May has become a very sensitive month for a lot of people. You can see people on the street are gloomy and colleagues in your company look worry. Everyone’s income in the previous year has been reduced by more than half. Yes, May is the so-called tax reporting month. Individuals pay “comprehensive income tax”. While companies pay for “business income tax”, which is often referred to “company annual tax”. Let us explain to you what is business income tax. Read our article on how to save tax legally!
Strategy 1: Understanding business income tax
Camp tax is a system of levying a company’s net income last year. In the past few years, the standard figure was 17%. This year, the national tax reform has been implemented and the standard figure has been increased to 20%.
However, government still provides some buffer time for companies. As long as the “taxable income” is below NT$500,000, an annual increase of 1% will be used as a buffer starting in year107, and 20% will be fully levied in year109.
The rules are briefly described below:
Taxable income below NT$120,000: tax exempt
Taxable income of NT$120,000 to NT$200,000: tax = (taxable income -120,000) X 1/2
Taxable income above NT$200,000: tax = taxable income X 20%
※What is “taxable income”? It is the money you want to be included in the tax calculation. Let’s go into details.
Strategy 2: How to calculate the taxable income?
People who are just starting their own business will first encounter two terms “audit checking” and “book review” in the calculation of company tax.
“Account checking”: it is to calculate the company’s “taxable income” by deducting all expenses based on all the company’s income.
For example: Xiaocha’s income this year is 2 million, and expenditure is 1.9 million, and the taxable income is 100,000, which is less than the tax standard of 120,000, so it is exempt from tax.
After reading the example above, you may feel a bit worry on how to ensure that the income and expenditure receipts can be completely recorded. The answer is to keep the actual accounts and collect all the receipts. However, for small companies that are just starting or have an incomplete system, it can be difficult to collect all the receipts/proof. Accidentally leave out some numbers or over-reporting will also increase the risk of tax evasion. Hence, government provides another convenient way, called “Book review”.
“Book review”: It is to calculate the company’s “taxable income” directly based on the turnover multiplied by the book review net profit rate.
For example, the book review net profit rate of the coffee wholesale industry is 6%. Eric’s coffee company income this year is 2 million. Multiplying directly by 6%, which is the taxable income of 120,000; Eric has a tax-free income.
Basically, the Ministry of Finance will put forward last year’s profit standard at a fixed time every year for reference. And this can be calculated. The book review has brought in a very convenient way for the operators of small companies to file tax returns, and it also reduces the difficulty of the IRS in verifying receipts.
When you see this, you should suddenly discover why we mentioned in this article about the name pre-check is not as important as to choose the main business field/area. Because by choosing main business field/area, it is directly related to the number of future book review net profit rates!
※Expanded book review is only applicable to companies with a turnover of less than 30 million.
Strategy 3: How do entrepreneurs get along with the company tax
We can draw a fairly simple principle. As long as the company’s expenditure is greater than or equal to its income, tax is free/exempted. So it is important to collect all the relevant receipts.
In the business tax strategy, there is no other way to deduct tax without the proper receipts. However, in the company tax/company annaul tax; these receipts can be regarded as the company’s expenditure whether you are inviting customers/clients to dinner or giving gifts (there is a limit for that). Regardless you as the entrepreneur who want to use these receipts for book keeping or audit purpose; all relevant receipts must be collected. First, there will probably be opportunities to use them. And second, you can use this method as a way to gauge company’s real operating conditions. This is the effective way of business operation.
Another reminder, there are some industries or companies that need to raise considerable costs in the early stage of operation such as some biotechnology and e-commerce platforms. The turnover is very high If you measure the first few years due to the costs of setting up and subsidies that leads to losses. But don’t be foolish to just use a book review! Obviously, if you have a professional accountant at your side, you don’t need to worry about these little tricks. You can simply concentrate on running the business!
Strategy 4: Practical analysis
1. Business is running, but it appears that there is no need to pay the company/ company annaul tax.
There is only one explanation for this situation, that is, the business is not a “company” but a Sole proprietorship! The profit of the business number is incorporated into the comprehensive tax, so there is no need to pay tax.
You should pay special attention whether the operating profit of the business number is merged into the comprehensive tax. The result is more than the company/camp tax for setting up the company. If this is your scenario, please consider it carefully. You can refer to the detailed rules for Sole proprietorship or company, or simply call us. We can help you assess!
2. The turnover is not high, but I am paying too much annual tax
Some companies are service-oriented or business-oriented, and the source of income is commission or service fees. This kind of industry naturally will have less expenditures. It can lead to large differences in income and expenditure when tax returns are calculated. If it is a company with a low turnover, the only choice is to use book review!
For example: Last year, Xiaoshu Co., Ltd. had an income of 2 million and an expenditure of $500,000. If you use auditing, your tax amount is 1.5 million. On the other hand, if you use a book review, your tax amount is 120,000, which is tax-free!
3. Reducing company annual tax/company tax is the only way to save tax when you starting a company?
That’s right, it’s tax saving based on this concept, because personal comprehensive tax and company company annual tax /company tax are calculated separately. They also have their own tax rate ranges and tax exemptions. So in practice, I believe you will meet some friends around you who like to buy dinners or things and almost always quote their tax numbers. To put it simply, the company’s taxation is based on the difference between income minus expenditures. Personal taxation is only based on income. Hence, it is possible that personal living expenses can be regarded as company expenses. (The readers who are interested in this, should ask me secretly otherwise we run the risk of exposing too much).
Summary
As far as the article is concerned, company annual tax /company tax is simpler and clearer than the business tax. For most start-up entrepreneurs, basically a book review can handle everything, and it is definitely the most cost-effective solution. However from the perspective of business operation, you must know the company actual income and expenditures so you can improve its viability and growth.
In fact, there are many interesting aspects whether it is company annual tax /company tax or business tax. There will also be corresponding solutions for different cases. Basically, I can write another article for each particular scenario. If you are interested in planning your own taxation, please contact us immediately.
