The 8 Most Common Tax & Accounting Mistakes Made in Bali
Avoid common tax and accounting mistakes made by businesses in Bali. Find out in this blog what these mistakes are and how you can avoid them.
Table of contents
Accounting is a necessity in every business big or small. It may not be the most entertaining part of running a business, but good accounting builds a foundation for financial success. To avoid accounting mistakes you first need to understand what the accounting standards are in Bali.
Accounting in Bali follows the Indonesian Financial Accounting Standards (IFAS). Understanding what’s required to meet these standards is the first step in sound and legitimate accounting for your business. Without this understanding, mistakes may be made. In this blog, we will talk about the most common mistakes that businesses make in accounting and submitting tax returns.
Failing to maintain consistent bookkeeping
Your financial statement needs to consist of a Balance Sheet and an Income statement. A general ledger is also required for each of your accounts. Each of these have their own set of requirements that you will need to keep updated throughout the financial year.
Using personal bank accounts in corporate transactions
Having a different bank account for your business transactions will allow you to easily track your money coming in as well as going out.
If your business is audited, the use of a personal bank account for business functions can lead to a more difficult audit process. It’s one of the most common accounting mistakes, but it’s easy to rectify.
An example is to open a bank account for the management of a buy-to-let property. Rent is paid into the same bank account that the mortgage is taken out of. You can also use the same account to pay for maintenance and fees for the property. This will allow for greater transparency and easier analysis of your accounts.
Not using generally accepted Bali accounting standards in financial statements
Bali follows DSAK -IAI standards which any Indonesian accountant will be aware of.
If you don’t comply with the accounting standards, auditors may qualify your accounts. Banks may be reluctant to rely on your reports and hence, it may affect your company’s future loan applications and credit standing.
Each country will have its own standards. Foreign business owners in Bali might assume that accounting standards from their home country would apply in Indonesia. This often leads to accounting mistakes being made and arduous corrections will be needed.
Keeping up with accounting standards will give confidence to stakeholders of your business. In addition, it is less likely that your company will be investigated by the tax department.
Tax Accounting Mistakes to Avoid in Bali
Not reporting worldwide income at the end of the Bali tax year
It’s important that you report worldwide income at the end of the tax year. Failing to do so may result in financial penalties, even if this oversight is discovered later on. You may be unaware of income that you have from other countries. Assets that are often overlooked include rental income and international investment portfolios.
Failing to separate tax deductible private and corporate expenses
A clear line needs to be drawn between personal and business expenses to ensure that tax deductions in each area are legitimate and allowable by your shareholders/partners and the tax department.
To make the process easier for yourself, separate your receipts, bank statements and invoices into personal and business from the very start of the financial year.
By clearly separating the two, you and your accountant can get a clearer picture of your company’s financials. You’ll get a more accurate estimate of your burn rate and will be able to make better decisions for your business.
Inability to identify tax withholding on services purchased
Some of the payments you make are subject to withholding tax. Most services that are paid are subject to 20% tax withholding. However, there are further complications you will need to consider. This includes the possibility that your home country may have a tax treaty with Indonesia and the effect your Bali residence status will have on your tax rate.
Overlooking possible tax exemptions in Bali
There are several different tax exemptions businesses and individuals can take advantage of in Indonesia. As an example, you can apply for exemption from 20% withholding tax before you pay for a service that’s based outside of Indonesia. An accountant specialized in Balinese tax and accounting laws can find all the exemptions that are relevant to you.
In terms of accounting mistakes to make, overlooking tax exemptions is one that could cost you a lot of money. Make sure you talk to an accountant about what tax exemptions you qualify for.
How to Avoid Tax and Accounting Mistakes in Bali
Accounting for a small business is a complex necessity. Many small business owners attempt at doing it themselves. But this is what leads to the most accounting mistakes. A tax expert would do better to advise your company on the latest tax updates which may impact your financial tax reporting.
Professional accountants and tax experts have the experience and the knowledge to get various accounting obligations done efficiently and accurately. Spotting mistakes and inconsistencies is important when submitting financial reports. It’s unlikely that a business owner who lacks experience in accounting will spot costly mistakes and potential pitfalls in misreporting
Professional accountants possess the prerequisites for providing business owners with financial transparency across their business. A good accountant will be able to save your business substantial amounts of money in the long run.
Emerhub’s accounting experts are compliant with DSAK -IAI standards. Get in-touch for expert advice or to get yourself an accountant.
Let's grow your business in Bali
Get in touch with Emerhub by filling in the form below and our consultants will reach out to you within a few working hours.
More articles about Bali
How to Apply for a Visit Visa for Bali
Find out how you can apply for a business visa for Bali while you are outside Indonesia during COVID.
Huber and Angeloni on How to Launch a Restaurant in Bali With a 10x ROI
The owners of Sa’Mesa gave us insights during our talk about their journey of launching the restaurant in Bali and we have summed it up here.
Building a Villa in Bali and What You Need to Know
Know all the bureaucratic aspects that are often left disregarded when building a villa in Bali for vacation or long-term rental here.