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Tag: tax avoidance

  • How Apple Saved Billions of Dollars by Avoiding Taxes: An Interesting Tale

    The power of a Human Mind is astonishing. Just by looking at the past few inventions, one can understand, what the human mind is capable of. In the present age, everything is possible with just a simple click, from shopping to dating. It wouldn’t be wrong to say that we are carrying the whole world in our pockets, thanks to technological advancement. One of the biggest contributors to carrying the world in our pockets is Apple Inc.

    The world’s biggest technology company that deals with electronics and computer software first started its journey in 1976. It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne.

    Till 2011 Steve Jobs was the CEO of the technology giant. Later in that year, after the death of Steve Jobs, Tim Cook took the charge of Apple. These are just basic facts that almost everyone knows about Apple. Let’s come to the point that makes this article interesting.

    Regardless of how much money we make, taxes are very painful for all of us. But on the one hand, people like you and me sincerely pay our taxes. On the other side, there are companies like Apple, and Google that evaded their taxes by billions of dollars.

    The question is what is this genius tax-evasion strategy and how do they escape the strict laws of governments? Let’s try to understand by using Apple as a case study.

    Bending Rules
    What Is Tax Haven (Heaven)?
    The Tactics Apple Uses For Tax Avoidance

    Challenges Faced By Apple for Avoiding Tax
    Present Condition of Apple and Taxes

    Bending Rules

    With great powers, comes great responsibility, and so do pay taxes to the government of the country they live in. Apple being the biggest tech company is not an exception. It is bound to pay a large sum of amount to the Government in the form of taxes.

    Just like other businesses, Apple is also not that fond of paying billions of bucks in taxes but has no choice but to be responsible to the country. Somehow, Apple used a tactic to avoid paying billions to the Government. Well, the secret is, not so secret. Apple transfers most of its profit to tax haven countries and thus takes advantage of loopholes, the US Government has in its tax-paying system.

    “Play by the rules, but be ferocious”– Phil Knight

    As part of its tax avoidance strategy, Apple uses its ‘subsidiaries’ in Tax havens. Now, to understand this more deeply, first let’s try with the term, Tax Haven.

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    What is Tax Haven (Heaven)?

    True to its name, the term ‘Tax Haven’ is used for all those countries that offer, foreign investors the to pay minimal and sometimes even no taxes for their businesses. This is basically a good scheme for the investors to avoid paying taxes to the actual country the individual or business belongs to. Another attractive part of this ‘heaven’ is that they occasionally offer financial secrecy to the investors.

    Some of the top Tax havens are:

    • Ireland
    • Netherlands
    • Switzerland
    • Panama
    • Bermuda
    • The Cayman Islands
    • Luxembourg

    The Tactics Apple Uses For Tax Avoidance

    Every time Apple has stated that it has always played by the rules and has paid taxes to the Government as per the laws. In fact, it considers itself the largest taxpayer in the world. This is somewhat true, in 2017, Apple stated that it had paid over $35 billion dollars in the last three years. However, that amount wasn’t able to make even a small dent in the revenue of Cook’s led multinational company. How?

    Well, the strategy is to transfer their profit, obtain domestically to Tax Haven countries. Apple uses Ireland and Luxembourg as its ‘Haven’ to get away from paying the lump sum.

    Agreement Between Ireland and Apple

    Apple has been operating in Cork, Ireland since 1980 for its overseas operations, and they also set up a manufacturing plant in Holyhill, above Cork.

    In 1990, when Apple’s market share was crumpling worldwide, they wanted to save money. Apple’s CEO John Sculley signed a deal with the Irish government. In 1990, Apple’s team met with the Irish government and drafted an arrangement for how much tax it paid in the country.

    Since then, Apple has been the largest employer in Cork, Ireland, where they had an upper hand. Apple disclosed to the Irish government that the firm is examining its worldwide operations and Apple desires to establish a profit margin on its Irish operations.

    Based on the financial data from 1989, Apple showed $751 million dollars in revenue and $270m in net profit per year. Apple also showed that these profits were made mainly through its technology, marketing, and manufacturing.

    They told the Irish government that they only manufacture in Ireland. Therefore, they should not be taxed on the other two elements of business: marketing and technology. Apple has been in Ireland for 10 years and if they do not strike a deal, they will go somewhere else.

    Apple's revenue generated from India, Europe, and the Middle East is taxed in Ireland
    Apple’s revenue generated from India, Europe, and the Middle East is taxed in Ireland

    The Irish government agreed to the deal offered by Apple in 1991 to tax only certain elements of the business. This made Apple’s taxes suddenly drop to 12.5%, compared to the US (21%). All of Apple’s revenue generated from India, Europe, and the Middle East is taxed in Ireland.

    But an investigation by the EU revealed that Apple has paid only 1% or 0.5% taxes instead of 12.5%. They also accused the Irish government of collusion with Apple, because Ireland does not want Apple the largest employer in the country to leave Ireland.

    Apple’s Strategy of Creating Two Subsidiaries

    Apple's operation strategy before 2017
    Apple’s operation strategy before 2017

    Apple created two subsidiaries in Ireland, “Apple sales International“ to hold rights of Apple intellectual property to sell and under a “cost-sharing agreement” with Apple Inc. to manufacture outside of South and North America named “Apple Operations Europe“. The Head office of these companies is on paper only and they are controlled by board members mainly based in the US.

    Now, these two companies yearly only pay for research and development to Apple Inc. in America. By doing this Apple sales International kept all the revenues and profits generated from India, Europe, and the Middle East.

    In 2011, According to US Senate, Apple sales International recorded a profit of $22 billion. But under the agreement with the Irish government only $50 million were taxed and it kept decreasing until 2014.

    Before 2017, the US tax system doesn’t put taxes on the profit obtained from the multinational company’s foreign subsidiaries unless they are transferred to the parent company as dividends (changed in 2017). Which is, while compared with the foreign country taxes, is way much higher.

    There is a term called ‘Deferred Tax’, which means the income tax that a company will pay in the near future instead of paying immediately, which might be a big shock to the bank balance.

