All income taxable under the Income Tax Act is subject to withholding tax during the tax year. It is the employer’s responsibility to make the withholding tax. The employer has an obligation to request a tax card and allow sufficient time to obtain it. This is provided by the employer on the basis of the tax card. If the recipient does not provide a tax card despite prompts, the employer must arrange for a withholding tax in any case. In this case, the withholding tax is paid at the rate of 60%, unless otherwise provided in the advance recovery regulation or the decision of the Tax Administration.
However, it is good to remember that this is a withholding tax. This means that the tax paid as an extra will be refunded at the end of the following year as a tax refund once the amount of actual wage income is known. Therefore, if in 2019 the tax has been overcharged, it will be refunded at the end of 2020. Thus, when you work without a tax card, you lose 60 percent in taxes only temporarily. However, delivering a tax card well in advance of payroll makes it possible to get your pay immediately fair. Don’t forget to make use of the s corp tax calculator there.
Please note that the withholding tax does not apply to rental activities or trade in goods
So if you don’t sell services, but just trade in goods, for example – you don’t need to register for a prepayment register, but it’s still worth doing. As you read this text to the end, you will understand why.
Advance payment register and household deduction
If you are not on the register, it can make it considerably more difficult to obtain orders not only from other companies but also from consumer customers who want to make a household deduction for the service they have purchased.
For example, if a renovation company is not on the prepayment register, the customer cannot make a household deduction for the work.
Would you order a renovation or home cleaning yourself from a company whose work you cannot make this monetary deduction for?
In practice, an advance payment register entry can be considered a vital condition for business in these situations.
Prepayment registers and tax liability
An entry in the prepayment register also speaks to the fact that you are a reliable and regular operator. The register will not be accessible if there are significant deficiencies in the payment or accounting of taxes.
If, for one reason or another, you are not accepted into the prepayment register, you will receive a decision specifying the reasons that prevent entry in the register and you will be given the opportunity to provide your own explanation.
Other reasons to register in the prepayment register
If you are applying for financing for a company, it can often be very difficult to obtain it without a prepayment register entry. You can read our brief guide on start-up financing options at the link above.