Tax period

What it means

A tax period is the stretch for which a tax is computed and a return filed. For income tax it is the calendar year, or a fiscal year for a company that has switched; VAT runs on its own VAT tax period, a month or a quarter.

It usually coincides with the accounting period, but the two are different things: the accounting period comes from the Accounting Act and decides when the books close, the tax period from the Income Tax Act and decides which return is due.

For an individual the income tax period is always the calendar year; a fiscal year is not an option. Someone who starts trading in October taxes three months of income in a return covering the whole year and claims the personal tax-free allowance at its annual amount, not pro rata to the months in business.

How it works in practice

The return is filed within three calendar months of the end of the period and the tax falls due on the same date. The deadline can be moved by a notice, but a taxpayer in liquidation or bankruptcy cannot extend it that way and may only ask the tax office for an extension.

Entering liquidation, a declaration of bankruptcy and a corporate transformation all cut the running period short and start another one that no longer matches the calendar year. A switch to a fiscal year is notified to the tax office, and the stretch between the last calendar year and its start is a tax period of its own.

The tax for a closed period also sets the tax advances for the next one. After a year with a one-off profit, say from selling an asset, the company would pay high advances throughout the following period. When we know the current year will come out weaker, we prepare an application for the tax office to adjust them.

What to watch out for

A company enters liquidation in July and the bookkeeper waits for December. The period in fact ended on the day before entry, the filing deadline ran from there, and the delay brings a penalty and a demand to file, even though the tax for the year is the same.

A new s. r. o. comes into existence in December and its shareholders expect the first return only after a full year. The first tax period, however, ends on the last day of the calendar year, so a return covering a few weeks of existence is due by the ordinary deadline. Missing it means a penalty in the very first year.