With the beginning of 2025, businesses are entering a critical phase of their planning. January is a key month for tax submissions and numerous accounting tasks. Moreover, companies whose financial year aligns with the calendar year and ended in December must now also start working on their financial and tax year-end closing.
This process is essential to ensure the accuracy of financial statements, meet regulatory requirements, and make informed decisions to strengthen the financial health of the organisation.
Given the timing and the mandatory nature of this process, here are the most important points every business should consider for a successful year-end closing:
Key reconciliations at year-end
Before closing the financial year, it’s vital to review key reconciliations to ensure everything is accurate and reflects the company’s reality:
- Profit distribution: Ensure the allocation of the previous year’s profit is correctly recorded on the date of the General Meeting approving the accounts.
- Share capital: Review any movements in share capital during the year.
- Equity imbalance: Check that the net equity is not less than 50% of the share capital. If there is an imbalance, the company has two months to restore it and avoid legal issues.
Tax accounts and withholdings
It is equally important to review tax accounts to ensure all taxes and withholdings are correctly recorded, such as:
- VAT (accounts 470/4709): Accurately reflect the outcome of Form 303. Use account 4709 for refunds and account 470 for carryforwards.
- Corporate Tax (accounts 4709 and 4752): Precisely record amounts to be refunded or paid under Form 200.
- Withholdings (accounts 4751, 473, and 4750): Ensure withholdings for employment income (Form 111), investment income (Form 123), and property income (Form 115) are reconciled. Obtain necessary certificates from withholding agents.
It is critical that VAT output (477) and input (472) accounts are zeroed at year-end, particularly if the period matches the final day of the tax period.
Accruals and necessary adjustments
- Income and expenses: Future-period income must be recorded as deferred income. Similarly, adjust prepaid expenses, such as insurance or services, to reflect the true economic reality of the financial year. For example, rent payments received in December for January must be properly accrued.
- Short- and long-term debt: Reclassify long-term debt maturing within the next 12 months as short-term liabilities to ensure consistency between the balance sheet and annual report.
- Exchange rate differences: Value treasury, receivable, and payable accounts at the prevailing exchange rate, recording differences in profit and loss.
Treasury and other account reconciliations
- Treasury accounts (subgroup 57): Reconcile these with bank statements and cash counts.
- Credit accounts: Ensure only the utilised credit amount is recorded, not the available limit.
- Account 555 (pending transactions): Zero the balance to avoid inaccuracies.
Fixed assets and depreciation
Review and adjust fixed asset and depreciation accounts as follows:
- Depreciation: Ensure consistent application of depreciation methods aligned with tax tables.
- Work-in-progress assets: Reclassify completed assets as fixed and begin depreciation.
- Improvements and investments: Capitalise expenses that extend the useful life or capacity of an asset, avoiding classification as repairs.
Impairment and provisions
Review impairments and provisions to ensure they comply with tax criteria:
- Valuation adjustments: Recognise the impairment of doubtful receivables if they meet tax criteria, such as being overdue for over six months or involving an insolvent debtor.
- Provisions: Verify that provisions comply with tax requirements for deductibility.
Tax planning and deductions
- Carrying forward tax losses: Utilise up to 70% of the prior tax base or up to €1 million, depending on the situation.
- Tax deductions:
- R&D&I: Deduct between 12% and 25% of eligible expenses.
- Job Creation: Claim up to €12,000 per employee with a disability hired.
- Donations: Apply deductions between 40% and 50%, depending on the case.
- Capitalisation reserve: Reduce the tax base by 10% of the increase in equity, provided it is maintained for five years.
The financial and tax year-end closing not only ensures compliance with regulations but also provides a clear snapshot of your company’s financial health. By taking this opportunity to plan effectively, you can make strategic decisions, avoid penalties, and optimise tax savings.
If you need assistance with your financial or tax year-end closing, LEIALTA has a team of specialised advisors ready to guide you through this process and ensure compliance with all your obligations.
