Just like a private individual, a business needs to pay its fair share of tax, and there are several different types of tax that a business can be subject to. Just because you are a new start-up does not mean you are exempt, either—make sure you are aware of what taxes you need to pay so that you can account for them in your pricing when it comes to making an invoice!
Depending on where you are in the world, your company’s tax liability will vary. Some countries tax companies very heavily whereas others don’t tax them very much at all. Also, some countries will vary the tax depending on your status, size, and turnover.
If you are just starting out, it helps to learn what types of taxes you may need to pay by being aware of some of the more common ones.
Common Business Taxes Around the World
Here are some of the most common taxes businesses are subject to around the world. Remember, this is just a guide—always check your country’s own tax situation.
1. Income Tax, sometimes known as Corporation Tax
All businesses must pay tax on any income that they make when expenses have been accounted for. The amount of tax liability you have for your profits usually depends on your company’s status (e.g. sole proprietorships vs. LLCs and Limited Companies.)
If you are a sole trader, you will probably pay your company’s taxes through your own personal income tax. However, as a legally-formed company, you will have to pay it separately.
Again, this all depends on the country where you are trading from.
2. Sales Tax, also called Value Added Tax (VAT) amongst other things
Common in the U.S. and European Union, sales tax (or VAT) is usually added on top of products and services and the cost passed on to the consumer.
Most goods and services are eligible for sales tax or VAT, however, there are some that are exempt from sales tax—for example in the UK, insurance, finance, and credit is an example of one service that is exempt from VAT.
Some countries will also not force companies to register for and charge sales tax or VAT until they reach a certain level of turnover. If you do charge sales tax or VAT, it is important that you add it when making an invoice, so you don’t end up out of pocket!
3. Taxes on business property
If your business owns physical property such as a building or office, then your business will probably be liable for paying property tax to a local authority such as a council. This is usually a city-specific situation, though, rather than country-wide.
How property taxes work also depends on where your property is located. Generally speaking, the tax is based on an assessed value of your business premises the same as for personal property such as a house, and a monthly or annual tax fee becomes due.
Knowing About Taxes Helps When It Comes to Making an Invoice
Seriously—you would be surprised to learn just how many businesses, whether it be a freelancer or registered company, fails to account for taxes when making invoices and getting paid.
More often than not, business owners fail to realize just how much they owe in taxes until it comes to the point where they have been stuck with a bill.
Taxes are something that all businesses must pay and there very rarely exists any exemptions. When exemptions do exist, they are usually only applicable to charities and non-profits, but even most of those still need to funnel some money to the taxman.
By knowing exactly how much tax your company will need to be paying when the financial year ends, you will be in a much better position having accounted for them when making an invoice and carrying out other day-to-day trading activities.
Don’t try to avoid your taxes either—that never ends well and will kill off your business when caught! By incorporating part of all of your tax liability into your pricing structure, you can easily cover them without taking too much of a hit.
