After Annual Tax Returns, Advance Payments Follow

Commercial companies and other corporate income tax payers whose tax year is equal to the calendar year submitted their annual corporate income tax return for 2022 to the Tax Administration by April 30, 2023. Entrepreneurs for whom the Tax Administration approved a different taxation period, which does not coincide with the calendar year, are required to submit their corporate income tax return within four months after the end of their tax period.

Based on the data on the tax base and the annual tax liability stated in the last annual tax return, depending on the number of months of operation in the year to which the return relates, the amounts of monthly advance tax payments are determined. Such determined monthly advance tax payments must be paid until the new tax return, and the obligation is due by the end of the month for the previous one. In the Tax Administration’s computer system, late payments are automatically charged interest.

Should the return be submitted earlier or later?

Entrepreneurs did not have to wait for the deadline to submit the corporate income tax return; they could submit it immediately after the end of the tax year. Early submission was in the interest of those whose monthly advance tax payments to be made in 2023 are reduced as a result of last year’s business operations. If they recorded a decline in profit in the previous year, early submission of the tax return would reduce their cash outflow for paying advance tax payments for this year.

If they overpaid their annual tax obligation for 2022 by paying advances, they can allocate the overpayment for paying advances for 2023 or direct it to settle other tax obligations. For entrepreneurs in the opposite situation, who achieved a profit increase in 2022 compared to the previous year, the monthly advance corporate income tax payments for 2023 will be higher.

When to request a reduction

Since the conditions of doing business and business circumstances can change and adversely affect the results, a corporate income tax payer can request a reduction in the monthly advance tax amounts from the Tax Administration even before the end of the current year, thus improving their liquidity. The request is submitted to the competent Tax Administration, must be justified and reasoned, and must include a temporary business report for part of the calendar year.

Attachments and justifications must prove the likelihood that the tax base in the year for which advances are paid will be lower and that paying advances determined according to previous results would overpay the annual tax obligation.

Self-employed and income tax

Income tax payers from self-employment, whether they determine income tax based on received income and paid expenses recorded in tax books or pay it in a lump sum, are also required to pay advance income tax payments. For craftsmen, individuals performing freelance activities, and farmers who keep business records, the amount of monthly advance tax payments they pay in the current year is determined based on the income earned from self-employment and reported in the DOH form for the previous year, depending on the number of months of self-employment in that year.

A taxpayer who has earned income from self-employment along with other sources of income for which an annual calculation is conducted using the annual tax rate must calculate the share of income from self-employment in total annual income and then calculate the amount of monthly advances from that determined proportional part of the annual income tax, also according to the number of months in which they performed self-employment. The monthly advance amount must be paid by the end of the month for the previous one.

How lump-sum taxpayers pay

Income tax payers from self-employment who keep business records can, if their business volume has decreased during the year, request a change in the amount of monthly advance tax payments from the Tax Administration. The request must be justified and supported by a calculation that contains all essential elements of the annual tax return and evidence that will demonstrate the validity of the request for a reduction in advances. If the Tax Administration accepts the taxpayer’s request, it will issue a decision on the new amount of the monthly advance. If it rejects their request, it will also issue a decision on the rejection.

For craftsmen and farmers who pay income tax from self-employment in a lump sum, the obligation of monthly advances is determined based on the annual report on income earned in the previous calendar year and reported in the PO-SD form, according to the number of months of operation. They pay income tax advances quarterly, as the sum of the months of operation in that quarter and the monthly advance amount. The obligation is due on the last day of the quarter for the previous quarter. For lump-sum taxpayers, the legislator has not provided for the possibility of changing the amount of advances before the end of the tax year.