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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 economic result, indicated by the accounts after statutory adjustments.
When you set up a business
Double-entry bookkeeping on an accruals basis is mandatory for companies and corporations.
The variant known as single-entry bookkeeping is allowed for business operators and self-employed persons (operating under a business name (T:mi)). However, for taxation purposes, business operators must often adjust their 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:
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.
In double-entry bookkeeping, the source and the 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 affected when transactions are recorded.
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 the calendar year.
For taxation purposes, business operators must adjust their single-entry bookkeeping on an accruals basis.
When business operations begin, the financial year (= accounting 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.
Your 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 the calendar year.
Example: Your company’s operations begin on 1 July 2024 and the first financial year ends on 31 December 2025. So the first financial year is from 1 July 2024 to 31 December 2025. That is, 18 months. The company’s standard financial year is 1 January–31 December.
Example: Your company’s operations begin on 1 April 2024 and the first financial year ends on 31 December 2024. So the first financial year is from 1 April 2024 to 31 December 2024. That is, 9 months. The company’s standard financial year is 1 January–31 December.
Financial statements consist of, among others
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 financial statements of companies entered in the Trade Register are public records.
Watch the videos for information on how to establish a company, make prepayments, pay VAT and act as an employer. Subtitles are available in English.