Currently, SRS employees no longer have any special difficulties in recognising illegal tax reduction methods with the help of fictitious transactions. However, the desire of businessmen to reduce the amounts payable to the state budget is not diminishing, so the task of accounting is to find legal solutions.
From 1 January 2018, the corporate income tax system in Latvia changed fundamentally. Corporate income tax no longer has to be paid automatically from your financial result. It is still very difficult to adjust both upwards and downwards when determining taxable income, and in addition to paying the statutory advance payments. And this does not mean that corporate income tax no longer exists at all …
In order to avoid paying unnecessary corporate income tax, we will consider 5 completely legal methods for reducing your company’s corporate income tax:
1 Restaurant visits for business dinners or team building events
You can definitely go to a business dinner or organise a Christmas party for a team, allocating the costs to the operating expenses. All you have to do is make sure that these expenses do not exceed 5% of the previous period’s tax salary fund.
2 Buying an expensive and good car
Purchasing an expensive car will prove the success of your business for everyone, but so that at the time of purchase it does not immediately pay 25% of the amount of corporate income tax, make sure that the purchase amount does not exceed 50 thousand EUR plus VAT! Maybe the solution is to buy a slightly used car from Stuttgart? But you have to look at life through a three-pronged star, haven’t you?!
3 Recovery from debtors (receivables)
Payment discipline in the Latvian business world in the post-crisis period is weak, and the legislator has already provided for it. If the collection of the debtor’s debt is not successful, it is best not to allow this situation, but to start working with the debtor in time so that it settles in time, even in instalments. If this does not happen, the legislator has provided for 3 years to recover the money. If the debt cannot be recovered, you will have to pay 25% corporate income tax, as the taxable income is increased by the amounts of uncollectable debts …
4 Loans to related parties
In the past, it was very popular to lend funds to related parties, even without interest and for a very long time. Currently, this is only possible in the short term, i.e. up to one year. Otherwise this payment will be equated to the payment of dividends and will be subject to 25% corporate income tax. Better return the money and borrow again!
May everything planned succeed!
P.S. And next time I’ll tell you why it’s not a good idea to entrust accounting to your relative. There was a case once …