Business Finance and Tax Fundamentals

Business Finance Fundamentals

Understanding business finance is crucial for long-term success.

Investments Explained

Investments: Acquiring or developing assets expected to generate future performance. Before investing, it's essential to budget, determine the payment method, project future revenue and timing, and assess profitability.

Financing Sources

Financing: Determining where the necessary funds will come from.

Financial Planning Basics

Financial Plan: Outlining where funds will be obtained and how they will be allocated.

Internal Finance Concepts

Amortization Definition

Amortization: Charging to the cost of production the loss of value of fixed assets. This loss can be due to physical aging through use or obsolescence resulting from a loss of utility.

Types of Reserves

Reserves:

• Legal Reserves: Mandated by law.
• Statutory Reserves: Created by the company's members (as per statutes).
• Voluntary Reserves: Determined by the company, typically from undistributed profits.

External Finance Options

External Finance:

Supplier Financing

Financial Institutions - Suppliers: Suppliers who sell goods to the company on credit.

Renting Agreements

Renting: Commonly used for financing company vehicles. The financial company typically provides maintenance and insurance. These contracts often allow the customer to renew the vehicle.

A Financing Plan covers financing for fixed assets and working capital.

Selecting Profitable Investments

Investment Selection: Requires being well-informed to choose the most profitable investments for the company.

Investment Evaluation Methods

Commonly used methods include:

• Payback Period (Plas Recovery)
• Net Present Value (NPV)
• Internal Rate of Return (IRR)

Understanding Tax Obligations

Tax obligations vary depending on the company structure and activity.

Tax Duties at Business Opening

Opening Obligations:

• Registration for Economic Activities Tax (IAE).
• Census Declaration.
• Transfer Tax and Stamp Duty.
• Municipal Fees (e.g., garbage, work permits).

Ongoing Management Tax Duties

Management Obligations: Duties performed during the ongoing operation of the business.

Individual Business Taxes

An individual business is typically subject to Value Added Tax (VAT), Personal Income Tax (PIT), and various municipal taxes depending on the activity.

Categories of Taxes

Taxes can be categorized as:

Direct vs Indirect Taxes

• Direct Taxes: Personal taxes that consider the taxpayer's personal circumstances (e.g., PIT, Corporate Tax (IS), IAE).
• Indirect Taxes: Do not consider personal circumstances (e.g., VAT).

Rates and Special Contributions

• Rate (Tribute): Payment for a specific service provided by the government to the citizen.
• Special Contributions: Payment made for obtaining a present or future benefit from a public work or service.

Key Elements of a Tax

Elements of a tax include:

• Tax Liability: The legal obligation to pay the tax.
• Taxable Event: The action or situation that creates the tax liability.
• Accrual: The moment the tax liability arises.
• Enforceability: The timing when the tax payment is due.
• Taxpayer: The natural or legal person obligated to pay the tax.
• Taxable Base: The economic valuation of the taxable event, used for quantification.
• Taxable Income: The taxable base less any applicable deductions.
• Tax Rate: The percentage applied to the taxable income to determine the tax amount payable.

Consequences of Late Tax Payment

Failure to meet tax obligations in a timely manner can result in interest on arrears and surcharges.