Taxes, Accounting, and Auditing in Business

Posted on Dec 1, 2024 in Economy

Taxes:

Direct Taxes: These taxes fall directly on individuals or companies. Examples include:

  • Personal Income Tax: Levied on personal income earned from employment, capital, or other sources.
  • Corporation Tax: Paid by corporations on their profits, with the amount proportional to the benefit obtained.
  • Economic Activities Tax (IAE): Paid annually by businesses, professionals, or artists.

Indirect Taxes: These taxes are paid when a product or service is purchased. Examples include:

  • Asset Transfer Tax: Paid when buying property.
  • Value Added Tax (VAT): Applied to most economic transactions between businesses and individuals, calculated as a percentage of the value of goods or services.
  • Excise Taxes: Levied on specific consumer products, affecting manufacturing, import, and distribution.

Tax Components:

  1. Taxable Event: Situations that trigger tax rules.
  2. Tax Base: The amount to which the tax rate is applied, usually expressed in monetary terms.
  3. Net Tax Base: The taxable amount after deductions allowed by law.
  4. Tax Rate: A percentage applied to the net tax base. Proportional tax rates are constant, while progressive rates increase with the tax base.
  5. Tax Due: The result of applying the tax rate to the tax base.
  6. Tax Debt: The final amount to be paid, including any additional charges or allowances.
  7. Taxpayer: The individual or legal entity responsible for paying the tax.
  8. Taxable Entity: The individual or legal entity subject to tax obligations.

Accounting Plan Structure:

  1. Conceptual Framework (Mandatory)
  2. Registration Standards and Assessment for SMEs (Mandatory)
  3. Financial Statements (Mandatory)
  4. Chart of Accounts (Voluntary)
  5. Accounting Definitions and Relationships (Voluntary)

Accounting Principles:

  1. Going Concern: Assets are valued according to accounting rules, not market value.
  2. Accrual Basis: Transactions are recorded when they occur, not when cash is exchanged.
  3. Consistency: Valuation methods must be consistent over time.
  4. Prudence: Potential losses in asset value should be recognized.
  5. Non-Offsetting: Income and expenses should be recorded separately.
  6. Materiality: Insignificant amounts do not need to be recorded.

Auditing:

Auditing analyzes whether accounting entries accurately reflect the company’s activities. It provides objective information about the reliability of financial information. The auditor’s report is intended for stakeholders such as managers, owners, banks, creditors, employees, and public authorities. The report must be filed with the Commercial Register for public consultation.

Types of Audits:

  • External Audit: Annual review of accounts by independent professionals.
  • Internal Audit: Conducted by company staff to verify the effectiveness of internal controls.
  • Operational Audit: Reviews procedures to analyze efficiency and organizational structure.
  • Financial Audit: Examines and verifies financial statements.

Commercial Code:

Art 25.1: Employers must maintain orderly accounting records, enabling chronological tracking of all operations, including periodic balances and inventories. A book of inventories and annual accounts, as well as a daily journal, are required.

Art 25.2: Accounting must be managed directly by employers or authorized individuals, without prejudice to the employer’s responsibility.

Art 26.1: Corporations must maintain a book of actions, recording all agreements made in general meetings and other corporate bodies.

Mandatory Accounting Books:

  • Daily Book: Chronological record of all company transactions.
  • Book of Inventories and Annual Accounts: Includes initial balance, quarterly balances, and financial statements (balance sheet, income statement, statement of changes in equity, and notes).
  • Book of Actions: Records corporate agreements.

These books can be kept classically or on loose-leaf pages, which must be bound and submitted to the Commercial Register within four months of the closing date.

Corporate Tax (IS):

Corporate tax is a direct tax on the income of companies and other legal entities. The taxable amount is the company’s profit. The general tax rate is 30%.

General Accounting Plan (SME Model):

Unless exempt, all companies must submit the SME model, including the balance sheet, income statement, statement of changes in equity, cash flow statement, and notes.