Lecture 2 Business environment 1 Forms of business

Lecture 2 Business environment 1. Forms of business organization 2. Tax environment 3. The Purpose of Financial Markets Research work 1. Financial risk management: types of risks, methods of risk evaluation 2. The main indicators of financial status of enterprise: liquidity ratio, profitability indexes, turnover indexes

Sole Proprietorships the oldest form of business organization in which a single person owns the business, holds title to all its assets, and is personally responsible for all of its debts

greatest virtue l little expense simplicity tax advantages principal shortcoming l l l personally liability for all business obligations difficulty in raising capital difficulty transferring of ownership

Partnership l l similar to a proprietorship, except there is more than one owner individual partners include their share of profits or losses from the business as a part of their personal lenders may be more agreeable to providing funds given a larger owner investment base.

General partnership l l all partners have unlimited liability; they are jointly liable for the obligations of the partnership legally, the partnership is dissolved if one of the partners dies or withdraws

Limited partnership l l l the limited partners are strictly investors, and they share in the profits or losses of the partnership according to the terms of the partnership agreement limited partners contribute capital and have liability confined to that amount of capital; they cannot lose more than they put in. there must, however, be at least one general partner in the partnership, whose liability is unlimited

Corporation an artificial being, invisible, intangible, and existing only in contemplation of the law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence

Principal features l l l the corporation exists legally separate and apart from its owners. owner's liability is limited to his or her investment personal assets cannot be seized in the settlement of claims capital can be raised in the corporation's name without exposing the owners to unlimited liability ownership itself is evidenced by shares of stock

Shortcomings l l l double taxation as the main disadvantage length of time to incorporate red tape incorporation fee that must be paid to the state difficulties in establishing

Limited Liability Companies (LLCs) a hybrid form of business organization that combines the best aspects of both a corporation and a partnership. It provides its owners (called "members") with corporate-style limited personal liability and the federal-tax treatment of a partnership

4 desirable standard corporate characteristics l l (1)limited liability, (2) centralized management, (3) unlimited life, (4) the ability to transfer ownership interest without prior consent of the other owners

LLCs drawbacks l l generally lacks the corporate feature of "unlimited life" complete transfer of an ownership interest is usually subject to the approval of at least a majority of the other LLC members.

Corporate Income Taxes l l found by deducting allowable expenses, including depreciation and interest, from revenues the tax rate —the percent of taxable income that must be paid in taxes—that is applied to each income bracket is referred to as a marginal rate.

Corporate Income tax structure ATLEAST $ BUT LESS THAN $ TAX CALCULATION $ RATE (%) 0 50, 000 15 * (income over $0) 50, 000 75, 000 25 7, 500 +. 25 *(income over 50, 000) 75, 000 100, 000 34 13, 750 +. 34 * (income over 75, 000) 100, 000 335, 000 39 22, 250 +. 39 * (income over 100, 000) 335, 000 10, 000 34 113, 900 +. 34 * (income over 335, 000) 50 000 is taxed by 15% rate: 50 000*15%=7 500 and the sum over 50 000 is taxed by 25% rate

Average tax rate is measured by dividing taxes actually paid by taxable income. For example, a firm with $100, 000 of taxable income pays $22, 250 in taxes and, therefore, has an average tax rate of $22, 250/$100, 000, or 22. 25 %.

Depreciation systematic allocation of the cost of a capital as over a period of time for financial reporting purposes, tax purposes, or both. Depreciation deductions taken on a firm's tax return are treated as expense items

"Modified Accelerated Cost Recovery System" (MACRS) Property classes MACRS l l l 3 -Year 200% Class. Includes property with a midpoint life of 4 years or less, except automobiles and light trucks. Under the Asset Depreciation Range (ADR) system, assets are grouped within classes and a guideline (midpoint) life is determined by the Treasury Department. 5 -Year 200% Class. Includes property with an ADR midpoint life of more than 4 to less than 10 years. Also included are automobiles, light trucks, most technological and semiconductor manufacturing equipment, switching equipment, small power production facilities, research and experimental equipment, high technology medical equipment, computers, and certain office equipment. 7 -Year 200% Class. Includes property with ADR midpoints of 10 to less than 16 years and single-purpose agricultural structures. Also includes office furniture and any other property for which no class life is specified by law. 10 -Year 200% Class. Includes property with ADR midpoints of 16 to less than 20 years. 15 -Year 150% Class. Includes property with ADR midpoints of 20 to less than 25 years, sewage treatment plants, and telephone distribution plants. 20 -Year 150% Class. Includes property with ADR midpoints of 25 years or more, other than real property described below. 27. 5 -Year Straight-Line Class. Includes residential rental property. 39 Year Straight Line Class Includes other real estate

Ukrainian taxes Company income tax l 2011 year - 23 %, l 2012 - 21 % l 2013 - 19 % l 2014 - 16 %. Tax on personal income l 15% for those with a monthly income of up to 10 minimum wages, l 17% for those with a monthly income of more than 10 minimum wage. l 5 if such income is accrued as interest on current or deposit bank account

In 2012, the minimum wage will be raised l l l From June 1 – 1102 hrn From October 1 - 1118 hrn From December 1 - 1134 hrn.