    Apple has taken that advantage by transferring over 70% of its domestically obtained profit to the tax haven, thus putting those profits in the deferred tax category of the company.

    As per a report from 2017, Apple was avoiding paying almost $78 billion dollars of taxes at that. In Ireland, Apple had three subsidiaries, which played a significant role in the game of Tax Avoidance.

    Apple Foreign Tax Payments
    Apple Foreign Tax Payments

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    Challenges Faced By Apple for Avoiding Tax

    Unfortunately, this game has not been a smooth ride for the technology giant. It has to face some consequences for its tax avoidance strategy.

    In 2013 an investigation revealed that two of the subsidiaries of Apple in Ireland are formed in a way that has helped them in avoiding paying taxes to both the country, U.S. and Ireland.

    • On 29 August 2016 European Commission declared that Apple has used Ireland, and had received illegal tax benefits from the country.
    • The European Commission instructs Apple to pay almost $15 billion dollars along with interest to Ireland for not confiding with the rules and not paying proper taxes.
    • The Irish Government took the side of the tech giant and stated that no tax law has been violated.
    • In the month of November of the same year, Tim Cook appealed against the instruction.
    • In 2018, Apple paid around €14.3 billion in back taxes and interest that was due to Ireland. The money was held in an Escrow fund.

    Present Condition of Apple and Taxes

    After a long battle with the European Commission, in July 2020, the European General Court gave a decision in favor of Apple and the Irish Government.

    This automatically became good news for the Technology giant as it does not have to pay a huge amount. At present, the European Commission has decided to appeal again, and this time in front of the highest court, the Court of Justice of the European Union (CJEU).

    Conclusion

    The bigger the business, the bigger will be the risk. Apple Inc. is not an exception here. As stated before, the human mind is amazing. Companies like Apple will always find a way to deal with complicated matters in legal and sharp ways.

    FAQ

    What is the revenue of Apple?

    As of 2022, Apple has reported its revenue in the USA was 99.8 billion U.S. dollars. While global revenue reported by Apple was 365.82 billion U.S. dollars in 2022.

    Who Is The CEO Of Apple?

    Since August 2011, Tim Cook is the CEO of Apple.

    Which is the best Tax Haven?

    Cayman Island is considered the best country as Tax Haven.

    How Much Does Apple Saved On Taxes?

    Apple saved around $40 billion in Taxes.

  • Why Do Rich People Buy Expensive Art?

    In 2021, the global art market value was $65.1 billion. Art possesses the ability to motivate us, enhance our environment and life, and enable us to perceive things from other’s perspectives. It’s been typical for those with money and prestige to spend millions on it since the Revolution and even before that.

    Often we hear paintings getting sold for thousands of dollars or so at the auction these days, it makes you wonder what inspires someone to pay a fortune for artwork.

    Important Motivations Among Art Buyers Worldwide as of January 2022
    Important Motivations Among Art Buyers Worldwide as of January 2022

    Let’s look at these 14 reasons why wealthy individuals prefer expensive paintings.

    Tax Avoidance
    Prestige
    Investment
    Diversifying your portfolio
    An aspect of your lifestyle
    A secure place for funds
    To enrich their environment
    To boost imagination
    To brag about it
    Quality
    To boost the rent
    To set up Art Galleries
    Cultural pride
    Money laundering

    Tax Avoidance

    In several countries, including the United States, tax regulations favor you if you purchase expensive art frequently. For example, if you sell an artwork and deposit funds in a bank, you are ought to incur capital gains tax on it, however, if you invest in another artwork with the same funds, you’ll escape paying taxes.

    Prestige

    An artefact that looks perfect, and which was also made by a world-famous artist, is unique, and in certain scenarios is a well-known creation, will offer the bidder quite the thrill once the hammer drops at auction. A strong feeling when we see something we’ve wanted for years, the same feeling will indeed be amplified if it’s a Monet, Van Gogh, or Hearst.

    Investment

    Most individuals buy stuff as they intend to invest in it. Some people buy houses to reside there. Some of them think of it as a long-term investment, an asset providing them with monthly earnings while also increasing in value over time. Art, too, is a strategic idea to invest in.

    Owning modern art for €400 today might be worth €600,000 in 10 years. In about 10% of situations, indeed, fine art has consistently fetched increasingly better returns over the last 50 years.

    One can be sure that when they get their hands on a Leonardo da Vinci, it will smash records. In 2017, his painting Salvador Mundi sold for a record-breaking $450 million. This is why it’s an insanely important aspect of why the rich buy art.

    Leonardo Vinci's Salvator Mundi
    Leonardo Vinci’s Salvator Mundi

    Diversifying your portfolio

    Because art is indeed going to increase in value if it already has a significant value and is somewhat risky, you may consider investing in some art to diversify your holdings, particularly if you’ve got a large, highly high-value portfolio or want to make art a small component of it.

    The main principle, regardless of the worth of your investments, is to have variety. If you have a few high-risk stocks and a large number of safe stocks or you’re extremely wealthy, have billions in shares, bonds, and real estate, and would like to invest more in something risky but thrilling? Investing in artwork seems logical at this point.

    An aspect of your lifestyle

    Previously, the wealthy went shopping for fashion, fancy cars, or yachts; but, times have changed. Art has become a must-have thing for the rich.  Nothing beats being an art lover if you’re glamorous and want people to appreciate it. It’s not only about possessing it; it’s more about being seen at auctions and exhibitions.

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    A secure place for funds

    While art is typically a high-risk asset, it has several unique advantages.

    • Art market rate fluctuations are different from share market price swings, implying that they could be used to hedge against a recession or crisis.
    • People purchase art during times of risks and uncertainties and profiting, such as during WWII. Today in nations with unstable economies and currencies that are subject to depreciation, the wealthy frequently invest in art as a means of diversifying their risks.

    To enrich their environment

    Almost everyone wants their homes and offices to appear attractive and feel better in them, and regardless of whether us being wealthy or not, we design them to make the time we spend there more enjoyable. Rich people whether it’s their multimillion-dollar homes or the workplaces of the businesses they manage, they’ll do the same for it.

