Entrepreneurship is on a constant rise worldwide and Malta is no exception. The Southern Island has produced some inspiring entrepreneurs recently. This has made entrepreneurship more exciting and appealing as a form of earning for the locals.
Therefore, if you’re an aspiring entrepreneur looking to set up a company in Malta, understanding the financial dynamics can be a great learning opportunity.
Before a business starts brewing profit, it must pay off its dues and one of the unavoidable forms of dues is your tax liability. Now, it’s understandable that taxes can be pretty bothersome. But for entrepreneurs there are some significant advantages of paying both direct and indirect taxes.
In this post, we will talk about the benefits of direct and indirect taxes for entrepreneurs. So, if you are looking for company registration in Malta, find out how these taxes affect your business.
What Are Direct Taxes
A direct tax is one that the government imposes directly on the public and organizations. In the case of direct taxes, the party owing money must remit the amount to the government within a preset time.
As an entrepreneur, you can either pay the taxes directly or nominate someone to pay the taxes on your behalf. First, however, the responsibility of tax payment should fall upon you.
If you are looking into a company formation in Malta, you must know that companies must pay their tax returns during the period that starts after the nine months following the financial year. The deadline for tax return submission ends on 31st March, following the year of assessment.
It means that direct taxes have a predetermined amount and must be paid all at once by entrepreneurs.
Advantages of Direct Taxes for Entrepreneurs
As an entrepreneur, paying hefty amounts of taxes can be pretty daunting. But there are some significant advantages of paying your dues directly. Here are some significant benefits for entrepreneurs to consider.
Predictability
Because direct taxes are paid once a year, it’s easier to predict the total amount based on your company earnings. For instance, you must pay 35% corporate tax in Malta for your annual company earnings.
As an entrepreneur, it can be quite an advantage because you can predict the tax you must pay at the end of every financial year.
Earn Incentives
As an entrepreneur, you can significantly contribute to your country’s financial stability by paying taxes on time. But more importantly, your efforts are worthwhile if you are a personal holding company in Malta.
Entrepreneurs enjoy certain tax credits and exemptions on the chargeable income. These tax credits are calculated based on specific spending in the company. Therefore, by incentivizing entrepreneurs, the government encourages duly payments of taxes, which helps both companies and the government alike.
Easier Budgeting
Knowing how much you owe the government makes it easier to plan your budget for the next fiscal year. As a result, you see how much to spend on different aspects such as business growth, new hiring, adding new resources to the company, etc.
Simply put, direct tax gives you more power and control over your finances, making it easier to handle any financial emergencies for your business.
Seamless Payment Methods
Paying directly to the government is much simpler. Nowadays, with several taxation services in operation, making tax payments online is simple. It saves time and helps entrepreneurs to clear their dues within the due date to avoid defaulting and additional payments.
What Are Indirect Taxes
Unlike direct taxes, indirect taxes do not have a fixed value or payment time. Instead, they are paid as part of a country’s commercial or financial activities. In simpler words, you are paying indirect taxes on every product you purchase.
For instance, if you’re buying a workplace in Malta for company registration, purchasing equipment for your office, or paying for utility rent, you automatically pay an indirect tax to the government.
Indirect taxes are a part of our lives, having their share in grocery purchases and other everyday transactions. For instance, Malta has an 18% sales tax on every product purchase.
Since you’re paying the tax to the point of sale and not the government directly, the business owner will pay the collected tax to the government. So, hence, you, the government, indirectly in such cases.
Advantages of Indirect Taxes for Entrepreneurs
Indirect taxes significantly impact a country’s economy, and they ensure regular financial activity for the government. But as an entrepreneur, how can you make the most of indirect taxes? Here are some advantages worth knowing:
Control on Expenditures
Everyday commercial activities are the primary source of indirect taxes, allowing everyone to contribute to the country’s improvement. Indirect taxes are part of commodities’ prices, which means you don’t have to pay anything later. The prices are visible on products so that you can make a better buying decision.
Moreover, indirect taxes are spread over a wide range of commodities, hence charged in smaller amounts. This doesn’t put a heavy burden on the consumer.
Compliance With Government Policies
At times, the government regulates indirect taxes to modify consumer behaviors. For instance, a rise in fuel taxes could mean more spending on the daily commute. So, if you have a service business that involves transportation, you can quickly decide on alternative solutions to ensure the least burden on your business economy.
But more importantly, entrepreneurs focus on the bigger picture, why those taxes were modified. For example, maybe the government wants the public to use public transport. So, by knowing the reasons behind these changes, you can better comply with the government’s policies, which could benefit you in the long term.
Select the Right Vendors
One significant advantage of indirect taxes is that you may not need to pay taxes at all. For instance, if you smartly pick the vendor for your business and purchase from those that don’t levy any sales taxes, you can save a reasonable amount of money from going to taxes.
No Worries of Annual Payments
Indirect taxes are paid on the spot, so you don’t need to calculate annual tax amounts. This also prevents you from worrying about a large payment at the end of the financial year, which can often be a difficult one to pay, given the business circumstances in your region.
Conclusion
Direct and indirect tax payments can significantly contribute to your financial position if you are an entrepreneur in Malta. Both types have their own advantages in the context of entrepreneurship. By knowing how they help, you can better formulate your financial strategies and enjoy its perks after your retirement in Malta.
Hopefully, this post has provided all the basic information about these taxes to start your company in Malta.
