax
A specific consumption tax applied to certain groups of consumer goods that are produced/imported into the country. The purpose of the excise tax is to limit the consumption of goods that are harmful to the environment and people and to provide revenue to the state by imposing an additional consumption tax (in addition to the value added tax) on goods that are not essential goods and do not affect the poor. This tax rate depends on the quantity of goods and is expressed in EUR.*
Natural resource tax
A tax whose purpose is to promote the economically efficient use of natural resources, limit environmental pollution, reduce the production and sale of environmentally polluting products, promote the introduction of new environmentally friendly technologies, support the sustainable development of the national economy and financially ensure environmental protection measures. This tax rate depends on the natural resource and is expressed in EUR.*
Electricity tax
A tax levied on electricity supplied to the end user (including electricity obtained from renewable energy resources, in cogeneration plants), electricity used for the production of thermal energy, and electricity supplied for own consumption during the tax period (including administration buildings). This tax rate is 1.01 EUR per megawatt hour.*
Lottery and gambling tax
The tax applied to capital companies that have received a special permit (license) for the organization of lotteries/the necessary license for the organization of the respective gambling games in the Supervision Inspectorate of Lotteries and Gambling in accordance with the Law on Gambling and Lotteries and the Law “On Fees and Taxes on Lotteries and Gambling Games”. This tax rate depends on the type of gambling and is expressed both in EUR and as a % of revenue.*
Micro business tax
A tax that includes two taxes: mandatory state social insurance contributions for the micro-enterprise owner and personal income tax of the micro-enterprise owner for the part of the micro-enterprise’s economic activity revenues. This tax rate for turnover is 25%.*
Customs duty
A tax collected by customs authorities for goods imported from third (non-EU) countries and released for free circulation in the customs territory of the European Union (EU, Union). This tax rate depends on the product and is expressed as a % of the value of the product and in EUR per unit of measurement of the product.*
Property tax
The tax applied to natural and legal persons of Latvia/foreign countries and to groups of such persons established on the basis of a contract/other agreement/their representatives, who own, legally possess/use immovable property in cases specified by law. This tax rate depends on the type of real estate and is expressed as a % of the cadastral value of the real estate.*
Value-added tax
Consumption tax, which is included in the price of the good/service and is paid by the final consumer of the good/service. The standard rate of this tax is 21%, however, a reduced VAT rate is set for certain groups of goods and services.*
Solidarity tax
The tax applied to mandatory state social insurance contributions made from income that exceeds the maximum amount of the subject of mandatory contributions, or EUR 78,100 per year. This tax rate is 25%.*
Tax on subsidized electricity
Tax applied to revenues from electricity sold as part of mandatory procurement, revenues from guaranteed fees for electric power installed in a cogeneration plant/power plant, as well as revenues for producers who received equivalent rights in accordance with regulatory enactments that were in force before the Law on the Electricity Market came into force entry. This tax rate depends on various criteria and can be 5%, 10%, 15%.*
Vehicle operating tax
A tax applied to all vehicles, except for tractors, car trailers and semi-trailers, the gross weight of which does not exceed 3,500 kilograms, trams, trolleybuses, off-road vehicles, snowmobiles, mopeds and bicycles, and which, during the annual technical inspection, is paid by every person who owns, a vehicle is or is being registered in possession or possession in Latvia or transit number plates are issued to the vehicle in possession, possession or possession in Latvia. This tax rate depends on the type of vehicle and its technical parameters and is expressed in EUR.*
Business light vehicle tax
Tax applied to a vehicle owned or held by the taxpayer, used on the basis of an employment contract. This tax rate depends on the type of vehicle, its purpose of use and its technical parameters and is expressed in EUR.*
In order not to experience unpleasant surprises, incl. would not have to pay late interest, companies must pay taxes within the specified time limits. Taxes and fees to be paid into the unified tax account must be paid by the 23rd of the month in which the tax is to be declared. Be careful and observant, as the payment deadlines for other taxes are different – find out the relevant payment dates as soon as you have found out what taxes you have to pay as part of your business.
*Information from the website of the State Revenue Service.
Developing an effective tax planning strategy
Every company needs a tax planning strategy, incl. it is necessary to develop a budget plan and prepare a financial flow forecast – this will help to ensure an efficient financial flow, that is, that the company makes a profit, and to prepare in time for various challenges, which are not lacking in the business world.
If you are not familiar with the world of finance and/or want to be sure that your company’s accounting is organized according to the law, it is a good idea to hire a professional accountant or tax consultant.
Although such services require a financial investment, a skilled specialist provides such benefits that even several times exceed the necessary investment – not only helps to save time and money, but also follows up to invoicing and the execution of other documents would be legally correct; calculates the gross wages of employees and follows up to ensure that they are paid accurately net salary; shares the latest accounting news and provides support in financial planning and management.
Relief available to new businesses
Starting and developing a successful business requires a successful idea. But the idea alone is not enough – for the company to be successful in the long term, a financial investment is necessary. Fortunately, there are a variety of incentives available to new businesses to help businesses run a successful business. Unfortunately, this does not cancel tax payments, but various other types of support are available to companies, from business development consultations to the purchase of new production equipment.
Take advantage of the opportunity – take a look, for example, at the support programs published on the website of the Latvian Investment and Development Agency!
Effective tax planning and management can help start-ups avoid financial complications and ensure long-term success. Be active and keep up with business and tax news so you can optimize your company’s tax obligations and promote growth! May you succeed in making smart business decisions and develop your company!
2024-01-19 07:03:02
#Tax #planning #management #businesses
