Tax Exemptions for Startups & Small Businesses: USA and Europe
May 30, 2017
May 30, 2017
Putting up your own business is a big risk. One of the most important aspects in business is location. Knowing the right location for your business can drive the best ROI and revenue. Aside from the geographical conditions of your desired location, as a business owner or a financial executive, you must know the opportunities you can grab.
As startups or small businesses, grabbing opportunities that can help you boost your brand and sales should not be missed. In any type of business, or anything that involves selling goods and/or services, taxes will always be there. But as a startup, keeping up with taxes might still be a bit too much.
Tax exemptions refer to a monetary exemption which reduces your taxable income. Having tax exemptions may give you complete relief from your taxes, decrease your taxes and even pay for certain portions of your taxes. Some of the most common types of tax exemptions include charities, pensions, personal allowance, religious organizations, veterans, and so on. However, tax exemptions for start-ups are also available.
Tax exemptions for startups vary on which country you are currently putting up your business. One rule in your current country might not be applicable to the next. Know what country gives you the most benefit for your tax exemption. This helps if you plan to expand abroad or venture internationally.
In this article, service taxes for startups and tax laws are focused on the rules applicable for countries under the government of United States of America (USA) and the government under the European Union (EU) (click to jump to EU).
Tax Laws in USA
Before knowing the tax exemptions for startups in USA, let us first know the VAT rules in USA. Unlike other countries, the USA government does not have VAT or Value-Added Tax. Instead, the federal government has sales and use tax. Because of this, it has sparked a lot of debates and considered as a contentious tax policy in the USA.
Sales taxes in the USA are placed on services and goods that are either for sale or for lease. VAT rules in USA or rather sales tax are quite different. The federal government imposts several national selective sales tax on the sale or lease of some services and goods. Because of this, sales tax is administered at state level; which means that not all states in the USA have the same amount of sales tax. Henceforth, depending on which state you are currently in, not all goods or services have sales taxes imposed on them.
In order for the VAT rules or the sales tax rules to be applied, it needs taxable goods. Taxable goods refer to goods or services to be sold or leased in which the sales taxes are applied. Knowing the VAT rules in USA can help you understand how taxes in rendering your services and goods are done. Since the country is a state, make sure to know what other rules in your current state should be followed.
Tax Exemption in USA
As a startup, you may find it hard to meet ends with the imposed taxes your business should pay. Being in a small business, you may find it easier to explore and expand without the additional burdens of your tax responsibilities. It could be such a breather if you have five or ten years of tax offset as a startup! In the USA, some initiatives & organizations help you get tax exemptions by partnering with them.
The Internal Revenue Services or the IRS has devised a program to stimulate economic growth. One of their programs is the Federal R&D tax credit, an activity-based credit intended to incentivize investments in the USA. This program offers start-ups or small businesses something to offset their Alternative Minimum Tax by partnering with R&D. This opportunity helps startups who were not able to monetize their credits due to the lack of federal income liability tax.
Apart from the IRS’ program, many local states offer other opportunities for a chance to have a tax exemption for startups. Not only does this offer tax credit and tax exemptions, but this also gives you an opportunity and access to funding and partnering with bigger businesses. Despite each state having different rules, all of which offer start-ups a chance to grow. In New York, a StartupNY intiative helps you have 10 years of tax-free business. The initiative helps in offering your start up needs in a very minimal cost. To know more about NY Startup, read their offer at https://startup.ny.gov/tax-break-information.
However, before claiming your tax exemptions for your startup, applying for a tax exemption certificate or card is needed to qualify. You need to present your certificate to organizations in order for you to grab the deal. To know more on the linked organizations for your start-ups, click here.
VAT rules in EU apply only to the countries which are a member of the European Union. It takes VAT or Value-Added Tax to goods and services to countries under the European Union. However, the issue of which member or country to collect the VAT and which VAT rate to charge remains.
The VAT rules in EU offer a bit of similarity with the VAT rules in USA. The federal government has issued the amount of sales tax depending on what state you are currently in. On the other hand, the VAT rules in EU follow the same pattern since the members of the EU or the countries per se, act as different states. However, the VAT rules in EU suggest that despite having flexibility, a 15% VAT is required.
The European Union does not collect VAT but rather the member of the EU or the countries have to adopt the VAT rules under the VAT code of EU. VAT rules in EU also need taxable goods and services.
Tax Exemption in EU
If you offer services or goods that are VAT exempted like: education, healthcare, and financial services; you are exempted from VAT. Like the American counterpart, receiving the benefit and opportunity of tax exemptions do not come right into your doorstep. In EU, you must also register in order to have tax exemptions. But, if your services and goods are under the excluded taxable goods, applying for a certificate is no longer needed.
In most countries under the European Union, one can apply for special schemes. Special schemes are programs that help startups manage their tax exemptions. According to the special schemes, the startup can have tax exemption if their company makes taxable goods and services which are below the annual limit. In order to be a part of the special schemes program, registration and application are needed depending on the country you are in.
If you are planning for a new business in Ireland, the Finance Act of 2008 can help your startup. It introduces a relief from corporation tax for new Irish companies. This ensures a relief of 3 years from the corporation tax. To learn more about this opportunity in Ireland, visit http://fidelia.ie/startup-ct-exemption/.
Another member of the EU offers help for startups. Switzerland claims that their Swiss taxation system offers the most compelling taxation system for businesses. They offer the lowest VAT in EU and are VAT-free for non-taxable goods.
Another great country in EU to offer tax exempts is Bulgaria. The country offers a flat rate of 10% income tax. Their tax holidays offer a reduced annual amount of corporate tax. Special purposes companies, close-ended licensed investment companies, and collective investment schemes are exempt to corporate tax. Another special scheme offered in Bulgaria is for commercial maritime shipping companies, gambling businesses, and other government institutions– they are exempt to corporate tax as well. However, since being a part of EU, it should be taken to account that there are limitations and conditions to be followed. To learn more about the alluring tax exempts in Bulgaria, visit http://www.nomoretax.eu/bulgaria-business-attraction-in-the-eu/.
Tax exemptions are a great way to maximize your company’s income especially if you are in small businesses. It creates an avenue for partnership, research, and credit benefits. However, knowing your local state tax exemptions and opportunities are one of the best ways to maximize profit. Knowing the taxable goods and the country’s VAT rate is important in realizing your business goals efficiently.
The government is the best institution to find help for tax exemptions for startups. They offer a lot of programs and services to help the small businesses flourish which in return make the economy sustainable. It helps create more jobs and generate income flow. If you plan to venture into small business someday, this article can serve as a guide in knowing what your possible opportunities are. In addition, if you are a foreign investor or businessman, this can help by knowing the flexibility of VAT rules in USA and VAT rules in EU.
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