Thinking about taxes when your company starts making profit is way too late: think about taxes from the start – to avoid tax trouble down the line and to save time and money in the future.
When most people think of corporate tax structure, wordings like ‘simple’ or ‘clear’ typically do not come to mind. For startups, many of you who are starting out on your first venture, it is essential you understand the tax landscape you are navigating.
Avoid tax headaches considering the following basic tips:
Choice of corporate entity
The first and a crucial decision you will have to make is which corporate entity suits your business best.
At the onset, you have the following basic choices when incorporating in Aruba: sole proprietorship (‘eenmanszaak’), corporation (N.V., VBA or AVV) or partnership (‘maatschap’ of ‘Vof’). The differences begin with how the entities are taxed: the sole proprietorship taxed at progressive personal income tax rates, the corporation taxed at 28% and the partnership taxed at ‘partner’ level.
Relevant factors to further consider when making your choice are also the (tax) advantages and disadvantages of each corporate entity, your future plans for your business as well as the requirements and formalities for the incorporation of each corporate entity. In Aruba there are specific tax facilities as for example the San Nicolas Zone which might be advantageous for your business.
Understand your tax obligations and plan for it
Once your company is in operation and starts earning revenue, there are several taxes that need to be taken care of on a recurring basis. You need to determine the entirety of what full tax compliance means for your startup business. Think for example of the BBO/BAZV tax which returns should be submitted monthly. If you will have employees, you will have to know your tax obligations as an employer. Also depending on the corporate entity
you choose annual requirements should be complied with.
Given your type of business and corporate entity, the question is: what does full tax compliance look like for your company?
Do not co-mingle business and personal funds
It is essential from a bookkeeping and a risk standpoint to keep your business’ finances separate from your personal funds. Co-mingling of funds can have adverse consequences: for example in the undesirable situation that your business is sued, you can be sued personally for what your business is alleged to have done based on for example the liability for directors incorporated in the Aruba tax laws. A separate business finance is also necessary for your tax compliance: together with your tax return, a financial statement (balance sheet and income statement) should be submitted.
A separate business finance can be established by means of a corporate checking and savings accounts and maintaining a separate balance sheet and income statement for your business.
As a startup you have one key advantage typical ‘employees’ lack: the ability to deduct business expenses. Provided the expense is ‘ordinary and necessary’ (office supplies, event fees) in your line of business, it is eligible for deduction when filing your tax return. Please keep in mind that any expense you deduct needs receipts or documentation to back it up: you can not deduct what you can not document. Keep track of expenses as you go, rather than waiting until filing time to dig up those old receipts.
Seek professional tax help
As they say ‘taxes are a different kind of sport’ and “compliance is less expensive than non-compliance”. Therefore, once you get established and incorporated, find a tax advisor to make sure you are following all the regulations. Your job is to get your company and business up and running. The last thing you want to think about is taxes.
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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.