    To boost imagination

    It’s no surprise some of the world’s top talented artists invest in art, and owning beautiful art on your walls will surely spark your imagination. Some celebs who possess art are incredibly innovative, and this isn’t limited to those who work in that industry. Startups and corporate leaders can be inspired by art as well. Perhaps it’s because artists are creative and bold, traits that entrepreneurs like and appreciate when they see a wonderful piece of artwork.

    To brag about it

    Investing intelligently in the equity market or in a prosperous firm you manage, demonstrates your financial acumen. You may be flaunting by purchasing a fancy home, a yacht, or a Ferrari, but it is also something essential that you will utilize.

    Even if it’s a solid investment, purchasing a work of art worth $1 million demonstrates exceptional choice, however, there’s something indulgent about it since it’s something you wouldn’t need but desire. When you’re wealthy, you’re more inclined to want to flaunt it, and art is a perfect way to do so.

    Quality

    Usually, the rich purchase fancy clothing because they value quality over cost. You can own a masterpiece lasting hundreds of years and even be bequeathed to your children. The caliber of art gives you the feeling that you’re purchasing something valuable that will outlast your legacy.

    Although kids who inherit valuable artwork seem to be keener on selling them than preserving them. This isn’t surprising, since parents and children often have different preferences, and the urge to sell the art mom and dad used to adore for a six-figure price might be impossible to deny for certain individuals.

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    To boost the rent

    If you possess a luxury condo that you rent to super-rich with taste, hanging some pricey artwork is one approach to boost the rent prices. Not only that, but it also raises the property’s worth. In some ultra-exclusive groups, art is anticipated to cost the same as a typical home, and a modest picture of Van Gogh’s starry night is believed to not cost about the same as a conventional house.

    To set up Art Galleries

    The wealthy all across the world enjoy buying art and displaying it in exhibits where they discovered it, often with their signatures on it. In some circumstances, where self-interest is a prominent factor, there are very specific advantages to establishing art galleries. When the hella rich in China open an art gallery, it’s usually because it’s a tried-and-true method of obtaining approval for real estate deals.

    Cultural pride

    Over the last 20 years, the quantity of pricey masterpieces from China and Africa specifically has increased dramatically, notably among purchasers from such countries, implying that when you are wealthy, it is natural to want to acquire fine art that makes you proud of where you came from and demonstrates your love of your culture.

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    Money laundering

    We’ve now arrived at the truly evil aspect of the art business, namely, money laundering for organized crime. The wealthy people who earned a fortune through illegitimate ways would suppress their sources of wealth from the regulators, and expensive art deals are the optimal method to do so.  

    Now we know why pricing is very subjective, and even specialists have difficulty in determining value. Inflating the worth of a piece is simply based on what you want it to be.

    Deals are frequently made behind closed doors and discreetly. Although current laws on how art sales are done have indeed been strengthened, it’s logical to conclude that money laundering remains a major factor in global art purchases.

    Conclusion

    Even if they don’t know much about art, most people choose to have it because of their love or have some sentiment attached to it. They consider it as an investment as it helps them to diversify their portfolio. And lastly, they do want others to appreciate it if they have paid a high price for that artwork.

    FAQs

    Why do rich people buy paintings?

    Rich people buy paintings to diversify their portfolios, design their homes or avoid tax.

    What is the most expensive painting ever sold?

    Salvator Mundi by Leonardo Da Vinci is the most expensive painting priced at $450 million.

    Is art used for money laundering?

    Yes, many wealthy people who earned a fortune through illegitimate ways often launder money through art.

  • How Big Companies Avoid Tax?

    Tax is a liability that almost every citizen of a country has to bear if he/she makes an income within the taxable limit. Normally, progressive taxation on many taxes such as the income tax is implemented in every country, the more you earn the more you pay in tax.

    So by the above-mentioned logic, a highly successful multinational company, say Apple pays way more amounts of money in tax than an average higher middle-class citizen right? Surprisingly, the answer is surprising No, as a matter of fact, Big Companies avoid paying taxes altogether in many cases

    Is it illegal for them to not pay taxes? If yes, how are they getting away with it? Why the government is not intervening? In order to find the answer to all these questions, we need the answer to a crucial one first which is what exactly is Tax Avoidance and Tax Evasion.

    Difference Between Tax Avoidance and Tax Evasion
    Example: Amazon 2018
    Reasons Behind Tax Avoidance
    Possible Solutions

    Difference Between Tax Avoidance and Tax Evasion

    Although these two terms are always used as a substitute for each other there are a lot of differences between them.

    Tax Avoidance is the use of various loopholes and elements in the tax code to minimize or in some cases completely avoid taxable incomes together. Some examples are using Deductions and Tax Credits as prescribed under the tax code. To sum it all up Tax Avoidance is LEGAL.

    Shifting Subsidiaries to tax-free zones is a practice followed by many MNCs
    Shifting Subsidiaries to tax-free zones is a practice followed by many MNCs

    Tax Evasion is the use of malpractices such as income misrepresentation, deduction inflation, and hiding of income to avoid paying taxes. Tax Evasion is ILLEGAL.

    So the Large MNCs follow Tax Avoidance which is completely legal as it uses loopholes within the tax code to avoid paying taxes. Let’s take an example to better understand the various aspects of Tax Avoidance.

    This shows that the taxing system in a lot of countries is still lacking
    Tax Evasion is a bigger issue than Tax Avoidance

    Example: Amazon 2018

    Amazon paid exactly $0 in federal income tax for the year 2018 on an income of $11 Billion and they did it legally. As per the Tax Code in most countries, companies don’t have to pay taxes if they incur losses for that financial year, and for the first 6 years, Amazon’s business operated entirely on losses as they invested a lot of their earnings into the company growth and research & development overheads which are also nontaxable and acts as tax credits.

