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This may sound counterintuitive, but outsourcing accounting services for your company is cheaper and is of superior quality compared to hiring and an internal accountant.

 

Less costs

Outsourcing is often cheaper than hiring an accountant. This is caused by the fact that it is inefficient for small and medium sized entities to hire a full-time accountant, because such entities do not usually need 100% of the accountant’s time and often one third or even one fourth of qualified accountant’s time is needed to achieve the same result. As for the large companies, setting up accounting department and purchasing appropriate accounting software is significantly more costly for them. Our automated systems and modern methodologies allow us to offer accounting service to large companies at lower fees.

 

Access to experts

Upon signing a contract with us, companies get access to different specialists, including tax experts, financial reporting specialists, experienced accountants and financial consultants. Each of them is master of their field with complex and thorough experience.

 

Insured risks

We have three-level control of accounting and tax filing process. Accounting transactions posted by an accountant is checked and verified by chief accountant, portfolio manager and finally by internal audit department. As a result, tax filings are monitored by three separate specialists.

In case of any errors, we are responsible for any tax penalties caused by our mistake.

EBITDA represents earnings before interest, taxes, depreciation, and amortization. EBITDA is widely recognized as one of the most popular indicator of company profitability. In this article we will be discussing the reasons for its popularity.

 

How is EBITDA derived?

EBITDA is calculated by subtracting all the expenses from revenues apart from interest, profit tax, depreciation, and amortization. By deducting direct expenses from revenues, you arrive at gross profit, after which you additionally deduct operating expenses (administrative and other operating costs), which results in   EBITDA. To derive net profit from EBITDA, you additionally need to subtract interest expense, add interest income, subtract depreciation and amortization costs, and subtract profit tax expense.

 

What is the reason for popularity of EBITDA?

Compared to other measures of profitability, EBITDA’s popularity is caused by several factors. For example, at first glance, it may seem that net profit, which is derived by deducting all expenses from revenues, is simple and more logical profitability measure, however, is most cases, business owners, managers, and external users (including banks) prefer to use EBITDA as the key profitability indicator. Our company provides accounting services to hundreds of companies on a daily basis. From our experience, we have gathered key reasons for the preference and have outlined them below.

First of all, EBITDA measures profitability from company’s key business activities and removes the secondary factors such as loan interest and profit tax. For example, consider two companies – company A and company B. Managers of company A are more efficient at management of production costs, which is evident from the fact that company A generates higher gross profit margin per each Dollar of revenue (i.e. it manufactures products more efficiently and at lower cost). However, overall, company A’s net profit is less than company B’s net profit because company A’s initial investment was financed through shareholder’s equity, which does not have accounting interest expense accrual, while company B’s initial investment was financed through a bank loan. In this scenario, it would be misleading to base your opinion about management’s efficiency on net profit rather than EBITDA, since the two companies have different capital financing structure.

It should also be noted that EBITDA represents attempt at rough approximation of operating cash flows. Considering that EBITDA does not include depreciation and amortization, which represent non-cash expenses, it is closer to actual cash flow than other indicators of profitability (e.g. EBIT). EBITDA does not capture all cash flows movements (e.g. changes in working capital), however is often used as an approximate measure in industries, which have heavy depreciation and amortization costs.

Our client companies often ask questions regarding the non-qualified VAT payer status in accordance with Georgian tax code. In this article we will discuss the details of this status and will explain the reasons for which it is important for companies operating in Georgia to know the basic aspects of this topic.

Our company provides all necessary accounting services related to VAT and other taxes in Georgia.

 

Why is it important to know the basics of this topic?

If your company purchases products or services from non-qualified VAT payers, then you will not be able to recover input VAT from such transactions. This could lead to significant financial losses.

For example, if your company purchased 118,000 GEL inventory and in accordance with contract with the supplier, the price includes VAT, in this case if your company itself is registered as a VAT payer, it will be able to recover the input VAT of 18,000 GEL. Therefore, net cash outflow for purchase of inventory equals 100,000 GEL, since company pays 118,000 GEL to the supplier and then recovers 18,000 GEL from the state. However, starting from 2021, Revenue Service of Georgia introduced the term “non-qualified VAT payer”. If company is classified as a non-qualified VAT payer, you will not be able to recover VAT on products and services purchased from such company. In our example, instead of net cash outflow of 100,000 GEL, you would have an outflow of 118,000 GEL and you would have lost 18,000 GEL in non-refundable taxes.

 

Which companies are classified as non-qualified VAT payers?

Non-qualified VAT payer status is automatically assigned to companies newly registered as VAT payers. Besides, a company is assigned non-qualified VAT payer status if it did not have any operations on its tax card for the last consecutive 12 months period.

Abovementioned change was introduced by the state to prevent fictitious companies from registering solely for the purpose of obtaining tax benefits for their related parties. Often such companies did not have any business substance and were established to issue tax invoices to their related companies to entitle them to fraudulent VAT input refunds.

 

How can we learn whether our supplier has non-qualified VAT payer status?

Considering the above discussed, it is only natural that many companies are interested in checking their potential supplier’s VAT payer status prior to signing a contract with them. It is especially important to check the status before committing to any large transactions due to proportionally higher associated risk of financial loss.

You can easily check qualified/non-qualified VAT payer status on Revenue Services’ webpage. For this, you just need to know or obtain tax identification code of your supplier and check this code on Revenue Service’s online portal. The status can be checked on the following online address: https://rs.ge/CheckUnqualifiedStatus