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August 1, 2012
Now more than ever there should be a general concern to know your business taxation. We know this is tough but worth the effort because proper planning will save you money and generates value for the shareholder or entrepreneur and ultimately on the income statement. Tax regulations change so often that they are quite hard to follow, along with the Tax authority’s opinion and the Courts decisions.
In this sense, it is essential to be regularly informed and updated in order to know to what extent taxes are deductible or which tax benefits might be applicable and to what extent; or at least to know how to do it in order not to have any trouble with the Tax Authorities. You can also achieve this with a good Tax Advisor. In this respect we would like to offer an outline to the tax system and provide you with a series of relevant, above all how it could affect your business in a positive way.
In this first chapter we would like to focus on VAT and the requirements for the deductibility of the same. What is meant by deduction? First of all, your must note that the tax deductibility constitutes an essential pillar that sustains the VAT. Neutrality is essential for companies and professionals involved in the various stages of production and are obtained by from the deduction of VAT on the acquisition or importation of goods and services. In a perfectly neutral system, only the final consumers should be subject to VAT and each good or service that is acquired in a business for a subsequent delivery of a goods or services should generate deductible VAT or VAT. However, the VAT system is not perfect and certain Legal requirements are demanded. Deductibility Requirements The deduction regime is regulated within the articles 92 to 114 of the VAT Act, establishing the following requirements: Subjective requirements: professionals and companies subject to VAT are in title to deduct VAT that they support, even if they become VAT taxpayers sporadically
2. Operations entitling deduction: it is required that the transactions giving rise to the tax deduction rate for the taxpayer is applied to any of the following operations: – Sale of goods and services subject and not exempt to VAT. – Sale of services exempt, but included in the taxable amount of the imports. – Exports – Intra- Community sale of goods – In the case of random sale of transportation goods (cars, trucks, etc.) until the limit of VAT charged in case of not being exempt.
3. Loss of right to claim: Lost after 4 years of accrual.
Nowadays, it is essential that every professional and company is aware of the Tax System and implements proactive policies to obtain the best possible outcome from their Tax returns. As a simple example, the greater number of invoices you can recover in your business activity, the lower the amount you have to pay to the tax office and considering that as from September 1st VAT increases by on average by 11.6% (from 18 to 21 %), being able to reach an increase of 262.5 % (from 8 % to 21 %) in the provision of some services. Being a Tax Advisor I know exactly what to do. However you may not, therefore please do not hesitate to contact us if you need further assistance.