Planning the annual tax close is an essential process for any company that wants to maintain efficient management and comply with its tax obligations. Starting this planning from the beginning of the financial year not only facilitates regulatory compliance, but also allows optimising resources and reducing the tax burden.
What is the Annual Fiscal Close?
The annual fiscal close is the process by which a company determines its tax obligations at the end of a financial year, generally coinciding with the calendar year, i.e. from 1 January to 31 December. This process involves the compilation and review of all financial and accounting information in order to file the corresponding tax returns.
Benefits of Early Planning
- Regulatory Compliance: Proper planning ensures that the company complies with all tax obligations, avoiding possible penalties or surcharges for non-compliance.
- Optimisation of Resources: By anticipating tax obligations, it is possible to manage financial resources more efficiently, avoiding last-minute surprises that could affect the company’s liquidity.
- Identification of Tax Incentives: An early review allows for the identification and utilisation of available deductions, allowances and other tax incentives, which can result in a significant reduction in the tax burden.
- Improved Decision Making: Having up-to-date and accurate financial information facilitates strategic decision making, such as investments, expansions or adjustments in the cost structure.
Keys to Organising an Efficient Fiscal Close
1. Maintain Up-to-date Accounts
It is essential to keep accounts up to date, recording all financial transactions accurately. This includes income, expenses, investments and any other relevant transactions. Up-to-date accounts make it easier to prepare financial statements and ensure that the information reflects the company’s financial situation.
2. Perform Periodic Reconciliations
Bank reconciliations and the review of accounts receivable and payable should be carried out on a regular basis. This helps to identify discrepancies and correct errors before they become major problems during the fiscal close.
3. Review Tax Obligations
It is essential to be aware of and comply with all applicable tax obligations, such as the filing of VAT returns, personal income tax withholdings, and corporate income tax instalments, among others. Advance planning allows these obligations to be scheduled and delays or non-compliance to be avoided.
4. Take advantage of tax incentives
There are various incentives and tax benefits that companies can take advantage of, such as deductions for investments in R&D, employee training or hiring. Identifying and correctly applying these incentives can significantly reduce the tax burden.
5. Evaluate provisions and amortisations
Reviewing provisions for liabilities and depreciation and amortisation allows for the proper reflection of asset depreciation and possible contingencies. A correct valuation of these elements guarantees that the financial statements present a true and fair view of the company’s economic situation.
6. Plan cash flow management
Efficient cash flow management is crucial to ensure that the company has the necessary liquidity to meet its tax obligations. This involves forecasting cash flows and setting aside reserves for tax payments.
7. Obtaining Professional Advice
Advice from tax and accounting experts is invaluable in ensuring that the company complies with all regulations and makes the most of tax optimisation opportunities. Proper advice can make the difference between efficient tax management and potential legal contingencies.
Impact of Proper Planning on Tax Reduction and Optimisation of Results
Tax planning initiated at the beginning of the financial year allows the company to anticipate tax obligations and structure its operations efficiently. This translates into a reduction in the tax burden and an improvement in financial results.
For example, by identifying applicable tax deductions in a timely manner, the company can reduce its tax base and, therefore, the amount of taxes payable. In addition, efficient cash management ensures the availability of resources to meet tax obligations without affecting the operation of the business.
Furthermore, transparency and accuracy in financial information strengthen the trust of investors, clients and other stakeholders, which can open doors to new business and financing opportunities.
Conclusion
Planning the annual tax year-end from the beginning of the financial year is an essential practice for any company seeking to optimise its resources, reduce its tax burden and guarantee regulatory compliance. Implementing the aforementioned keys not only facilitates the tax closure process, but also contributes to the long-term sustainability and growth of the company.
At Gutiérrez Pujadas & Partners, we understand the importance of proper tax planning and offer specialised services to accompany companies in this process, ensuring efficient management in accordance with current regulations.