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SME Conference

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Title: SME Conference


1
  • Presentation
  • SME Conference
  • Tbilisi, Georgia
  • May 4-6, 2011
  • Patricija Pergar

2
Agenda
  • classification of companies,
  • taxation system for sole entrepreneurs, lawyers,
    notaries, journalists, etc.,
  • taxation system for companies,
  • simplifications,
  • reporting net income challenges and problems,
  • grey economy and supervision.

3
Classification of companies
  • Companies are classified as micro, small, medium
    and large companies with the application of the
    stated criteria
  • average number of employees in the business
    year,
  • net revenue from sale and
  • value of assets.

4
Classification of companies
  • 99 percent of all companies are classified as
    small.

2007 2008 2009
Total number of taxpayers registered for income tax purposes 161.261 166.074 170.000
Total number of small enterprises registered for income tax purposes 159.586 164.409 168.355
Proportion of small enterprises on total number of taxpayers () 98,96 99,00 99,03
5
Taxation system for sole entrepreneurs, lawyers,
notaries, journalists, etc.
  • Persons liable for income on performing business
    activities belong to this group. These are sole
    entrepreneurs as well as other individuals, for
    example lawyers, notaries, journalists,
    sportsmen, persons performing business activities
    in the field of culture, etc., who register
    performing of activities on the basis of other
    regulations.

6
Taxation system for sole entrepreneurs, lawyers,
notaries, journalists, etc.
  • The tax base from income from business
    activities is established in two ways
  • with taking actual income and expenditures into
    consideration,
  • with taking norm expenditures into consideration.

7
Taxation system for sole entrepreneurs, lawyers,
notaries, journalists, etc.
  • The tax base from income from business
    activities is established by taxpayers themselves
    in tax returns.
  • The annual tax base is a sum of tax bases from
    income from employment, income from performing
    business activities, income from basic
    agricultural and basic forestry activities,
    income from renting property, from transfer of
    property right and other types of income.
  • The tax authority establishes the liability for
    payment of tax for the previous tax period with
    the assessment decision.

8
Taxation system for companies
  • The tax base of companies is established only by
    taking actual income and expenditures into
    consideration.
  • Taxation is performed according to the system of
    self-taxation.

9
Simplifications
  • Establishing of the tax base by taking norm
    expenditures into consideration,
  • books of account,
  • accounting reports,
  • annual reports.

10
Establishing of the tax base by taking norm
expenditures into consideration
  • Expenditures are defined in a lump-sum amount
    and they represent 25 or 70 of income realised,
    which depends on activities, performed by
    taxpayers.

11
Books of account
  • Taxpayers, who establish the tax base by taking
    norm expenditures into consideration, dont have
    to manage books of account. These taxpayers
    manage only the record of issued invoices and
    record of fixed assets.

12
Books of account
  • Sole entrepreneurs may manage books of account
    according to the system of single entry
    bookkeeping in cases when they fulfil certain
    conditions.

13
Books of account
  • Other entities manage books of account according
    to the principle of double entry bookkeeping.

14
Books of account
  • The tax authority may establish the subject of
    taxation with assessment and on this base it
    assesses tax also in cases when persons liable
    for tax fail to file tax returns or file them
    without data or fail to submit books of account
    and records, which they shall keep, or if the
    subject matter of books of account and records is
    not correct or if they show such essential formal
    insufficiencies, which provide justified doubts
    about their substantive relayability and
    correctness.

15
Accounting reports
  • Companies prepare breakdown of accounting
    reports in relation to the size. Smaller
    companies require breakdown with fewer details.

16
Annual reports
  • Taxpayers, who establish the tax base by taking
    norm expenditures into consideration, dont have
    to prepare annual reports.
  • Annual reports of sole entrepreneurs include
    balance sheets and profit and loss accounts,
    where a detailed breakdown of balance sheets and
    profit and loss accounts is not required.
    Explanations for accounts with disclosures and
    business reports are also not necessary.

17
Annual reports
  • The annual report of small companies with share
    capital, with the securities not listed on the
    organised stock markets, consists of at least
  • balance sheet,
  • profit-and-loss account and
  • annexes with explanations for statements.

18
Annual reports
  • Small companies with share capital dont prepare
    cash-flow tables, capital-flow statements and
    business reports. Breakdown of balance sheets and
    profit and loss accounts doesnt include so many
    details as at large companies.

19
Annual reports
  • Annual reports of other entities include
    accounting reports, consisting of balance sheets,
    profit and loss accounts, cash-flow tables,
    capital-flow statements and annexes with
    explanations for accounts and business reports.
    Companies, which are subject to audit, shall also
    prepare statements of comprehensive income.

20
Reporting net income challenges and problems
  • assistance to taxpayers in tax compliance,
  • submission of reports for several purposes at the
    same time,
  • performing electronic services with the public
    administration,
  •  input control of returns received.

21
Grey economy and supervision
  • Grey economy is one of important reasons for
    non-compliance with tax regulations, so special
    attention will be focused on it in next periods.
    In 2010 there were 3,586 audits performed within
    the grey economy project, 1,616 violations
    established, 900,000 EUR of fines imposed and 1.4
    million EUR of estimated additional tax
    liabilities.

22
Grey economy and supervision
  • Last year 2,256 audits in total were performed
    at small taxpayers. Out of this number there were
    1,658 audits at micro companies and companies
    categorised as smaller than micro and 598 sole
    entrepreneurs. The most frequent examples of
    violations are

23
Grey economy and supervision
  • failure to issue invoices (hotels, restaurants,
    catering, transporters, construction field),
  • deficiency in management of subsidiary records
    (cash register operations, records of travel
    expenses, construction journal),
  • fictitious invoices for expenditures
    (non-performed services in construction,
    transport, consultant services),
  • irregularities in connection with depreciation
    (recalculation for assets already depreciated or
    for assets already alienated).

24
Grey economy and supervision
  • expenditures for personal use private purpose
    (as a rule there is no separation between
    business and private use),
  • fictitious travel expenses and daily
    allowances, for which it is established in
    supervision procedures that taxpayers dont have
    relevant papers and documents for proving
    reality.

25
Grey economy and supervision
  • Modern auditing methods are already applied
  • application of the computer programme for
    electronic data processing (ACL tool),
  • supervision over electronically managed cash
    registers with methods of computer forensics,
  • supervision over electronic distance selling
    (selling on the Internet).

26
Conclusion
  • Activities of tax auditing are directed into
    supervision over tax compliance as well as into
    preventive activities and prevention of further
    tax evasion.

27
  • THANK YOU FOR YOUR ATTENTION!
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