Tax registration is one of the important steps in the process of formalizing your business.
1. 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.
2. 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
3. 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 varies
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).
4. 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:
1. 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
2. Flat-rate tax
Flat-rate tax is a tax payment set by the government to combine various tax obligations. When you pay the required
amount, you meet your tax obligations related to the taxes that are included in the flat-rate tax.
3. Indicator-based presumptive schemes
Another possible taxation method is to use other indicators to determine your business’s tax liability. This could
include the size of your facility or the land you occupy, the amount of electricity you use, or the number of workers