Tax registration is one of the important steps in the process of formalizing your business.

What is tax registration?

In simple terms, tax registration means declaring your legal existence to the local tax authorities.  It also means that you provide information that identifies your business as an economic unit operating in the locality and ready to contribute to local economic development.

Why is it advantageous to comply with tax regulations?

Small informal businesses that are considering formalizing can find paying taxes challenging. They often feel that they do not have enough income to pay the required taxes. This is true in some cases, but these concerns are often unwarranted. These businesses may also find it difficult to file tax returns and perform the required accounting tasks. Yet making the effort to overcome these constraints is beneficial for two reasons

X Advantages for the business: when you are up to date on your tax payments, you are able to obtain a tax clearance certificate, which you may need to present when applying for public services or when submitting a proposal for public procurement. Many businesses realize that winning a public contract can help guarantee tax payments for several years. This is a huge benefit to the business.

X Benefits to society: When your business meets its tax obligations, it helps the government provide necessary public goods and services to its citizens, such as building and maintaining roads, providing education, ensuring security, funding transportation, cultural events, etc. A business that meets its tax obligations is thus considered a good corporate citizen

In any case, if you do not file your taxes on time, the tax authorities will find you. Should this happen, the tax authorities will charge you higher amounts and penalties because you failed to meet your obligations.

What are the main taxes I have to pay as a business owner?

The two main types of taxes are personal income tax and corporate income tax. The amount of these taxes vary depending on the type of business you have registered. When you register a sole proprietorship, you and your business are considered a single legal entity. This means that the profit you make from your business is considered your personal income. In this case, you must pay personal income tax. When you have created a legal entity (for example, a limited liability company), your business is a separate legal entity. In this case, you must pay corporate income tax. However, depending on your personal circumstances, you may also be required to pay personal income tax (in addition to corporate income tax)

What types of simplified tax regimes may apply to you?

Some governments have introduced simplified tax regimes to make it easier for people in the process of formalizing their businesses to pay tax if they are unable to provide certain information. In this case, based on your statements, your turnover can be established and the taxes to be paid calculated. These schemes take three main forms:

Progressive taxation

Progressive taxation generally uses your company’s turnover to place you in a pre-defined tax category. Your tax liability, which is most often determined as a percentage of your sales, differs depending on which category you are classified in. There may also be a single tax rate applied, the level of which may depend, for example, on your industry.