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Understand Profits Before Paying "Taxes" (PART 2)

Having an amount of profits, how we consider informing the Revenue and how much taxes we need to pay? The last couple months were a period both ordinary person and juristic person are obliged to be aware of informing and paying annual taxes to the Revenue Department.

Net Income (income-expenses-allowances) or Net Profits (income-expenses)

For ordinary person,

The net income calculation from excluding necessary expenses must be made under these conditions:

  1. The expenses must be normal payments necessarily related to particular businesses.

  2. The expenses must be reasonable and appropriate for the businesses.

  3. The expenses must not be in the exempted lists to the laws.

  4. All expense exclusions must come with investigable evidences.

For juristic person,

The net profit calculation can be made from the income since the activities within an accounting period have to exclude the expenses following the section 65 bis. And section 65 ter. of the Revenue Code which regulates with accrual basis. (The income in any round of the accounting period whether it is the unmade payments, it will be included in the income in the period. In addition, the total expenses related to the income whether it is the unmade payments in the accounting period, it will be included in the accounting period.)

The law has regulated the conditions for net profit taxation as follow:

  1. The conditions about the wearing and depreciation, inventory valuation and inventory stocks, bad loan distribution and personal tax exemption for interest on dividends in only some case.

  2. Some expenses forbidden to be excluded in the person income tax calculation can be excluded only if it follows the regulated conditions.

  3. In case that company or corporation exports goods to foreign country at their central branch to distribute the goods within that country.

  4. The tax calculation of net profit for the case that companies or corporations terminate collaboration or begin to collaborate.

To sum up, tax calculation for personal income and corporate income for juristic person can be made as follow:

Net Income for Ordinary Person =  (Income - Expenses - Allowances) × Tax Rate

Net Profit for Juristic Person =  (Tax Income - Tax Expenses)

It seems to be quite difficult for tax calculation, doesn’t it? However, you entrepreneurs actually need to understand this. So, if you have some spare time, you can study about this because it really has something to do with you. But in case you have already had a private accountant or financial expert to give you an advice that would be a relief. At least these things can help our taxes go legally, and most importantly, we can save more taxes as much as we can.


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