S TARTUP T AX S TRATEGIES SAIDUDDIN & CO. ADVOCATES TAXATION, MANAGEMENT & COMPANY LAW CONSULTANTS

P RESENTATION OVERVIEW What does tax mean to a Startup? Which tax filings are due and when? Under the Income Tax Laws. Under the Sales Tax Laws. What do I need to do to get ready?

W HAT DOES TAX MEAN TO A START UP ? Everything including: Whether to enter the market or not? Payment structuring Profitability Compliances

W HICH TAX FILINGS ARE DUE AND WHEN ? Tax filings and due dates are driven by: Business entity type (Sole Proprietorship, AOP & Company) Where the business was formed and where it’s operating The fiscal or calendar year end chosen for tax reporting

F IRST THINGS FIRST What is the first thing that a Startup needs to do? Set up a legal entity and get it self registered with both Federal and Provincial Tax Authorities Before you register the entity it is mandatory to get yourself registered with the Federal Board of Revenue

R EQUIREMENTS FOR NATIONAL / PROVINCIAL TAX NUMBERS Application form. Copy of CNIC of Proprietor/ Partners/ Directors. Copy of Partnership deed/ Incorporation Certificate. Copy of last paid Electricity Bill. Account Maintenance Certificate from Bank. Rent Agreement, if premises is on rent.

I NCOME TAX Tax on individuals income and income of the legal entity are governed by the Income Tax Ordinance, 2001 and Income Tax Rules, 2002 ITO, 2001 and ITR, 2002 provide a mechanism on how to compute tax on income of persons, how to deposit tax and how to file monthly and annual returns.

W HO IS REQUIRED TO FILE INCOME TAX RETURNS ? Every Company. Every person whose income exceeds Rs. 300,000/-. Every person who owns an immovable property with a land area of 250 yards or more. Every person who owns a motor vehicle having engine capacity above 1000CC. Every person who has a National Tax Number.

B ASIC TAX COMPLIANCE FOR ALL ENTITIES Any salary more than Rs. 15,000/- to be paid through cross cheque. Deduct tax on any salary of more than Rs. 33,333/- per month. All payments of more than Rs. 10,000/- should be made through cross cheque. Filing of Monthly and Annual Salary Withholding Statements. Filing of Income Tax Returns and Wealth Statements.

A DDITIONAL TAX COMPLIANCES Sole Proprietorships and AoP’s having Annual Turnover of more than Rs. 50 million and Companies have to: Deduct tax when making payments for services or supplies received. Filing of monthly and annual withholding statements.

T AX YEAR AND T AX RATES Tax Year is mostly from 1 st July to 30 th June unless a person opts for a Special Tax Year. Progressive Tax Rates: Salaried Individual: Between 0% and 30% Sole Proprietorship: Between 0% and 35% Association of Persons: Between 0% and 35% Small Company: 25% Company: 33% (Income of Individuals and AoP if it is equal or less than Rs. 400,000/- is not chargeable to tax)

T AX ON S OLE P ROPRIETORSHIP Sole Proprietorship is taxed at a progressive rate on its taxable income i.e. total income of the person for the year reduced by the total of any deductible allowances. The drawing of the Sole Proprietor during the tax year is not taxable. Tax Rate: 0% to 35%

T AX ON AN AOP An AOP is taxed at a progressive rate on its taxable income i.e. total income of the person for the year reduced by the total of any deductible allowances. The drawings of the Partners of an AOP during the tax year are not taxable. Tax Rate: 0% to 35%

T AX ON A C OMPANY A Company is taxed at a flat rate on its taxable income i.e. total income of the person for the year reduced by the total of any deductible allowances. The Directors of the Company who are also the Shareholders of the Company may receive a salary/ remuneration which is taxed at a progressive rate. The Directors/ Shareholders of the Company also receive Dividend payments for the shares they hold of the Company which are taxed at: Filers: 12.5% Non Filers: 17.5%

I MPORTANT DATES Deposit of tax deducted with 7 days of such deduction. Monthly Statements relating to deductions pertaining to last month to be filed before 15 th of the next month. Income Tax Returns along with Wealth Statements of Salaried Individuals to be filed before 31 st August. Income Tax Returns along with Wealth Statements of Sole Proprietorships and Association of Persons to be filed before 30 th September. Income Tax Returns of a Company to be filed before 31 st December.

P ENALTIES Failure to register the entity with FBR attracts a penalty of Rs.5,000/- Failure to collect,deduct or deposit tax attracts a minimum penalty of Rs. 25,000/- Non filing of monthly and annual statements attracts a minimum penalty of Rs. 10,000/-. Failure to file Income Tax Returns and Wealth Statements on time attracts a minimum penalty of Rs. 20,000/-. Failure to deposit tax due at the time of filing of Income Tax Return attracts a minimum penalty of 5% and a maximum of 50% of the tax deducted.

SALES TAX Sales Tax on Goods is a Federal levy and is governed by Sales Tax Act, 1990 and Sales Tax Rules, Sales Tax on Services is a Provincial levy and is governed by : Sindh Sales Tax on Services Act, 2011 & Sindh Sales Tax on Services Rules, Punjab Sales Tax on Services Act, 2012 & Punjab Sales Tax Rules, KPK Finance Act, Islamabad Capital Territory (Tax on Services) Ordinance, 2001

B ASIS C ONCEPT OF L EVYING S ALES T AX Income tax is charged on the “income” derived by a person. Sales Tax is charged on the “transaction” executed by the person. Sales Tax is charged on: Import of taxable goods; and Supply of taxable goods/services

I NPUT AND O UTPUT T AX When a person supplies goods or provide services, sales tax is charged. This is called the “output tax” Sales Tax paid at purchase of goods or acquiring of services is called “input tax”. The “output tax” is adjusted against the “input tax” to arrive at the balance tax payable or refundable.

R ATES OF S ALES T AX The general rate of Sales Tax on Goods is 17%. The general rate of Sales Tax on Services is: 14% in SRB 16 % in PRA 15% in KPK 16% in ICT

I MPORTANT D ATES Generally Tax Period in Sales Tax is one month. Payment of Tax has to be made by 15 th of succeeding month. Sales Tax return has to be filed on monthly basis on 18 th of every succeeding month.

P ENALTIES Penalties are attracted for the following: Failure to make application for registration. Non – Furnishing of return within due date. Non Issuance of invoice. Unauthorized issuance of a taxable invoice. Failure to notify material changes in the particular of registration. Failure to deposit the amount of tax due or any part thereof. Failure to maintain the required records.

W HAT DO I NEED TO DO TO GET READY ? Choose the right legal entity. Understand your tax obligations. Separate business and personal finances. Deducting business expenses. Using the right tools/ systems. Doing your taxes with professional tax help.

Thank You! Any Questions? Saiduddin & Co. 1 st & 2 nd Floor, Plot No-73C, Jami Commercial, 8 th Street, Phase VII, DHA, Karachi