    The income tax receipt shows that amazon made revenue of $11.2 billion yet they paid 0$ federal tax as federal taxes are based on profits and not on revenue
    The income tax receipt shows that amazon made revenue of $11.2 billion yet they paid 0$ federal tax as federal taxes are based on profits and not on revenue

    Furthermore, they set up subsidiaries and factories in countries where the corporate tax was much lower than in the USA (which has the highest corporate tax in the world at 21%, reduced from the previous rate of 35%). They also relocated their products to tax-free zones like Bermuda thus avoiding other taxes. After claiming more deductions, their net tax liability amounted to $0.

    Reasons Behind Tax Avoidance

    While the MNCs resort to loopholes in order to avoid paying high rates of taxes, the countries which act as their tax-free subsidiaries also have their own reasons.

    Firstly, having a factory of a company like Apple or Amazon set up in their country is always a welcome sight as it helps in boosting their employment and growth rate and gives them exposure to the latest technological side of the market and after every successful venture more and more companies set up their factories in these countries. Bermuda is a prime example of how helpful it is to have large companies on board.

    Other than being less taxable, these countries also have cheap labor and material costs so naturally, large companies gravitate towards developing nations for subsidiary purposes.

    Possible Solutions

    Although these tactics have a lot of advantages for both parties, there is an extreme amount of taxable income for the parent countries which gets completely nullified due to Tax Avoidance. So what possible solutions are there?

    Lowering corporate tax is the first step, and although this may lead to fewer taxes in the initial stages, this opens up the door for the large companies to set up factories in the home country itself rather than shifting abroad. Let’s take an example to better understand the situation.

    Suppose Company A is a small company that makes $20000 profit per year and pays a corporate tax of 20% which amounts to $4000. Another company B earns a profit of $200000 per year and in order to avoid paying high tax rates, it sets up all its factories in lesser countries and thus pays no tax at all. So the total tax is just $4000.

    Now if the home country lowers its tax rate to 10%, this would encourage the large company B to set its other factories in the home country itself, so the total tax here will be (10% of 4000) + (10% of 200000) which amounts to a total of $24000, which is 6 times the previous amount despite being half the tax rate.

    Another method involves the Unitary Model of Taxation whereby the taxes on charged at the place where the economic activity takes place rather than where it is reported. Many different methods of avoiding tax avoidance are being implemented but as of now, it seems like the situation will stay as it is.

    Countries with the largest tax avoidance amount in the Us billion dollars
    Countries with the largest tax avoidance amount in the Us billion dollars

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    Conclusion

    Tax rules differ from country to country with their amount and eligibility criteria also. However, it is one of the main responsibilities handed over to the citizens. Denying to pay the tax can result in criminal offenses and law charges. However, when we talk about the tax paid by multinational companies, it is astounding to notice that their tax is quite different from what we have imagined.

    They take the help of possible loopholes in the tax code and minimize their tax amount. The above article includes information about how multinational companies avoid paying taxes.

    FAQs

    How do companies legally avoid paying taxes?

    There are many ways companies can implement to avoid paying taxes or reduce their tax amount. Some of them can be opening offshore accounts, making use of loopholes in tax codes, getting paid in stocks rather than money, and many others.

    What is not paying taxes called?

    The term used to describe the group of people who deliberately deny paying the tax is known as “Tax Evaders”. And the term that describes the situation is called tax evasion.

    What are tax-free countries?

    Tax-free countries are those countries that have no rule of paying taxes or have a very little amount as their taxes. Some of the tax-free countries across the globe are Oman, Qatar, Panama, etc.

    Which business is tax-free in India?

    India is known for its agriculture business for a very long time. Hence, any business involving agriculture work is tax-free in India. For instance, the selling and processing of agricultural crops are tax-free.

  • What Is the Role of CA in a Startup? | Should You Hire a CA?

    A Chartered Accountant can guide you not only to prepare your taxes and other regulatory standards but at multiple levels of business formation. Their knowledge of key corporate areas such as laws, accounting and taxation, contracts, and so on can be invaluable when strategizing, applying for bank loans, maintaining accounts, installing software, determining subsidies, and so on.

    As a result, discussing with a CA while strategizing a startup can be extremely useful as it enables one to gain insight on key issues early on instead of being stuck later. CA professionals in India can assist you in developing the ideal accounting framework for your business.

    Role of a CA in Startup
    How Can a CA Help Your Firm Sustain Itself?
    Should You Hire a CA?

    Role of a CA in Startup

    The Planning

    A CA can forecast fiscal estimates based on analyzing the industry for a similar item and the government’s tax regime due to his/her knowledge and experience. They can use the key players and in-depth insights to assist their customers in increasing their profitability from the start.

    Corporate Formation and Legislative Framework

    There are numerous forms of registration, such as corporate entities, LLPs, or businesses, as well as sole traders or proprietorships. Each is governed by a separate law. Registration is subject to various regulatory laws, ensuring compliance, and tax rules, which a CA can effortlessly explain and help you determine what is the right approach for your business.

    You must register your business with the Companies registry as a component of the startup authorization phase if it’s a Private Ltd. or LLP or simply a partnership. Filling out forms and giving details to the Ministry of Corporate Affairs to initiate your business legally is also part of the startup registration. As a result, a CA or a virtual CA is the ideal advisor to assist you with the registration.

    Furthermore, if you’re starting a Private Ltd. Firm, you’ll need documents like the MOA or AOA, and if you’re starting a partnership or LLP, you’ll need the Alliance deed. CA can create such documents skillfully.

    Accounting and Financial Assistance

    To fill out the necessary paperwork and register the firm, a startup involves careful accounting and financial assistance. As a result, a CA can assist you in managing your firm’s stock holdings, cash flows, forecasts, and financial records.

    The CA is necessary for startups that want to enroll as a Private Ltd. Firm. They will assist and will also record all of your stock ownership info and money transfers as needed for a Private Ltd. Firm.

    Aid You in Obtaining Finance or an Overdraft

    Realizing that a CA is in charge of your paperwork and loan approval process improves your probability of gaining credit. They will be aware of all aspects your bank may have about income and expenses forecasts and can help you choose the right loan and rate of interest.

    How Can a CA Help Your Firm Sustain Itself?

