How to Keep Accounting Records for Tax Purposes
Good records are the quiet foundation of staying on the right side of the tax system. In Timor-Leste, taxes are reported on a monthly tax return, and that return is only as reliable as the paperwork behind it. If your records are tidy, the return takes minutes and you can prove every number. If they are scattered, every month becomes a scramble.
This article walks through what to keep, how to organise it, and how to keep it safe.
What records you actually need
At a minimum, keep evidence of everything you earn and everything you spend.
On the income side, that means your sales invoices and receipts. If you charge Services Tax, the 5% that applies to hotels, restaurants, bars and telecom on monthly turnover above $500, your records need to show taxable turnover clearly so the monthly figure is easy to total.
On the expense side, keep supplier invoices and receipts. A bank statement line is helpful, but it is not enough on its own. You need the underlying document that shows what was bought and from whom.
Wage records deserve special care. Wage Income Tax of 10% is withheld by the employer on resident wages above $500 a month, and social security involves both employer and employee portions. Keep payroll calculations, the amounts withheld and the payments made, so you can show how each figure was reached.
Payments such as rent, royalties and certain services can attract withholding tax. Keep the contracts and payment records for these, so it is clear what was paid, to whom, and what was withheld.
Organise as you go, not at the deadline
The single biggest improvement most businesses can make is to record transactions as they happen rather than in a panic at month end.
Set a simple routine. Each week, enter your invoices and receipts, match them to the bank, and file the documents. Small and regular beats large and rushed every time.
Reconcile your bank account every month. This means checking that what your books say matches what the bank says. Reconciliation catches missing entries, duplicates and errors before they reach your tax return, where they are much harder to fix.
Keep business and personal money separate. A dedicated business bank account makes your records cleaner and your tax position far easier to defend. Mixing the two is one of the most common reasons books become a mess.
Store records safely and keep them long enough
Tax records can be requested after the period they relate to, so keeping them is not optional and throwing them out early is a real risk. Retain your records for the period required, and when in doubt, keep them longer rather than shorter.
Digital storage is your friend. Photograph or scan paper receipts, which fade and tear, and store them in clearly named folders. A clean filing structure, organised by month and by type, means you can find any document in seconds.
Back up your data. If your records live in one place only, whether a single computer or a single drawer, one accident can wipe out years of work. Keep at least one secure copy somewhere else.
Why it matters beyond the tax return
Solid records do more than satisfy the tax authority. They show you, in real time, whether the business is making money. They make it possible to plan, to borrow and to sell the business one day. They also turn any future review or audit from a frightening event into a simple matter of handing over what you already have.
If your current system is more shoebox than spreadsheet, you are not alone, and it is fixable. Start with the routine above, get one clean month behind you, and build from there. The effort compounds, and within a few months the monthly tax return stops being something you dread.
This article is general information, not advice. Rules and rates change and your situation may differ. Talk to us before acting on anything here.