Accounting of notary services
Inspectors that conduct tax audit pay particular attention to accounting of services used by companies. This is due to the fact that work performed by third-party experts is a vulnerable element from the perspective of financial and tax statements, non-compliance of such operations with statutory requirements can be proved quite easily. This is why taxpayers are obliged to substantiate the economic appropriateness of expenses and provide documentary evidence for them. In addition, inspectors that conduct audit pay attention to the connection with the activity and generation of income. Consequently, it is crucially important to register correctly the expenses for notary services in accounting and tax records.
Any commercial and non-commercial organisation carrying out economic activities seeks notary services at least occasionally. This is why correct accounting of notary services is necessary for all companies irrespective of their form of ownership, availability and number of employees.
Experts charge fees for legal support, and, if they work for a state body, organisations may be required to pay also the duty the rates of which are enshrined in the Tax Code. If a company or an individual turn to a notary office, they pay a notary fee – the cost of professional work. As a rule, it is identical to the duty. Documents issued by state and private notaries have the same legal effect.
Expenses for notary advice and services are subject to accounting as well as all other expenditures. However, they are recorded only within the limits of fees established by the tax legislation. This is why accounting of notary services is performed according to the purposes of expenses and whether the duty or a notary fee is charged in this case.
In accounting of notary services, the company’s costs to pay for notarial acts can be considered as expenses for normal activities. However, this requires legal assistance in the daily operation of the company. These expenditures can be considered as administrative, then they are recorded in the account “General Business Expenses”. If operation of the company is connected with trade, and expenses are required to sell products, they are recognised as selling. The costs of legal support are recorded in the account “Sale Expenses” in this case.
For the correctness of tax documents, payment for legal services is recorded along with other expenses which are required to produce and sell goods. It is important that the costs are recorded within the limits of the fees established by the Tax Code. Expenses for services of state or private lawyers above the established fees are not taken into account during determination of the tax base.
Article 252 of the Tax Code of the Russian Federation is also followed to assess the amount of tax. According to it, only the costs that are substantiated and supported by documentation are recognized as expenses. This is why the fact of paying money to a lawyer must be confirmed by a document, which is certified with a signature and a seal of a notary. This document is necessary also for accounting of notary services. As a rule, receipts are used as documentary evidence. However, there is a whole range of requirements for them:
- they must be made in compliance with the requirements of the legislation;
- it is necessary to specify the following details stipulated by the Law “On Accounting”: name of the document, date, name of the economic entity that prepares the document and many other details.
Other documents may be used instead of receipts, but also they must comply with a special form, in particular, the text must include information about the purpose of the payment, which makes it possible to make a conclusion about the essence of the provided service, as well as other details stipulated by the legislation. Companies can confirm expenses for professional assistance of lawyers also in another way: by providing an extract from the register of notarial acts. All notaries without exception keep this register, however, it is necessary to make a written request to obtain an extract.
To avoid any claims from regulatory authorities during the audit, it is also possible to use supporting documentation for payments that is issued by notaries. It serves as evidence of expenses only if notary assistance was provided to the company itself rather than personally to its employee. Use of lawyer’s services must pursue the objectives of financial and economic activities of the company as well. Therefore, an employee contacting a lawyer must act on behalf of the company by virtue of the issued power of attorney. Please note that if employees of the company act without a power of attorney, they are considered as individuals in tax accounting.
How to write off expenses that exceed the limits
The actual cost of notary work often exceeds the fees established by law. How to register the expenses in this case? They can often be recorded as expenditures on other grounds. Sometimes it is possible to use the fact that notary offices provide a wide range of services including legal, advisory and informational. Their list has to be open according to the Tax Code. Therefore, companies may record payments to lawyers as expenditures for production and sale.
Please also note that the fees are established not for all types of services rendered by notary offices. This is why experts may determine their price independently, and they can be recorded in documentation without any difficulty.
In accounting of legal support, it is important to remember about the restrictions set by the Tax Code of the Russian Federation, in particular: expenses shall include only those notary fees that are charged for issue of documentation required for operation of companies. Expenses for legal assistance borne before official registration of the company are not recorded in tax documentation since the company did not exist at the corresponding time.
Therefore, to avoid problems associated with breach of the tax legislation of the Russian Federation, companies should keep accounting and tax records of notary services, and the expenses for legal assistance must be supported by documentation and substantiated. Reasonableness of notary services consists in their economic appropriateness.
VALEN Company offers legal assistance for commercial and non-commercial organisations, individual entrepreneurs and individuals. We deal with tax and accounting issues, advise business. Our company cooperates with Russian enterprises and foreign organisations doing business in Russia. We provide notary and legal advocacy support as well as represent our clients in court. We will also undertake the issue of official documentation for the rendered services. However, even under these circumstances, it is important to initially agree with the lawyer upon division of the amount of payment into two parts: notary services as such and all other types of services.
Please feel free to contact us on our number +7 (495) 7-888-096 to get professional advice and request legal assistance. You can also make an appointment to meet the experts in our Moscow office.