How IT businesses can pay zero taxes (the SECRETS you must know)?
Are you doing IT businesses in Bangladesh and paying taxes to the government? Do you know certain IT businesses are enjoying tax free benefit upto 2024? That means if your IT business falls under those categories then you can also pay zero taxes!
But what are those IT businesses?
As per paragraph 33, part A of sixth schedule of the Income Tax Ordinance 1984, total 22 IT services are mentioned which will enjoy the facilities of zero taxes upto 2024. To check whether your business is under the benefit of zero taxes, we have provided the full list in the below annexure. Check the below IT business provided in the annexure with your trade license or certificate of incorporation.
If your IT business is one of the 22 businesses then next question you may ask, how I can pay zero taxes during filing tax return? What are the secrets?
To avail the tax-free benefit, you have to follow several procedures. As you will enjoy the tax-free benefit, so you have to comply all the related tax law otherwise this benefit may cancel anytime which will increase your tax burden. In this article, you will know step by step, what are the required tax compliances to pay zero taxes.
Tax and VAT Deducted at Source
The main compliance is that your financial transaction recording shall be complied with tax and VAT. Either you do business as company or as sole proprietorship, you have to deduct tax and VAT where applicable. If your business fails to deduct tax or VAT at source and deposit it timely then all the expenses incurred by your business shall be disallowed during tax assessment, means you have to pay tax at regular rate. So, you will not get the tax-free benefit here.
Guess, you have noticed that when you have provided services to your client and during making payment to you, your client has deducted tax and VAT as per applicable rate. But as your IT services is fully tax exempted, so at source there shall be no tax on your invoice amount. Full invoice amount issued to your client shall be made payment to you without deducting tax at source (TDS).
Besides local business, our IT sector is earning a huge foreign currency in Bangladesh by providing services outside. At this stage, during the receiving of fees from foreign client through your corresponding bank in Bangladesh, bank deduct tax and then transferred the net amount to your bank account. You will be happy to know that in this case, you will also enjoy tax exemption benefit.
As per section 52Q of Income Tax Ordinance 1984, any sum remitted from abroad by way of a fee, service charges, commission or remuneration, called by whatever name for rendering any service or performing any task by a resident person in favour of a foreign person shall be deducted tax at 10% at the time of making payment of the sum or crediting the sum of the payee.
Provided that no deduction shall be made against the remittance from abroad for which is the proceeds of sales of software or services of a resident if the income from such sales or services is exempted from tax under paragraph 33 of Part A of the Sixth Schedule. In the above, we have said that the IT services under paragraph 33 are provided in annexure below.
Deducting and depositing tax and VAT timely is one compliance, additionally you have to file several mandatory tax statements to the tax authority. Now, we will discuss with you, what are the compulsory tax filings by businesses during the income year.
Mandatory Tax Filing
You know at the year-end; we have to file corporate tax return or personal tax return to the tax circle. But in addition to the above annual tax return submission, a business is required to file several statements time to time during all over the year. And these all-tax reporting is mandatory for a business. Non-compliances may impose penalty or cancel the tax benefit.
Therefore, you have to know all the tax filings shall submit to the tax circle because your main goal is to pay zero taxes during the tax assessment. And that’s why you have to follow all the tax compliances.
Don’t be afraid!
It’s not so long and complex.
Just give time once and then it will be easy and less time consuming for you. At the very biggening, prepare a statement in excel sheet and then edit in the same statement for the future tax filings. Few statements are monthly, half-yearly and some are yearly. You may watch the below video to know about all tax filings including deadline.
As per paragraph 33 of Part A of the Sixth Schedule, any income derived from the business of a person being a resident or a non-resident Bangladeshi for the period from the first day of July 2008 to the thirtieth day of June 2024 on the conditions that person shall file income tax return in accordance with the provisions of section 75.
As per section 75, if the person is a company; or a firm; or a partner of a firm shall file a return of income of the income year to the Deputy Commissioner of Taxes (DCT). Or, if the person at any time during the relevant income year runs any business or profession having trade license from a city corporation, a paurashava or a union parishad shall file return of income.
If your business is a company then you have to complete statutory audit at the year end and then file annual company tax return to the tax circle. But audit is not required for the sole proprietorship businesses who have obtain trade license from a city corporation, a paurashava or a union parishad.
It is not necessarily required that to avail tax free facilities, your business shall be a company. You may enjoy this tax benefit as a sole proprietorship by collecting simply a trade license from a city corporation, a paurashava or a union parishad.
Though the tax-free facilities are provided to the certain IT services in tax law but practically tax exemption certificate seek by the withholding entity during the payment without deducting tax at source. So, how you can obtain tax exemption certificate from National Board of Revenue (NBR)?
Tax Exemption Certificate
Tax exemption certificate is not mandatory to obtain by the below IT services from tax authority. As the tax law has provided the facilities in the tax law, so the benefit shall be enjoyed by checking the trade license or certificate of incorporation whether the IT services received by the customer is fall under the tax-free categories.
But as we discussed above, practically withholding entity where your business has provided services, they may ask tax exemption certificate from NBR to ensure that your business is providing tax-free services. Therefore, you have to apply to the NBR for the tax exemption certificate.
To get this tax exemption certificate from NBR, you have to submit related documents along with application. After completing several procedures by the tax authority, tax exemption certificate will be issued to you upon satisfaction of the tax authority.
Main requirements are investigated during the inspection by the tax authority in your business place is to whether you are complied with tax law. You have noticed that in this article we have emphasized several times about the tax compliances which are most important to avail the tax-free benefit. So, you have to ensure that your business is tax complied.
How you will ensure that your business is tax complied?
Accounting and Tax Services
To comply with tax and VAT law, your accounts maintenance shall be accurate and complete and, on this recording, your tax and VAT compliance is depended. If your accounting is not correct then your tax and VAT will not be correct.
Most of the cases in small businesses, it is not always possible to employ a full-time accountant from a professional background due to cost. In that case, what may be the cost saving solution?
You may think about outsourcing your accounting and tax services from a professional accounting firm. As an IT professional, you are most familiar with this outsourcing service and you know that foreign countries are outsourcing their services to low-cost countries and that’s why our garment and IT sectors are flourishing. So, you may also outsource the accounting and tax services.
List of IT Business Enjoying Tax Free Facilities
- Software development
- Software or application customization
- Nationwide Telecommunication Transmission Network (NTTN)
- Digital content development and management
- Digital animation development
- Website development
- Website services
- Web listing
- IT process outsourcing
- Website hosting
- Digital graphics design
- Digital data entry and processing
- Digital data analytics
- Geographic Information Services (GIS)
- IT support and software maintenance service
- Software test lab services
- Call centre services
- Overseas medical transcription
- Search engine optimization services
- Document conversion, imaging and digital archiving
- Robotics process outsourcing
- Cyber security services