Peculiarities Of Accounting For Corporate Income Tax

Important changes have been made to the Georgian tax legislation during the recent period. In particular, these changes have affected the Corporate Income Tax. Every concept related to the Corporate Income Tax have either been changed or modified: Taxpayer, Taxable Income, Tax Rate and Accounting Period. For tax purposes, it has become necessary to separate allocated and retained income and, also, certain types of expenses such as expenses related to non-economic activities and providing goods or rendering services without compensation have become taxable. Taxation rules for representative expenses have been changed, tax exemption parameters have been modified and Corporate Income Taxes paid during the 2008-2016 period have become creditable against the state budget. Therefore, accrual and allocation dates of income might become confusing due to conflicting definitions provided in various statutory acts, which need further clarification. In order to correctly calculate and account for Corporate Income Tax, we believe the following changes have to be made to firms' chart of accounts, defined by their accounting policy: Account 1480 “Advances paid to suppliers” should have two sub-accounts: Advances paid to firms registered in exempt countries; Advances paid to firms registered in non-exempt countries. Separate account for loans given will be necessary with two sub-accounts. For instance, it will be under account 1900 “Other current assets” group: 1. Loans given to physical persons and non-resident entities; 2. Loans given to other entities. Account 2430 “Investments in other entities” should be divided into two sub-accounts: 1. Investments in resident firms; 2. Investments in other firms. Account 3310 “Corporate income tax” should be divided into the following sub-accounts: 1. Claimable corporate income tax; 2. Non-claimable corporate income tax. Account 5100 “Shareholders equity” should be divided into the following sub-accounts: 1. Acquired through shareholders' contribution and 2. Acquired through dividends, or Account 5110 “Common shares” should be divided into the above-mentioned accounts. Account 5310 “Retained earnings” should be divided into several sub-accounts; for instance, Account 5331 – Retained earnings from 01.01.2008 to 01.01.2017; Account 5313 – Retained earnings from 01.01.2017; Account 5314 – Retained earnings from nonresident (non-exempt) subsidiary's dividends or Retained earnings from bank interest. General and administrative expenses (Account group 7400) should have the following accounts: 1. Representative expenses within the norms and 2. Representative expenses above the norm. Account 7490 should be divided into the following accounts: 1. Documentary confirmed expenses; 2. Goods (services) acquired from micro-business (fixed) taxpayer entity; 3. Supply of goods or services without compensation to non-state entities; 4. Supply of goods or services without compensation to state entities; 5. Other non-economic expenses. It has become necessary that separate account titled “Accrued fines and other penalties” (for instance, under the account group 8200 “non-operating expenses”) to be divided into the following accounts: 1. Fines and penalties accrued by firms registered in exempt countries; 2. Fines and penalties accrued by firms registered in non-exempt countries. Account 8210 “Interest expense” should be represented by the two sub-accounts: 1. Interest expense within the norm; 2. Interest expense above the norm.