Many changes in the Bulgarian tax legislation came into effect with the beginning of the New Year. In this article we will examine the main amendments to the Tax and Social Security Procedure Code (TSSPC), Corporate Income Tax Act (CITA), Personal Income Tax Act (PITA), Value Added Tax Act (VATA).
The majority of changes were introduced in the Accounting Act, due to the need for transposition of European directives, which led to the development and adoption of a completely new Accountancy Act, which will be discussed in a separate article.
Some of the important changes to VATA which came into effect on 1 January 2016, relate to:
- The Bulgarian National Revenue agency published instructions regarding the declaration for the so-called “weekend-tax” – companies, registered under VATA, should submit with their tax return a list of assets used for personal activities until February 14.
The taxable person will have to choose between two options upon purchasing assets: the first is to apply for a full VAT-refund, whereas afterwards VAT should be applied for the personal use of the good purchased; the second option is to take advantage of the VAT-refund in proportion to the relation of the use for business purposes and the personal use of the asset.
- Supply of goods - Art. 6, para. 4 stipulates that, for the purposes of VATA, the separation or delivery of goods for personal use or use by the taxable person, the owner, the employees or for purposes other than the independent economic activity of the taxable person caused by extreme necessity or force majeure, is not considered a supply of goods.
- Supply of services - a change is made to Art. 9, para. 4, item 5 VATA, according to which the supply of services for personal use or use by the taxable person, the owner, its employees or for purposes other than the independent economic activity of the taxable person caused by extreme necessity or force majeure, is not considered a supply subject to VAT.
- The place of supply of goods where the goods are transported under Art. 14 of the Act is the territory of the Member State where the transport ends when the goods are dispatched or transported by or on behalf of the supplier out of the country. The place of supply of goods in distance selling is the country when the transport ends on the territory of the country.
- Health-related supplies - under the Act, the provision of medical care by a person exercising a medical profession under the Health Act is considered an exempt supply.
- The refund of overpaid tax as per the VAT return for the application of a special regime - according to Art. 159e, para. 4, tax overpaid by a person registered pursuant to Art. 154 (special registration) or for the application of the regime within or outside the EU in another Member State shall be refunded to a bank account in a bank other than a Bulgarian bank or a Bulgarian branch of a foreign bank, such that all bank fees in connection with the tax refund and exchange rate are borne by the taxable person.
Among the major amendments to CITA effective from the beginning of this year, the below are the most important:
- Documentary support - accounting expenses are recognized for tax purposes when supported by a primary accounting document within the meaning of the Accounting Act, which document reflects the reality of the business transaction. Accounting expenses are also recognized when the primary accounting document is issued by a person who is not a legal entity within the meaning of Art. 2 of the Accounting Act and the document lacks part of the information required by the Accounting Act, given that this document reflects the reality of the business transaction.
- Income not recognised for tax purposes - accounting income as per CITA is income accrued from distributed amounts to the extent that such amounts are recognized for tax purposes and / or lead to a reduction of the tax financial result of the distributing person, regardless of how they are accounted for at the level of this person.
- Retention of advance payments - taxable persons exempt from corporate income tax for the current year are exempt from the respective set of advance payments, proportionate to the exempt amount. For the year in which an order under Art. 189, item 1, letter "b" has been obtained, retention of the specified advance payments shall be made by the month / quarter, following the month in which the order was issued.
- Declaring and paying tax upon termination of the legal entity - the corporate income tax due under Art. 159 is declared and paid within 30 days from the date of entry of the termination. The corporate income tax at termination is deducted from the annual corporate income tax for the year of termination, or the corporate income tax due for the latest tax period, where the date of filing the request for deletion in case of liquidation, respectively the date of deletion in case of bankruptcy is in the same year as the date of termination.
The most significant amendments to PITA, which entered into force on 1 January 2016, concern:
- Advance payments on income from other sources under Art. 35 - a new Art. 44a has been added. According to para. 1 of the latter, income under Art. 35 is subject to advance payments where the payer of the income is a legal entity or a self-employed person. The tax amount is calculated by multiplying the taxable income under Art. 35 by the 10% tax rate. Para. 2 of the same article states that the tax under para. 1 shall be determined and deducted by the payer of the income upon its payment. According to para. 3, where the recipient of the income under Art. 35 is a person with a reduced capacity of 50% or above, the tax under para. 1 is due after the taxable income of the person from all sources of income acquired from the beginning of the tax year and subject to tax on the total annual taxable base, reduced with the mandatory social security contributions withheld or paid at the expense of person, exceeds BGN 7,920.
- The place of payment of tax by the recipient of the income - the tax under Art. 43, 44, 46 and 48 is paid to the state budget to the account of the territorial directorate of the National Revenue Agency as per the permanent address of the resident individual, including the sole trader. The tax on the income of a non-resident person, received by proxy domiciled in the country, is paid to the state budget to the account of the territorial directorate of the National Revenue Agency as per the permanent address of the proxy. When the place of payment of the tax cannot be determined, it is paid to the state budget to the account of the territorial directorate of the National Revenue Agency - Sofia city.
Tax and Social Security Procedure Code
Changes in the TSSPC that entered into force relate to:
- Access to information on electronic media - according to Art. 39 TSSPC, audited or inspected persons are obliged to provide the revenue authorities access to their automated systems, products or archives if the collection, storage and processing of information under Art. 38 are performed in such a manner.
- Disclosure of tax and social security information - some additions have been made to Art. 74, according to which data representing tax and social security information must also be provided upon written request of the Director General of the European Anti-Fraud Office or a person appointed by him, in connection with an administrative investigation; upon written request by the customs authorities, in connection with exercising their powers under the terms and conditions set by the Executive Director of the National Revenue Agency; upon request of the Minister of Finance or another authority designated by law in connection with their powers under Art. 31 of the Civil Procedure Code and Art. 3 of the International Commercial Arbitration Act.
- Tax audits and checks - where not otherwise provided by law, the deadline for performing a tax check cannot be longer than six months from the date of the first procedural step, which is certified by a protocol or received request as per Art. 37 (3) TSSPC. If the six-month period proves insufficient, it may be extended by six months with resolution of the authority in charge of the tax check. When the results of the tax check are documented with a protocol, it must be provided to the person within 7 days of its completion.
- The amendment of tax obligations and mandatory insurance contributions - as per Art. 133 (1) TSSPC, where a tax return has been submitted indicating a tax refund request and where a claim for refund has been submitted under Art. 129, the revenue authority may refund the full amount to the bank account of the respective person or postal order, in case of refund of local taxes, to the address specified by the person, such that the payment order or postal order must indicate the number and date of declaration, respectively the claim for refund.