TO BE IN THE VAT SYSTEM OR NOT?

The very first decision to make before setting up an Ltd. or a trading company is whether to opt for a VAT system or not. It is up to an entrepreneur whether to do business in the first year within the VAT system or not. Also, it is important to know that the limit for entering the VAT system is the revenue of 300,000,00 Kn a year, which means that if you have been doing business for six months and have made revenues of 160,000,00 Kn you will have to enter the VAT system next year.

Of course, there is no unique answer to which is better. Various types of doing business and the business itself bear a different influence on this decision.

The first question is who your buyers are? If they are natural persons and you are providing a service, there are surely reasons for you not to enter the system as your prices would be more favourable without the VAT amount, which means your earnings would be bigger.

In case your clients are other companies and you deliver your goods or services within the EU, things change because your clients can opt for a pre-tax and you can send your EU buyers, those holding a VAT ID, invoices without a VAT amount with a Reverse Charge.

The other important question is how much you plan to invest in the beginning. If an investment is substantial, the incoming VAT amount will consequently be considered as well. It would be advisable in that case to be within the VAT system as you would be able to claim a VAT refund and thus improve the money flow.

The worst thing an entrepreneur can do is to stay out of the VAT system for the first year and then make a big investment. Consequently, in the second year, he will have to enter the VAT system by the rule of law. In that case, he cannot use a pre-tax from the investment and will later have to pay the VAT on invoices and services that have come out of that investment.

On the other hand, entering the VAT system imposes some obligations such as submitting monthly and quarterly VAT forms, but you do not need to worry about that as this is done by your accountant.

As with making any other business decisions this one should be made rationally as well. It is important to come up with a business plan and consult a professional in order to get the maximum within the established rules.

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