Ukraine Tax Code provides l l l VAT rate from 20% to 17% (from 1 January 2014), exemption from VAT significant number of entities: including manufacturers of light industry, aircraft manufacturers, and the like VAT refund from the state budget.

Excise duty For taxation of excisable goods are used ad valorem (defined as a percentage of price data (customs value), specific (as a specific amount of money per unit (weight, volume, units, etc. ) and combined tax rates. excise goods are: l ethyl alcohol and other spirits distillates l alcoholic drinks, l beer, l tobacco products l oil, l cars, car body to them, trailers, motorcycles

Single social contribution from Jan. 1 2011 l l from 36. 76% up to 49. 7% for wages depending on the class of professional risk of production set for the employer in the main view of his activities. 67 classes in classification Without fail entrepreneurs (physical entities) must pay SSC rate 34. 7%

Single tax companies whose average number of employees does not exceed 50, and the amount of revenue from the sale of goods (works, services) for the year does not exceed 1 bl hrn. tax rates: l 6% of the proceeds from the sale of goods (works, services) + VAT l 10% of the proceeds from the sale of goods (works, services). In this case, no VAT is payable l

General Taxes and Other Mandatory Payments l l l l l • excise tax; • income tax on enterprises and organizations; • personal income tax; • import and export duties; • state fees (including fees for securities transactions); • tax on fixed assets of enterprises (not implemented); • tax on real estate of individuals (not implemented); • payments for land; • tax from owners of transport facilities; • tax on the commercial activities of physical persons; • tax on geological exploration works; • payments for special utilization of mineral resources; • payments for the right to emit pollutants; • payments for road construction and maintenance; • payments to Chernobyl Fund; • payments to Employment Fund; • payments to Social Security Fund; • payments to Pension Fund; • VAT.

Local Taxes l l l l • hotel fees; • parking fees for automobiles; • consumer market duty; • fee for the issuance of occupancy rights to an apartment; • resorts fees; • advertising tax; • fee for participation in trotting matches at race courses; • fee for winning in trotting matches at race courses; • fee for gambling at race courses; • fee for the use of municipal symbols and emblems; • municipal tax; • transit fee for crossing the Ukrainian border by means of car or truck; • fee for the issuance of trade permits; • fee for rights to conduct filming; • fee for the right to conduct local auctions and lotteries; • tax on sale of imported goods

Carry back and Carry forward If a corporation sustains a net operating loss this loss may generally be carried back 5 years and forward up to 20 years to offset taxable income in those years.

Отнесение убытков на предыдущие периоды (carryback) l l налогоплательщики вправе уменьшить налоговую базу следующих отчетных (налоговых) периодов на всю сумму убытка, полученного ими в предыдущих налоговых периодах, или на часть этой суммы. Однако это справедливо только при условии, что совокупная сумма переносимого убытка не превысит 30% налоговой базы каждого отчетного (налогового) периода. Срок, в течение которого можно признавать убытки прошлых лет, ограничен — он не должен превышать 5 лет

ОТНЕСЕНИЕ УБЫТКОВ НА БУДУЩИЕ ПЕРИОДЫ (carry forward) l Право вычитать прошлые убытки из текущей налогооблагаемой прибыли при калькуляции налога. Большинство налоговых систем предусматривает взимание налогов с компаний и неинкорпорированных предприятий, зарабатывающих прибыль, однако не предусматривает каких-либо выплат фирмам, понесшим убытки, вероятно, по причине легкости, с которой можно фальсифицировать очевидные убытки в отчетности. Подобная асимметричность в отношении прибылей и убытков тормозит процесс инвестирования. В целях минимизации этих негативных последствий фирмам разрешается относить убытки на будущие периоды. Это означает, что фирма, понесшая убытки в каком-либо отчетном периоде, имеет право в будущем, когда она вновь получит прибыль, вычесть из налогооблагаемого дохода (taxable income) отнесенный на будущие периоды убыток. Таким образом, у прибыльных фирм возникает стимул приобретать другие предприятия, главным активом которых являются их убытки прошлых периодов, в налоговых целях отнесенные на будущие периоды.

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