FAQs (Frequently Asked Questions) about Taxes

What are direct and indirect taxes?

Direct taxes are imposed on an individual's income or wealth. They are paid directly by the taxpayer. In contrast, indirect taxes are added to the cost of goods and services, impacting all consumers equally, regardless of their income levels. Common examples of direct taxes include income tax and property tax, while indirect taxes include sales tax, excise tax, and the Goods and Services Tax (GST).

What is tax planning vs. tax management?

Tax planning involves strategically managing your taxable income and investments to utilize allowable deductions, rebates, exemptions, etc., ensuring that the tax liability is minimized. On the other hand, tax management entails adhering to tax laws, timely filing of taxes, and proper financial affairs management. While tax management is mandatory, tax planning is optional.

Country-Specific Tax FAQs

India

What is GST in India and how does it work?

Before the Goods and Services Tax (GST) came into existence, numerous taxes were charged at different levels and the system was unorganized. Once GST came into existence in July 2017, it replaced multiple indirect taxes in India. It's a multi-stage tax applied at each stage of the supply chain, aiming to eliminate tax cascading. GST has different components for intra- and inter-state transactions, and it follows a destination-based taxation principle.

The journey to implement GST started in 2000 and was passed in 2017. GST's goals include a unified tax system, subsuming various taxes, eliminating tax cascading, curbing evasion, widening the taxpayer base, simplifying procedures, and improving logistics.

Advantages of GST include reducing the cost of goods, promoting competitive pricing, increasing consumption, and streamlining processes through technology. To keep it simple, GST is a crucial tax reform that simplifies India's tax system and improves compliance.

What compliance measures did GST introduce in India?

The e-invoicing implementation was first targeted at business entities with an income of 500 crores form October 2020. It was later mandated for 100 crore businesses 1st January 2021, gradually it was reduced to 50 crores from 1st April 2021, then reduced to 20 crores from 1st April 2022. From 1st October 2022 the threshold was reduced to business with turnover of 10 crores and finally 5 crores from 1st August 2023. These measures aim to enhance GST reporting, minimize paperwork, and boost tax compliance.

It is important to note that E-Way bills were introduced in 2018 to track goods movement, reduce paperwork, and curb tax evasion. E-invoicing was mandated starting in 2020 for larger businesses, streamlining invoicing, reducing errors, and improving interoperability.

United States

How does the sales tax work in the US?

Sales tax is calculated as a percentage of the purchase price and is imposed by the government on goods and services. Retailers collect this tax from consumers and remit it to the government. The amount a business owes in sales tax is impacted by its physical presence in a specific area and is called Nexus.

It's important to note that sales tax rates can vary between different jurisdictions, including at the local and municipal levels. However, some US states have chosen not to impose a sales tax altogether. For both businesses and consumers, adhering to sales tax regulations is essential to ensure compliance and avoid potential legal issues. Most of the states in the US have sales tax except Alaska, Delaware, Montana, New Hampshire, and Oregon.

What is Nexus in the US?

As mentioned above, Nexus is the connection that makes a business responsible for paying sales taxes in a given location. However, it's not limited to physical presence and can include employees or affiliates. Some states have no sales tax, like Delaware, New Hampshire, Montana, and Oregon, while Alaska allows local sales taxes.

United Kingdom

How does the Value Added Tax (VAT) system operate in the UK?

VAT is a type of indirect tax collected by the businesses in the UK for goods and services sold. This is then passed to Her Majesty's Revenue and Customs (HMRC). Businesses should register once the annual turnover exceeds £85,000. Various rates apply, such as standard (20%), reduced (5%), and zero (0%). It is important that you maintain accurate records for VAT compliance.

What is corporation tax in the UK and how does it work?

Corporation tax is a type of direct tax charged on a company's profits. In the UK, incorporated businesses, including limited companies and foreign companies with a UK presence, are required to pay corporation tax on their taxable profits. Taxable profits include trading profits, rental income, investment gains, and other chargeable gains. It is important to know that this tax obligation also extends to unincorporated associations, co-operatives, and self-employed individuals operating as limited liability companies.

United Arab Emirates (UAE)

What is the tax regime like in the UAE, including VAT and corporate tax?

While VAT in the UAE is Value Added Tax levied on the goods and services sold, Corporate Tax is levied on the capital or profit of a company.

The UAE introduced a 9% corporate income tax on business profits. This came into effect on June 1, 2023, applying to most businesses and corporations. 5% VAT is applied on the goods and services and is collected on behalf of the government.

What are the tax-free zones in the UAE, and how do they impact businesses?

A free zone is a distinguished area within the UAE that lets businesses have 100% foreign ownership and charges 0% tax. The main goal is to help the economy grow by getting foreign businesses to invest, making it easier to do trade with other countries, and creating more jobs. It provides a high-end infrastructure and helps business development. This has become a tax haven for many booming industries.

Accounting practice management software

How can Zoho Practice help you simplify your business processes?

Zoho Practice is an accounting practice management software that helps maintain all your business processes in one place. You can onboard multiple clients, collaborate with them, associate staff, manage tasks, communicate via in-app chat, get notified for messages, requests, and tickets, integrate with the Zoho Finance ecosystem and do much more. To be precise, Zoho Practice helps you streamline your accounting practice management like never before.

Why use accounting practice management software for your accounting firm?

Accounting practice management software like Zoho Practice, is designed to handle accounting specific tasks such as financial reporting, client management, assign sub accountants and more.

Can Zoho Practice generate tax reports required by tax authorities?

As mentioned in the above answers Zoho Practice is a practice management software focused on consolidating all your practice management functions. It cannot generate tax reports that may be requested by the tax authorities of different regions. However, by integrating Zoho Books, you can generate tax insights such as GSTR, TDS  and more. Zoho Practice promptly pushes out compliance alerts ensuring you stay on top of you tax deadlines.

International taxation

What are international taxes, and why are they important for businesses?

International taxes refer to the taxes that businesses are obligated to pay when operating across borders. They are important because they can impact a company's profitability and compliance with tax laws in different countries.

How can Zoho Practice management software help businesses with international tax compliance?

Zoho Practice management software can streamline the process of tracking income, expenses, and in turn keep your books clean ensuring businesses meet their international tax compliance requirements. If you are a Zoho Books user, in India you can file your taxes in Zoho Books and get your tax compliance alerts in Zoho Practice.

What is a Double Taxation Agreement (DTA), and how does it benefit businesses?

DTAs are treaties between countries that prevent businesses from being taxed twice on the same income. They provide clarity and reduce the tax burden on international transactions.

How do I stay updated on tax laws and regulations in my country?

To stay informed about business tax laws in your country and in countries where you provide services, utilize sources such as government websites for official tax updates. You can also engage with international tax advisors, or participate in tax associations, attend seminars, and network with local contacts. Additionally, consider using a powerful tax compliant accounting software like Zoho Books and keep up with ever-changing regulations.