Business taxes are certain, and payment of taxes runs parallel with running a business. Notwithstanding, every business wants a way to reduce cost, and finding ways to minimize taxes legitimately is an important activity that can have great return.
Here are 7 ways to legally reduce your tax payments:
1. Choose a tax-friendly business structure
When kicking-off your business, pay attention to the tax benefits of different kinds of organisational structure. Some business structures may require that the business pays taxes on the money it earns all through the year, and the business owner pays taxes on the income he/she receives.
This results in a double taxation scheme that costs the business twice. When structuring your business, choose a business structure will avoid double-taxation, and help you meet your tax saving goals.
2. Tax Havens
Some countries are referred to as tax havens because they offer low-tax or no-tax levy. Businesses have begun to take advantage of the tax benefits they stand to gain by being situated in that particular country.
A company can decide to situate its head office and subsidiaries in a country as a result of low tax rate.
3. Invest in businesses that are wholly export oriented
Dividends and profits obtained from businesses that are wholly export oriented are exempted from being taxed in Nigeria. Implication is that if you are into a business that solely exports, the dividends paid out to its shareholder will not be subjected to tax.
In addition, if a supplier supplies raw materials that are exclusively required for the manufacture of exports then the profit made by that supplier will also be exempted from tax. However, the export company must provide a Certificate of Purchase of Inputs to the supplier.
4. Invest in Industries Promoted by the Government
The Nigerian Government usually give incentives to get people to invest in certain industries which they are interested in investing in. One of such incentive is a Pioneer Status.
Companies under the approved pioneer industries are exempted from paying income tax for a minimum period of 3years and a maximum of 5 years. Dividends paid out of profits during the pioneer period are also exempted from taxes.
5. Consider Employee Benefits Instead of Raises
One way to save on taxes for you and your employees is to compensate them by offering benefits instead of giving them the same amount in terms of a salary increase.
By giving employees a raise, a percentage of the pay would go into income tax and pension contribution, and you as the employer would in turn have a percentage to pay as well. Sticking with benefits would drastically reduce taxes. The employer saves and the employee saves.
6. Transfer Pricing
The terms of trade to be used between group companies is termed as transfer pricing. Unlike individuals who are taxed on gross income, corporations are generally taxed only on their profits. Thus to minimize taxes, corporations try to find creative ways to lower their paper profits in high-tax countries, by moving their profits to low-tax, thereby leaving behind a shrinking tax base in their host countries.
One multinational that has been successful at this is MTN. reveal that the company ships huge profits to Dubai, a state where they have no significant operations.
7. Claim all Expenses
At tax time, your total profit is your income minus the expenses you can claim. So, the more you can claim, the less tax you have to pay. Ensure you’re claiming everything, as little costs on items add up.
To be successful with this, keep all expense receipts and invoices you receive and keep records of all your expenses, they’ll serve as proof when the time arrives.
Hope you found these tips helpful. Tell us in the comments!