Accounting, financial year, tax period

Taxes are based on accounting

All companies must keep accounts of their business. The company’s management is responsible for the proper management of accounting.

Accounting separates the company's and entrepreneur's personal assets, income and expenses.

Taxes are based on the books. Value added tax is paid on the basis of the sales revenue of the business. Income tax is paid for the result, indicated by the accounts after statutory adjustments.

When you set up a business

ensure that accounting is arranged – we recommend an accounting firm or an expert accountant

ensure that business receipts and supporting documents (dated and numbered) are collected and stored.

Double-entry bookkeeping or single-entry bookkeeping?

Double-entry bookkeeping on an accruals basis is mandatory for companies and corporations.

So-called single-entry bookkeeping is allowed for business operators and self-employed persons (business name). However, for taxation purposes, business operators must adjust single-entry bookkeeping on an accruals basis.

Double-entry bookkeeping is mandatory for business operators and self-employed persons, if two out of three of the following are true:

  • the balance-sheet total is over EUR 100,000
  • the turnover or the corresponding earnings total over EUR 200,000
  • on average, the company employed over three persons.

If the company’s financial year is not the calendar year, double-entry bookkeeping is mandatory, regardless of the type of company.

For both options, income received and expenses paid, interest and taxes, and the own use of goods and services are recorded in the books as business transactions.

Double-entry bookkeeping

In double-entry bookkeeping, the source and use of money is recorded for each business transaction. The entries show the reason for the movement of cash and the account affected by the transaction. At least two accounts must be adjusted when transactions are recorded in the books.

Single-entry bookkeeping

In taxation based on single-entry bookkeeping, account transactions are accrued on a payment basis. In other words, transactions are entered in the books according to the movement of assets in the company’s account. In single-entry bookkeeping, the financial year is always a calendar year.

For taxation purposes, business operators must adjust single-entry bookkeeping on an accruals basis.

How long is the first financial year?

When business operations begin, the financial year may be longer or shorter than 12 months. In the case of double-entry bookkeeping, the financial year may be a 12-month period other than the calendar year. For single-entry bookkeeping, the maximum length of the financial year is always 12 months.

The first financial year begins on the day you set up a business. The financial year is usually 12 months. However, the maximum length of the financial year is 18 months. For business operators and self-employed persons who have single-entry bookkeeping, the financial year is always a calendar year.

Example: Your company’s operations begin on 1 July 2017 and the first financial year ends on 31 December 2018. So the first financial year is from 1 July 2017 to 31 December 2018. That is, 18 months. The company’s standard financial year is 1 January–31 December.

Example: Your company’s operations begin on 1 April 2017 and the first financial year ends on 31 December 2017. So the first financial year is from 1 March 2017 to 31 December 2017. That is, 9 months. The company’s standard financial year is 1 January–31 December.

Make the financial statements for each financial year

Financial statements consist of, among others

  • The profit and loss account
  • The balance sheet with notes
  • The balance sheet specifications.

The financial statements must be drawn up within 4 months of the end of the financial year.

In most cases, business operators and self-employed persons do not have to draw up financial statements. However, financial statements must be drawn up if the financial year differs from the calendar year, or two of the following limits are exceeded in two consecutive financial years:

  • the balance-sheet total is over EUR 350,000
  • the turnover exceeds EUR 700,000
  • during the financial year, the average number of employees was 10.

The financial statements of companies entered in the Trade Register are public.

What is the tax period of my business?

You report and pay self-assessed taxes (such as VAT and employer contributions) for each tax period. The length of the tax period depends on your company's turnover.

When you set up a new business, report your company's turnover and financial year in the start-up notification. If you report nothing, the tax period is automatically one month.

If your company’s turnover exceeds EUR 100,000, your tax period is one month.

If your company’s turnover is EUR 30,001–100,000, your tax period is either of the following, depending on the selection you made:

  • a quarter
  • one month.

If your company’s turnover is EUR 0-30,000, your tax period is one of the following, depending on the selection you made:

  • a quarter (employer contributions) and calendar year (VAT)
  • a quarter – all self-assessed taxes
  • a month – all self-assessed taxes.

If your estimate of turnover is exceeded, please notify us without delay. Report on form 4071.

More information about tax period

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