    When a startup begins to hire, a CA is essential. As a manager, you could begin with as few as 1 or 2 staff. However, it is vital that you adhere to all tax regimes for your teams, such as TDS, Labor Regulations, and Salary Clauses.

    A CA can be your ultimate source, helping you comprehend salary payable modes for your staff, as well as the dos and don’ts of declaring payouts to lawfully save taxable income.

    They can also help you with the company’s income estimates, predicted financial statements, or project reviews that you might need when filing agreements or applying for finances. Thus, in today’s technologically advanced world, taxation and laws governing business operations are critical and must be strictly adhered to. It is critical that you document standard tax returns by the Ita. As a result, a CA can assist you with a variety of compliances and filings.

    As your company expands, so will your accounting books. It is critical to adhere to classic financial reporting to keep all card payment systems intact. A CA will provide you with proper guidance and handle your acct book following the required standards.

    Furthermore, as your firm grows, you will be bound to keep track of your records for filing with the IRS and yearly reporting with the company’s registry. If your company’s attrition reaches a certain limit, you will undoubtedly require the services of an accredited auditor to report your ITR returns & conduct tax audits.

    Another required conformance filing is a process that must be abided by all businesses, large and small. It is also vital to comprehend your financials, which is primarily the responsibility of a CA. As a result, it is critical that you select the ideal CA from the ranked CAs in India for your firm to profit and work efficiently.

    Should You Hire a CA?

    Good counselling and advice define the progress of a startup from conception to verification, whether your firm is registered or not. After investing heavily, it is critical to managing your book of accounts for your firm to thrive. Thus, as your firm progresses ever since its registration and onset, a skilled CA will not only deliver you proper accounting records of your firm but will also assist you in understanding the stock ownership and investment structure in your firm.

    A decent virtual CA, accessible 24/7, is needed to inform you through all levels, be it paying the due taxes as per Income Tax rules or rescuing the firm from any undesired taxes. A CA can assist you in understanding all other statutes’ rules, statutory provisions, your firm’s policies, and work history.

    You can also hire a virtual CA. While there are many virtual CAs, it is critical to pick the suitable one. Because CAs oversee critical parts of your business, it is always advisable to hire the best online chartered accountants. Having several CAs can wreak havoc on your books.

    Although you may pick the finest from the shortlist CAs in India, it’s a good idea to pick virtual CAs who are available 24/7 and are also cost-effective. As a result, hire a CA from the first day you intend to register your official company to the day you put your vision into action.

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    Conclusion

    Chartered accountants entities can also assist you with complex tax provisions that, if overlooked, can result in significant penalties. They will also portray your lawsuit in front of tax officials and courts at your behest. They can provide you with any information you require regarding such formalities.

    Furthermore, they help you in a variety of business areas such as obtaining a digital signature, guiding you during an official review of your firm, alerting you before any disparity is discovered by the assessor or tax supervisor, govt grants and sanctions, and so on.

    In conclusion, a CA can help your brand prosper, so consulting with a CA is a must in the long run.

    FAQs

    How can a CA help in business?

    A CA can help you reduce taxes, manage your finances, prepare a business plan, and can help you connect with other established businessmen.

    What is the role of CA in a startup?

    A CA helps a firm to increase its profits and assists the firm in registration and filing taxes while the founder focuses on the important aspects of the business.

  • 10 Steps To Organize Your Personal Finance In New Financial Year

    31st March has just passed. Was the last month of the gone financial year full of a hassle for you? Do your last-minute tax-saving plans always lead you to invest in the wrong instruments? Well, if your answer is yes, you are at the right place. In this blog, we have brought you tips on how to organize your personal finance in the new financial year.

    A book named “Personal Finance” written by E. Thomas Garman and Raymond Forgue defines Personal Finance as the study of resources, both personal and family, that can be considered important from a financial perspective. It involves spending, saving, protection, and investment of these financial resources.

    Financial freedom is available for those who learn about it and work for it. – Robert Kiyosaki

    Key Aspects of Personal Finance

    The reason most people fail in making a successful financial plan is a lack of awareness. Although people make a lot of effort while managing their finances, they often overlook important areas. In this section, we will discuss the 5 key aspects of Personal Finance.

    Saving

    Warren Buffet has said “Do not save what is left after spending, but spend what is left after saving. This is indeed a great piece of advice. You cannot predict when the financial crisis will hit you. Therefore, it is better to remain prepared.

    Savings help you to keep calm in such situations and look for a solution. As per experts, your optimum savings should be equal to your six months expenses.

    Earlier, the most preferred option for savings was a “Saving account”. However, recently a lot of people are moving towards debt instruments such as liquid funds for saving.

    There are a number of reasons for this shift. Foremost, Liquid funds have minimal credit and interest risks attached. Further, you can easily withdraw money in small time. Also, though there is no guarantee, these funds provide you with better returns than your savings account.

    Investing

    Investing
    Investing

    As Benjamin Graham said, “Successful investing is about managing risk, not avoiding it”. Many people confuse saving and investing to be the same. Well, they are not.

    While investing, you are actually using your money to make more money. There are plenty of investment options available in the market such as mutual funds, real estate, stock market, etc.

    To choose the correct investment options organize them into short, long, and mid-term goals. The option best suited for your requirement, horizon, and time frame should be chosen.

    Financial Protection

    As per WHO, financial protection is the heart of Universal Health Coverage (UHC). If chosen well, it gives a safety net to you and your loved ones. The key is to ascertain prepayment and pooling of resources to save you from financial hardship.

    Financial protection ensures that these impromptu situations do not hamper your savings and investment plans. Insurance is classic financial protection. Basically, four types of insurance plans are considered mandatory for an individual. They are Term insurance, Health insurance, Mortgage Protection, and Personal accident insurance.

    Tax Plan

    Tax Planning
    Tax Planning

    You can save your tax by identifying the right kinds of investments and purchases. In India, there are almost 70 exemptions and deductions that can be used to lower your taxable income.

    Section 80C and 80D of the Income Tax act may help you save a lot on your income. Under Section 80C, you can reduce your taxable income by investing in certain tax-saving instruments such as EPF, PPF, NPS, NSC, etc.

