Starting up our own company has been something we’ve considered for a very long time. When we were living in Italy, though, that wasn’t really an option, far too much red tape and the taxation in Italy kills most companies within the first two years of activity.
If you survive those 2 years, you’re among the lucky ones: it means you had enough to pay your taxes for the following year too, because that’s how it works in Italy: you start working say in January, by June the same year you have to pay your first part of your taxes on your projected annual income (preliminary payment of 99% of your tax liability). In November you have to pay the remainder for that year + 102% as preliminary taxes due for next year, assuming you’re still going to be in business by then and making more than the previous year. Also, if you decided to pay by more instalments then you are charged interests directly there and then for the future instalment(s).
That was back in 2010, things might have changed in recent years, I’m not sure any more and also I’m not an expert, but the most read financial newspaper in Italy (Il Sole 24 ore) has published an article last year where it says that in 2014 Italy was charging an astonishing 64.8% of overall taxes on companies, and that was down from the previous year’s (2013) at 65.4%.
The world average is 40.8% and in Europe (EFTA countries) is 40.6%…
The interesting thing is that this is seen as a huge improvement. Just a few years back (in 2004) the total taxation rate was at 76%, so 64.8% is great going by comparison now…
But the issues do not end there: the complication and complexity of the tax system forces people to look for accountants, very expensive, they can set you back anything from 1,500 to 3,000 euro/year or more, to look after your tax affairs.
Sure, just take a look at an example of scheduled tax obligations published by the revenue service for a random month here: it contains 119 pages of obligations for different categories of taxable income/activity and that’s just one month! How can anybody deal with that on top of his or her day-to-day job (which brings in the taxable income)?
Luckily enough we decided to take the plunge in Ireland, where corporate tax is 12.5%, and of course personal income tax then depends on the salary or dividends you pay yourself as a director and all other circumstances (single, married, deductions, etc.). Dividends attract a flat rate of 20% (DWT – Dividend Withholding Tax), that is then taken off your total tax liability the following year. If you want one, a tax-efficient salary will set you back 24% on the first 42,800 Euro (if married, both working), and 40% on the remainder + some smaller percentage for social contributions.
The majority of people pay far less than the 52% marginal rate, by the way.
Also Ireland makes it easier for individuals and companies to manage their own tax affairs, if they understand the basic concepts. Simple procedures, not many different deadlines, just a few and the same for almost everyone, and a smaller number of types of taxes. ROS (Revenue Online Service) is a fantastic self-service tool to deal with Revenue and it sends you the relevant alerts for every tax due, people working at the Revenue offices are helpful and happy to be so. You can solve almost anything via emails or phone, without having to go to any office. Local Enterprise Ireland also helps you with support, sourcing financing options, training, etc.
But enough bragging about Ireland The question in this blog really is: what’s next?
In the near future we are going to expand our reach in the IT market by adding a new ERP product, hush hush for now, dedicated to a very specific niche market… News soon to come. Follow us on twitter @psrmglobal.
In the meantime we will continue to provide great consulting services in the domains where we are already present.
PS: remember what I said in a previous post (Superhero consultants)? Here is me with my Superman t-shirt under my shirt at a customer’s site