A few days ago, I saw a Facebook advert that was offering company registration services. Although these services are common; something on this advert caught my attention, namely “let’s help you run your business legally by registering your company”.
This message sort of implied that running a business as a sole trader or partnership is illegal, which is far from the truth.
While this is not the purpose of this article, I think it is worth noting that sole traders and partnerships are forms of business, despite there being no registration requirements.
Today, I would like to address the implication of choosing to run your small business as a separate registered entity, mainly in the form of a close corporation or a private company. Many of us have registered companies at some stage but not all the ideas have unfortunately taken off.
What have you done with that dormant entity?
It is important to note that once you register a business, you have created a separate legal person, a separate taxpayer that needs to comply with different tax rules from you as the owner. This means that you need to ensure that your business is registered for tax and complying accordingly.
For many, there is a misconception that because your entity is dormant, you are exempted from your tax obligations. We leave these entities without filing or de-registering them, which is just further creating financial obligations for the shareholders/members.
At a minimum, if you have a dormant entity, kindly do the following to ensure that you are complying:
- If you have no intention of ever running a business within that dormant entity, you need to de-register that. This deregistration will need the company to be in good standing both at BIPA and NamRA before it can be processed.
- Initiating the de-registration process will trigger penalties and interest if you have not been filling any annual returns at BIPA, or provisional and annual returns on ITAS.
- While I am not aware of a relief program at BIPA to assist with wavering any penalties or interest, at least you have one worry less with income tax as NamRA recently announced the modified Electronic Filing Tax Relief Programme which ends 31 May 2023.
- Since your business was dormant your tax liability would have been zero for the period you were non-operational and therefore any penalties levied will be 100% written off once all due returns are filed.
- To file your annual income tax returns, you will be required to submit dormant financial statements to show NamRA that indeed your business was dormant. Your local accounting firm can gladly assist.
Whatever your next move is, there will be cash outflow at some stage, so the earlier you act, the better. For more information on how to run your small business successfully, do check out our business-related videos on YouTube “Money matters with Budget Bee – Namibia Youtuber”
*Klestina Kauhondamwa is a Chartered Accountant by profession.
