Unrecognized Expenses in Financial Statements

Dear business owners and investors,

As you know, proper cost recording is crucial for successful business operations, especially when preparing the annual income tax return. There are certain expenses that are not recognized in financial statements, which can affect your tax base and lead to additional obligations to the state. Here are the most important expenses you should avoid or properly understand:

1. Expenses not related to business – If the expense is not directly related to your business activity, it will not be recognized.
   
   
2. Undocumented expenses – Without valid documentation, the expenses will not be recognized, which is a common problem with informal payments or transactions without an inovice.
   
   
3. Interest for late payment of taxes – Interest on untimely paid taxes and contributions is not acceptable for tax purposes.
   
   
4. Interest to non-residents at excessive rates – If you pay interest to foreign entities at rates higher than usual, that interest will not be recognized.
   
   
5. Administrative expenses paid to a foreign head office – Costs that your permanent establishment pays to the parent company abroad are not recognized.
   
   
6. Profit payment– Payments to employees or other individuals from profit distribution are not considered as recognized expenses.
   
   
7. Fines and penalties – Fines and penalties incurred during business operations cannot be included in the company’s expenses.
   
   
8. Corrections of claims – If you adjust the value of claims from the person to whom you owe money, up to the amount of that obligation, that expense is not recognized.
   
   
9. Contributions to political organizations – Any donations or contributions to political parties are not allowed as recognized expenses.
   
   
10. Gifts and free transfers – Transfers of aproperty or money without compensation are not not an expense that will be recognized to you.
    
    
11. Default interest between related parties – Interest between related parties, such as a parent company and its subsidiaries, is not recognized.

If these expenses are still paid from your company's bank account, profit tax will be calculated at rates of 9%, 12%, or 15%, depending on your earned profit.

We recommend being careful in planning your expenses and to consult with us in order to avoid additional costs and obligations when calculating taxes.

Our team is here to help you understand local regulations and optimize your business.