    On the other hand, Section 80D allows you to save tax on the money you pay as a premium for the health insurance of you and your family.

    Retirement Plan

    “Planning for retirement is not something we can put off until a later date. The time to plan is now.” Here Bob Reid has correctly described the need for a retirement plan.

    Unless you are planning to become a liability to your kids, you should start planning for your retirement now. This is actually because you never know when you will stop working.

    The greater life expectancy and frequent inflations have further enhanced the need for a retirement plan. Investing in sources of steady income can be the best option. Life insurance annuity, rental income, and mutual funds are good options to consider for your retirement plan.

    How to Organize Your Personal Finance in the New Financial Year?

    Now that we know the key aspects, we are ready to organize our personal finance. We have listed tips to help you organize your personal finance in the new financial year.

    1. Start Early

    “Haste makes Waste”. If you have tried to plan your finances and investment in the last month of the financial year, you can certainly relate to this statement. During the last-minute rush, not just you but investors are also impatient. Thus, there are maximum chances of making a wrong decision. Therefore, it is better not to wait for March to plan your finances. Starting early helps you to make calculated decisions. Put your financial plan in place in the month of April itself.

    If you wish to invest in PPF or SIPs in your equity-linked saving schemes (ELSS funds), better start at the beginning of the new financial year.

    2. Plan your Budget

    Living within your means is important. Plan your expenditure and savings for the next year in the beginning. Go through your previous year’s income and expenses to make the right decision.

    Set your financial goals and decide your cash flow accordingly. If you have received a good bonus, try to prepay your loans, at least partially. Our income and aspirations play a major role in deciding our financial plan.

    This would help you to identify your spending. So, you can strike the right balance between spending and savings. If cutting down your expenditure is not an option, try using smart spending means such as loyalty programs, credit cards, or some apps.

    Try competing with your previous month’s budget. It would help you grow as a smart spender. Try setting goals and make efforts to reach them.

    3. Create an Emergency fund

    This is the fund that will help you take care of the unexpected expenses in “just-in-case” situations. Usually, financial experts advise keeping 20% of your every paycheck in this fund.

    As per Forbes, you can create an emergency fund by simply following a few steps. They are:

    • Setting up a target date to start your fund.
    • Reallocating some amount from existing assets.
    • Drawing a monthly commitment.
    • Creating a separate account for gathering.
    • Channelize extra income towards this fund.

    4. Determine your insurance needs

    Determine Your Insurance Needs
    Determine Your Insurance Needs

    Insurance is not only meant to save tax, rather it is a means to serve critical needs. The beginning of the new financial year is a good time to determine if you have adequate insurance coverage.

    The finance experts believe that your insurance cover must be 10 times your annual income. Also, reviewing your insurance needs as per your changing life goals is important for example, if you are planning to get married, have a child, or buy a house.

    As per a Swiss report, people in India are awfully uninsured. The protection gap is almost 83% wide. This means that if the Rs 100 insurance cover is needed only Rs 17 are spent by the policyholders.

    To evaluate the adequacy of your insurance cover you can also use Human Life Value (HLV) tools. These tools are available online and help you assess your financial requirements based on your liabilities, increments, earning capabilities, and your age.

    5. Review your investment portfolio

    It is always a great idea to review your investment portfolio at the beginning of the new financial year. Track the market performance of your existing assets to understand how it has changed since last year.

    Readjusting your investment strategy is especially important if you have experienced any major life changes in the last year. For example, if you are nearing retirement, you may want to invest in a good retirement plan. Evaluate your needs and invest accordingly.

    6. Plan to spend your annual bonus

    If you have received an annual bonus do not let the money get fritter away. Plan your spending well. For example, if you have a loan you can partially or completely prepay it. Or if you have a child try spending the bonus on good Children’s plan.

    Even if you have no such liability, this does not mean you can just cross your budget and waste that money. Try channelizing it towards your savings or emergency fund. This will help you meet your financial goals.

    7. Plan your taxes

    Planning your taxes at the beginning is a great way to start your new financial year. It is actually a part of the financial discipline. To initiate tax planning, you first need to identify your tax slab. The tax rates are different for different levels of income. If you know your tax slab, you can easily calculate your tax outgo. This will help you to figure out your tax-saving requirement.

    To analyze the scope for reduction, first, evaluate your existing tax-saving investments. This is crucial as there is a maximum limit for reducing the tax outflow.

    A number of tax-saving instruments are available to choose from such as PPF, NPS, tax-saving mutual funds, etc. It is also important to distribute your tax investment across the year instead of doing it in the last month. However, it is equally important to understand that investment goals must be derived from your financial goals and not for the purpose of tax savings.

    8. Limit your debts

    It sounds easier said than done. Anyways who wants to remain in debt? It just happens. However, as per Central Bank, there are certain strategies to keep your debts in check. They are:

    • Do not buy anything which you cannot afford without a credit card.
    • Completely pay off your credit card balance, every month.
    • Focus on your needs not wants.
    • Plan your budget as per your financial goals and requirements.
    • Limit the number of cards you own.
    • Maintain a master sheet to track your expenses.

    9. Monitor your credit score

    It is almost impossible to not own a credit card in today’s world. However, it is crucial to managing your credits correctly. A solid credit report is required if you are planning to obtain a loan or mortgage a property. For this, you better pay off your balance every month or at least try to keep a minimal credit utilization ratio.

    The most popular credit score these days is FICO (Fair Isaac Corporation) score. The factors that determine your FICO score include payment history (35%), length of credit history (15%), amounts owed (30%), credit mix (10%), and new credit (10%).

    It is also a good idea to subscribe to credit agencies that provide you with regular updates on your credit score. This would not just help you in identifying mistakes but, also to detect any fraudulent activity.

    10. Maintain financial records

    It is always important to keep your financial records organized. This will help you track any discrepancies at later stages. Traditionally, a folder or drawer is used to keep all your bill and payment receipts. However, this increases the risk of missing or forgetting one or more of them.

