4 LEGAL METHODS TO SAVE ON YOUR CORPORATE INCOME TAX

Nowadays, it is no longer particularly difficult for State Revenue Service (SRS) employees to identify illegal tax reduction methods involving fictitious transactions. However, entrepreneurs’ desire to reduce the amounts payable to the state budget does not diminish, so accounting is tasked with finding legal solutions.
From January 1, 2018, the corporate income tax system in Latvia fundamentally changed – Corporate Income Tax is no longer automatically payable from your financial result. It still needs to be very complexly adjusted both upwards and downwards to determine taxable income, and additionally, legally mandated advance payments must be made. And this certainly does not mean that Corporate Income Tax no longer exists at all…
To avoid overpaying Corporate Income Tax, let’s examine 5 completely legal methods for reducing your company’s profit tax:

#1 Restaurant Visits for Business Dinners or Team-Building Events

You are absolutely permitted to go to business dinners or organize a Christmas party for your team, attributing the costs to business expenses. The only condition is to ensure that these expenses do not exceed 5% of the previous period’s taxable wage fund.

#2 Purchasing an Expensive and High-Quality Car

Purchasing an expensive car will prove your business success to everyone, but to avoid paying 25% Corporate Income Tax on the amount immediately at the time of purchase, ensure that the purchase amount does not exceed 50 thousand euros plus VAT! Perhaps the solution is to buy a slightly used car from Stuttgart? After all, one must look at life with a goal in mind, right!

#3 Recovering Money from Debtors (Receivables)

Payment discipline in the Latvian business world has been weak in the post-crisis period, and the legislator has already foreseen this. If collecting debtor debt is not progressing, it is best not to let the situation escalate, but to start working with the debtor in a timely manner so that payments are made promptly, even in installments. If this does not happen, the legislator has provided 3 years for money recovery. If the debt cannot be recovered, Corporate Income Tax of 25% will have to be paid, as taxable income is increased by the amounts of uncollectible debts…

#4 Loans to Related Parties

Previously, 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 – up to one year; otherwise, this expense will be equated to a dividend payment and will be subject to Corporate Income Tax at 25%. It’s better to return the money and borrow again!
May all your plans succeed!
P.S. But next time, I will tell you why it’s not a very good idea to entrust accounting to your relative. There was such a case…

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