The income of a Sole Proprietorship with limited liability (Ltd) are recognized according to the principles of the Accounting Act and the National Accounting Standards (NSS) or International Financial Reporting Standards (IFRS), depending on which standard applies. For accounting and tax purposes, the institutions (such as the National Revenue Agency - NRA) recognize different types of revenue, which must be accounted for in the accounting of the EOOD.

Main types of income, which are recognized as EOOD

• Income from core activity: This is the revenue, generated by the main economic activity of the EOOD, which is described in the articles of association of the company, and usually include:

– Income from the sale of goods - if the company is engaged in retail or wholesale trade.

– Income from the sale of services - if the main activity of the company is the provision of services (for example, IT services, consulting services, accounting services and others).

– Production revenue – if the company manufactures and sells products.

– Interest income: If the EOOD has deposits or provides loans to other companies or individuals, interest income is recognized as financial income. They are subject to corporation tax.

– Rental income: If the company leases real estate or movable assets, rental income is also recognized as income and subject to taxation.

– Dividend income: If the EOOD holds shares or shares in other companies and receives dividends, these revenues are recognized as revenues from financial investments. They are recorded as financial income and are subject to taxation.

• Proceeds from the disposal of assets:

Sale of fixed assets – if the EOOD sells fixed tangible or intangible assets (e.g. buildings, cars, cars), proceeds from the sale are recognized as proceeds from disposal of assets.

– Sale of financial assets – if the company sells shares or other financial instruments, income from this activity is also recognized.

– Income from funding or grants: If the EOOD receives subsidies or grants (e.g. on European programs), they are recognized as other operating income. Depending on the specific conditions of the financing, they may be taxable.

– Other operating income: This income includes all other types of income, which are not directly related to the main activity of the company, but they are still part of its operational activity:

• Income from the sale of waste.

– Income from casual activities, such as selling old goods or materials.

• Benefit income (e.g. in insurance events).
• Conditions for revenue recognition

The income of an EOOD is recognized and accounted for at the moment, in which the following conditions are met:

– There is a likelihood of an economic benefit - there must be a reasonable certainty, that the company will receive the corresponding revenues.

– The income can be reliably estimated – the value of the income must be determined or can be reliably estimated.

– The company has fulfilled its obligation – for example, when selling goods, revenue is recognized, when the goods are delivered, and when providing a service – when the service is performed.

Tax recognition of income

For tax purposes (when calculating corporate tax), revenue must be recognized in the tax period, in which they are charged, whether received in money or otherwise. The income is included in the annual tax return, which EOOD submits to the National Revenue Agency until 30 June of the following year.

All income, which EOOD generates from its business activity, financial operations, asset sales, rents or other sources, are recognized and reported in the accounting, and for every transaction it is important to comply with accounting standards and tax requirements. The correct recognition of income is essential for correct financial reporting and compliance with tax obligations.

For a detailed consultation, contact the Marilena-Consult EOOD team.