    Currently, a number of apps are available to keep track of your finances. These online services help you separate the old bills and receipts from the new ones. Also, you can set reminders for upcoming payments. This saves you from the hassle of looking through every document in your folder while trying to find one.

    Conclusion

    Therefore, it is important to understand the five key aspects of personal finance i.e. savings, investment, financial protection, tax plan, and retirement plan before you start to plan. Moreover, organizing your personal finance in the new financial year using the tips mentioned above would certainly help you get more out of your available assets.

    Hope you enjoyed reading this article and learned something. Keep visiting for more fun and knowledge.

    FAQs

    How do I write a financial plan for the new year?

    Start early, create an emergency fund, plan your taxes, and monitor your credit score.

    Which financial plan should be set first?

    Creating an emergency fund should be your priority because you never know when a crisis will hit you and you’ll be buried under debts.

    What is the 50 30 20 budget rule?

    According to the 50 30 20 budget rule, you should allocate 50% of your income to needs, 30% to spending, and 20% to savings.

  • How Do Tax-Free Countries Make Money?

    It would be smooth sailing if you didn’t have to pay property taxes, income taxes, corporation taxes, sales tax, all direct and indirect taxes, and even water taxes, right? Whether you are wealthy or impoverished, you are obligated to pay the tax no matter what! Tax is a compulsory contribution towards the government.

    India has two integrated tax systems- direct and indirect tax systems, whereby direct tax relies on individuals’ income and property and indirect tax levies on goods and services incurred by an individual.

    As a taxpayer, you are required to contribute a specific percentage as tax from your income to pay for the things you have purchased as Good services Tax.

    Even if you are affluent, you have to deal with paying a high rate of taxes, and the poor would have to contribute according to the tax slab. As we all know, the tax system was established to produce revenue for initiatives aimed at boosting the country’s economy and raising the standard of living of its residents. But, what if there isn’t a tax system in place? How does the government deal with residents of lower socioeconomic status? Here we have listed out tax-free countries and how they earn a decent lifestyle without contributing to the economy.

    How Do Tax-Free Countries Earn?
    Top Countries With No Income Tax

    How Do Tax-Free Countries Earn?

    Customs & Import Duties

    Implementing tariffs on imported goods is one of the simplest and most effective ways for the tax-free government to generate revenue. Import duties, often known as customs duties, are an indirect tax placed on commodities that are brought into the country.

    This would assist the government in increasing revenue as well as regulation of commodities in the countries while also providing protection to the indigenous industry through the circulation of imported items.

    The rates of customs/import duties differ by country; for example, Kuwait charges roughly 5% in customs duty.

    There are five types of customs duties, that which a government levy on imported goods such as-

    • Basic Customs Duty
    • Countervailing Duty
    • Additional Customs Duty or Special
    • Protective Duty
    • Anti-dumping Duty

    Corporate registration and renewal fees

    In most cases, our country imposes a corporate tax on high-profiled corporate entities; however, in tax-free countries, there is no need to spend a lot of money on preliminary expenses for incorporation; instead, they ask you to meet corporate registration requirements for newly incorporated businesses under their jurisdiction.

    Aside from that, businesses should pay annual renewal costs in order to maintain their status as operational entities, which varies depending on the type of company they do. Banking, insurance, and other mutual financing corporations, for example, should pay additional annual renewal fees in order to function in such a finance industry.

    Countries such as Kuwait, Brunei, the United Arab Emirates, and others require foreign companies that have formed and are operating in their jurisdictions to pay registration and renewal fees.

    Tax Haven

    Any country or jurisdiction that gives foreign individuals and corporations reduced tax liability is known as a tax haven or offshore financial hub. To gain tax benefits, tax havens do not require enterprises or individuals to operate outside of their country.

    Tax Haven countries benefit from attracting cash to their banks and financial institutions, which may then be utilized to develop a vibrant financial industry. Individuals and businesses benefit from tax savings, which can vary from zero to low single digits in tax haven countries compared to high taxes in their own country.

    Apple, Nike, Goldman Sachs, and other major U.S. corporations such as Microsoft, IBM, General Electric, Pfizer, Exxon Mobil, Chevron, and Walmart are among the top tax haven beneficiaries. Ireland was exploited by Apple as a tax hideaway.

    If Apple had not taken advantage of tax havens, it would have repaid the US government $65.4 billion in taxes. Bermuda is used by Nike as a tax shelter. If tax haven benefits were not utilized, it would have paid $3.6 billion in taxes. Goldman Sachs holds $28.6 billion in Bermuda as a tax shelter.

    Luxembourg is often regarded as the best tax haven on the planet. The Cayman Islands currently have banking assets worth one-fifth of the world’s total banking assets of $30 trillion. The Cayman Islands have no direct taxes on residents, including property, income, and payroll taxes, in addition to no corporate tax.

    Hedge fund managers like the Cayman Islands because there is no corporate or income tax, including on interest and dividends generated on investments. Fortune 500 firms such as Pepsi, Marriott, and Wells Fargo have subsidiaries in the Cayman Islands.

    Top Tax Havens in the World:

    • Netherlands
    • Luxembourg
    • Singapore
    • Bermuda
    • The Channel Islands
    • Cayman Islands
    • Isle of Man
    • Mauritius
    • Switzerland
    • Ireland

    Departure taxes

    A departure tax is a price charged by a country when a person leaves the country, or a tax that airline passengers must pay in order to use an airport. A departure tax is levied by some countries only when a person departs by plane. The tax can be paid at the airport or by some other prepayment mechanism, or it can be charged to the airlines and included in the price of the plane ticket.

    Below is a list of nations that collect departure taxes:

    • Australia
    • Austria
    • Bangladesh
    • Brunei
    • Bermuda
    • Canada
    • Cambodia
    • China
    • Costa Rica
    • Cuba
    • Dominican Republic
    • Ecuador
    • Egypt
    • Fiji
    • Germany
    • Guyana
    • Honduras
    • Hong Kong
    • Iran
    • Ireland
    • Indonesia
    • Jamaica
    • Japan
    • Lebanon
    • Malaysia
    • Mexico
    • Palau
    • Panama
    • Peru
    • Philippines
    • Samoa
    • Saudi Arabia
    • Sri Lanka
    • Sweden
    • Thailand
    • Tunisia
    • Turkey
    • United Kingdom

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    Top Countries With No Income Tax

    Here is a list of some countries with no income tax:

    United Arab Emirates

    Individuals in the United Arab Emirates pay no income taxes, allowing them to earn tax-free wages. This Arab country is abundant in natural resources such as oil, and its free trade zones, which are open to foreign ownership and have no taxes, making it a popular investment location.

