4 things every Private Limited Company in Sri Lanka must do to
Nobody will tell you this but when you register your business as a Private Limited in Sri Lanka, there are 4 things you must do every year. If you don’t do them, you’ll be in trouble!
Here they are.
Step 1 – Maintaining Monthly And Annual Accounts
Simply put, you need to keep your monthly accounts. This is usually known as bookkeeping.
Why Do It?
Every Limited Liability Company in Sri Lanka should maintain monthly accounts and the directors should ensure that annual accounts are accurately prepared on time (Sec 148,150 and 151 of Companies Act, No 07 of 2007).
Also, every business owner needs to understand what’s going on in their business. Monthly accounts are by far the most important indicator to understand what’s happening in your business.
Don’t be like a Pettah Mudalali where you do cash business without knowing what’s happening in your business. Most of them don’t even know whether their business is profitable or not! Monthly accounts will give you a snapshot of what’s going on in your business.
What To Do?
You need to maintain all accounts on a given month. As a practice, accountants record transactions daily and prepare financial statements monthly. You need to maintain the Cash book daily with Invoices and payment vouchers.
How To Do It?
There are 3 ways you can do this.
- On your own (You can use a software like Quickbooks but you need to know a bit about accounting)
- Hire an accountant (You can hire an accountant but this might cost you a lot)
- Outsource (You can outsource this to a specialized accounting firm for a low cost. You can always hire an accountant down the line when your business grows)
When To Do It?
Sri Lankan financial year starts on every 1st of April and ends on 31st of March (365 days) except for Banks and other specialized businesses. That’s usually known as a business year. (If an investor asks how much your business made in the last year, he or she is referring to this. It’s known as the 2019/2020 financial year.)
You need to maintain accounts for every month in a financial year. By the time a month ends, you need to get your accounts done for that month.
Then you have to prepare your annual accounts. That’s cumulative accounts for the financial year ended.
Even if you don’t maintain your monthly accounts, you need your annual accounts because this is what you will use to audit your accounts. That’s the next step.
Let’s dive in.
Step 2 – Audit Your Accounts
Every year a Limited Liability company has to audit their accounts.
A Limited Liability Company has to audit all the source documents of the transactions which occurred during the financial year such as invoices, payment vouchers, bank statements, and any other documents that are requested by the auditor.
Why Do It?
Because it’s a legal must. Every Limited Liability Company in Sri Lanka has to audit its accounts annually.
Auditors assure the financial statements which are prepared by Accountants.
Auditing assures the accuracy of annual financial reports of your company. This is to ensure that you’re sharing accurate information with relevant parties like tax consultants and IRD (Inland Revenue Department.)
Auditors are qualified and experienced Chartered Accountants, who are legally qualified to conduct audits, observe company historical financial information, company processes, etc. Based on their audit procedures Auditors give an opinion on the Company’s financial statements.
How To Do It?
To get your accounts audited, you need a Practicing Chartered Accountant or an Audit Firm. How can you find one? There are so many Chartered Accountants that provide auditing services.
If you’re looking for a Chartered Accountant to audit your account, you can contact us here.
What To Do?
Once you find a Practicing Chartered Accountant or an Audit Firm, all you have to do is handover your annual accounts and other related documents. They will take care of the rest.
When To Do It?
Once the financial year is over on the 31st of March, you’re required to submit for the tax before the 30th of November. By then you need to have your audited financial reports. The auditor will need time to conduct the audit based on the business, therefore sooner the better.
Step 3 – Filing Tax Returns
Why Do It?
Every company in Sri Lankan is liable to pay taxes based on the annual profit. This is a legal requirement. If you don’t do this, your company will be in trouble.
When it comes to company tax in Sri Lanka, there are some misconceptions. Let’s address those first.
- Should you pay tax in the first financial year?
Yes you should. From the inception of your company, you need to submit tax. For an example, if you start you company in 1st of October 2019, you need to pay taxes from 1st of Oct 2019 to 31st of Mar 2020. There’s no exception.
- Should you pay tax if you haven’t conducted any business since incorporating your company?
Even if you haven’t done any business, you need to file the recommended documents to Inland Revenue Department. That includes your annual audited accounts.
- Should you pay taxes if you made a loss? If you didn’t make a taxable profit in a given financial year, you don’t have to pay tax (However sometimes you can make a taxable profit even though you have accounting losses. Let’s not dig deep into that now). Anyhow you still need to file the audited reports to Inland Revenue Department.
That’s why this step is called “filing tax returns” instead of paying taxes. No matter what goes on in your business, every year you need to file for taxes in the Inland Revenue Department. There’s no escape.
How To Do It?
Once you have your audited reports you need to hire a tax consultant or a tax firm.
If you’ve outsourced your accounting to a company like Balance, there’s a good chance that they will provide tax services.
If you want to learn more about our tax services, click here.
What To Do?
The tax consultant will identify if the company has any tax liability for the previous financial year. If there is a liability, your company has to pay for it before the 30th of November. You can deposit the amount to the IRD Bank of Ceylon account.
Then you have to submit income tax returns to the Department of Inland Revenue before the 30th of November every year. This is the filing of relevant documents. This is usually done by your tax consultant.
What Documents Should You Submit?
Audited report, Tax Return, Tax payment slip if you have paid taxes.
When To Do It?
You need to pay income tax quarterly based on the estimated profit. And if there is a balance remaining you need to pay before the 30th of November.
All the companies submit their taxes annually. You can do the same. That means if there is a tax liability, you need to pay it before the 30th of November and submit the relevant documents.
Step 4 – Submitting Annual Returns To Registrar Of Companies
Next you need to submit annual returns including audited accounts to the company registrar.
Why Do It?
Submitting annual returns and audited reports to Company Registrar is a legal must. Every private limited in Sri Lanka has to do this. While financial reports give you an overview of the financial aspect of your business, Annual Return provides a snapshot of what has happened in the non-financial aspect of your business.
What Documents Should You Submit?
You need to submit Form 15 including the share register, audited reports, changes of directors and secretaries etc.
How To Do It?
Usually this is done by your Company Secretary.
When To Do It?
Every Private Limited has to conduct an Annual General Meeting each year. The first Annual General Meeting doesn’t have to be held within the first year but it has been held within 18 months of the incorporation. After the first meeting, you need to hold an Annual General Meeting every year.
The Annual Return has to be filed within 14 days after the Annual General Meeting.
One of the reports in the Annual Return filing is your company’s audited reports. So you need to wait until your audited reports are finalized.
Based on that you can decide the timeline.
