Taxes matter a lot and you better plan for them. Also, you need to understand the difference between tax evasion and tax avoidance. Tax evasion is illegal failure to remit taxes while tax avoidance is legal. You need to plan your business and incomes to take advantage of tax avoidance schemes available.
For example, income from your property is subjected to lower taxes than income from your stocks or salary that is usually charged at 30%. So, investing your savings in real estate appreciation may be a better strategy.
As with all investments, you need to gather enough information and evaluate the return on investments, risks and costs. Above all, ensure compliance in everything you do. You don’t want to see the taxman knocking on your door for outstanding taxes you did not remit three years ago. If you live in Uganda, consider the following examples carefully. Regardless of the country you live in, apply the following tax avoidance strategies and you will sure get yourself great savings.
Did you know anybody who places his assets for use outside the designated areas of Kampala, Entebbe, Jinja, Namanve and Njeru is entitled to a capital tax deduction of 75%? This means that even placing the assets as close as Kasangati would earn you a whopping 75% capital allowance deduction. That is a huge savings on your personal taxes.
Use of personal property to perform official work. Did you know that the use of a personal car to run office errands is fully tax deductible? All you will be required to do is to work out an approved mileage scheme and the payments made out to you won’t be taxable and neither will the company expense incurred.
Value Added Tax (VAT)
Did you know that you are entitled to VAT cash refund when your input amount reaches Ugx 5 million, instead of carrying forward as an offset? This should avail you with the needed cash to inject in your business.
Unfortunately, many businesspeople short of cash flow, resort to obtaining bank loans at the expense of utilizing such tax advantages to free their cash.
Withholding Tax (WHT)
WHT is always a nightmare from an administration perspective. However, if you have been compliant with your tax affairs and have been in existence for three years, you can seek for 6% WHT exemption from URA. This exemption is reviewed bi-annually.
As a businessperson, it is important to find a brilliant tax or financial advisor to ensure you take advantage of the available tax avoidance strategies. Having brilliant people as your consultants might be expensive in the short term, but it is the best strategy for your long-term success. The basic test is always: is my financial advisor successful or still struggling? Surely, you don’t want someone who cannot find their way to making a decent living for themselves as your advisor.
The article first appeared in SBR May 2014.
Mustapha B Mugisa. All rights reserved 2014.