    Only international banks and oil businesses are subject to corporate tax, while all other industries are exempt. Excise duty is imposed on a small number of goods and services, however beginning in 2018, Value Added Tax will be imposed on the vast majority of goods. As is the case, Emirates Airline is one of the renowned brands in the airline industry, which literally contributed 3.044% GDP as of 2022.

    Qatar

    Individuals can generate money without paying taxes in this Arab country. Commercial activity is subject to an annual ten percent company tax on total state income. Rental income is taxed at a fixed rate of 10 percent.

    The country attracts a large number of ex-pats due to its tax-free atmosphere and sophisticated infrastructure. Some countries, such as the United States, the United Kingdom, Australia, Canada, Ireland, and South Africa, tax their citizens according to their governments’ tax laws.

    Bahamas

    This Caribbean country boasts tax-friendly legislation, making it a desirable location for foreign financial institutions and commercial interests. Personal and corporate income is not taxed in this tax haven.

    International businesses operating in the Bahamas are only subject to corporate taxes if their revenue is generated in the country. Wealth, inheritance, and capital gains are other categories that are tax-free. Residents of the country, regardless of citizenship status, can benefit from tax-free income.

    Monaco

    Monaco is well-known as a tax haven due to its personal and business tax rules. It does not levy taxes on citizens’ personal incomes. A person who has lived in Monaco for six months or longer is considered a resident and is free from paying income tax. In addition, there are no taxes on capital gains or net worth in this city-state.

    Monaco residents enjoy tax-free property ownership, however, rental homes are subject to a 1% annual tax. Monaco does not levy a business tax. Only specific sorts of businesses that make 25% or more of their profits from operations outside of the country are taxed.

    These tax rules, together with a strong commitment to financial confidentiality and data privacy, make this a very attractive place for ex-pats and foreign investors.

    Oman

    The tax regulations in this Gulf country are permissive and pro-business. It does not tax residents’ or non-residents’ personal incomes. These tax-free regulations include everything from wealth to capital gains to property. On their taxable income, businesses and enterprises must pay a 15% tax. Petroleum-related businesses, on the other hand, must pay a tax of 55%. Expats may be subject to a tax on their income.

    Bahrain

    Bahrain, which is located on the Persian Gulf, is a tax-free country that derives much of its income and government earnings from the finding of oil. Citizenship in Bahrain is tough to get, but permanent residency requires you to be retired, spend $135,000 in real estate, or invest $270,000 in a Bahraini enterprise.

    Maldives

    The Maldives has a thriving tourism economy, so there’s little justification for the island nation to collect an income tax on its citizens. Because the country does not offer a scheme for foreigners to become permanent residents, establishing citizenship or permanent residency is virtually impossible. If it did, it would necessitate the conversion of a Sunni Muslim. Moreover, Maldives is a go-to place for many travellers, in this way the government make tons of money from its tourism sector.

    Brunei

    Brunei is a small Asian country with large oil and natural gas deposits, which account for roughly half (60%) of its GDP. With its GDP rate, Brunei bestows free education and medical care to its citizens, although obtaining a permanent residency costs a lot more money than renting there. As a result, Brunei does not levy a social security tax on its residents, and individuals contribute 5% of their salaries to the state provident fund.

    Kuwait

    As we know Kuwait is one such country that has a high foreign currency rate is also one of the tax-free countries. This country’s government emphasises oil production, as it counts as a positive approach towards the Gross domestic product. individuals are not subject to any personal taxes, wealth taxes, or sales taxes in Kuwait, however international companies must pay specific fees to set up any corporation in the country.

    Cayman Islands

    The Cayman Islands, like Bermuda Island, are part of the British Overseas Territories. The government of the Cayman Islands makes money through tourism, which accounts for more than 70% of the country’s GDP. People in Cayman Island enjoy a  standard lifestyle since there are no direct taxes, property taxes, or payroll taxes, among other things.

    Nauru

    Nauru is one of the richest countries in the world, because of its abundant natural resource of phosphate. Aside from that, the government runs an Economic Citizenship Program in which citizens are required to pay a nominal fee, by this, the government could raise revenue from its citizens also.

    Saint Kitts and Nevis

    One of the regions in the West Indies, Saint Kitts and Nevis relives more on tourism and sugar production. Despite the loss of sugar production and shut down of many sugar factories, the country still withstand to have a standard of living and became one of the world’s countries with the highest debt-to-GDP ratios.

    Somalia

    Somalia is well-known for being a dangerous country due to the burden of civil conflict and territory, owing to its splintered government and political instability. Somalia earns money through livestock and telecommunications, as well as a 10% sales tax.

    Vanuatu

    Vanuatu, like India, derives its GDP from its agricultural industry, which employs roughly two-thirds of the people. Aside from fielding, Vanuatu’s economy is supported by offshore financial services, tourism, fishing, and other farming-related activities.

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    Conclusion

    People’s taxes are still one of the most essential resources that contribute to the proper operation of the government in many countries. Among such countries, these are the only ones that are tax-free.

    These countries earn money not only through customs charges, tax havens, and registration fees, but also from livestock, agriculture, fishing, investments, natural resource production, and a variety of other activities. Despite the fact that they are tax-free countries, the government allows their citizens to live a normal life.

    FAQs

    How do countries with no tax make money?

    Customs & Import Duties, Departure tax, and Corporate registration and renewal fees are some of the ways countries with no income tax make money.

    Which countries are tax-free?

    United Arab Emirates, Vanuatu, Kuwait, Maldives, Bahrain, Monaco, and Qatar are countries that have no income tax.