Expenses on fringe benefits (employee benefits) are various social benefits granted to workers and employees in addition to remuneration on the basis of their employment or management contract in Bulgaria. They do not constitute remuneration for work performed and are not related to the amount of remuneration. In order to be treated as expenses on fringe benefits, these benefits must be available to all workers and employees and not only to some of them. In general, the expenses on these benefits are divided into two: such, provided in kind and others that due to their character aren’t provided in kind. They can also be direct (the specific benefit is intended for a particular person, e.g. sports card, supplementary health insurance) and indirect - when all employees can make use of them and the benefit is intended for the general public, e.g. for the maintenance of company facilities for recreation and leisure.
I. What conditions need to be met in order for the expenditure to qualify as expenses on fringe benefits and be recognized for tax purposes in relation to the Corporate Income Tax Act (CITA)?
Article 204 in conjunction with § 1, item 34 of CITA addresses the criteria that must be met in order to qualify expenses as social, namely:
- to be provided in kind;
- to be verifiable;
- to be provided to factory and office workers and to persons hired under a management and control contracts;
- are expenses covered under Article 294 of the Labour Code;
- to be provided according to the procedure and manner defined in Article 293 of the Labour Code (by a decision of the general meeting of employees) or according to a procedure and manner determined by the management of the enterprise;
- to be available to all factory and office workers and to the persons hired under a management and control contract. This means that all employees can benefit from employer-provided benefits;
- to be booked as expenses;
Expenses on fringe benefits which are not provided in kind but in the form of money to employees or persons employed under management contracts are not taxable under the provisions of the CITA. These amounts qualify as personal income and are taxed under the terms and conditions of the Income Taxes on Natural Persons Act.
II. Which expenses on fringe benefits are not taxable from the point of view of the CITA?
Expenses on fringe benefits of contributions to supplementary voluntary insurance and life insurance of up to BGN 60 per month per employee are tax-exempt. For this purpose, however, the taxpayers must not have any public-law enforceable obligations.
Expenses on fringe benefits, granted in the form of food vouchers worth up to BGN 80 per month per employee are also tax-exempt. In order to make use of this tax concession, the conditions listed under Art. 209, para. 1, nos. 1-3 CITA must be fulfilled at the same time:
- the agreed basic monthly remuneration of the person in the month of provision of the vouchers is not lesser than the average monthly agreed basic remuneration of the said person for the last preceding three months;
- the taxable person does not incur any coercively enforceable public obligations by the end of the month during which the expenses on vouchers are charged;
- the vouchers are provided to the taxable person by a person which has obtained authorization to carry on operator business from the Minister of Finance on the basis of a competitive procedure.
However, if the voucher costs exceed BGN 80 per person and BGN 60 for the additional voluntary insurance and life insurance, then a tax of 10% must be paid on the difference over BGN 80 for vouchers and BGN 60 for the additional voluntary insurance and life insurance. If the company does not qualify as an operator under the CITA as mentioned above, it is liable to tax on the full amount of the expenditure.
Expenses on fringe benefits for transport from the place of residence to the place of work and vice versa for employees provided in kind are tax-free. However, this does not apply if the transport is provided by car or additional bus services. The additional bus service are those with an approved route timetable that allows stopping, alighting and boarding at the request of passengers at the designated places and complements the main bus routes without completely duplicating them.
However, if the transport by car is from inaccessible and remote areas and the taxable person cannot carry on his business without incurring this expense, then he is exempt from tax.
III. Which expenses on fringe benefits are not subject to contributions?
- Funds, granted for the account of expenses on fringe benefits for the upkeep of canteens (including cheaper canteen meals
- Funds, granted for the account of expenses on fringe benefits for the maintenance of children day-care facilities;
- Funds, granted for the account of expenses on fringe benefits for the maintenance of holiday bases;
- Funds, granted for the account of expenses on fringe benefits to satisfy cultural needs of workers and employees;
- Contributions for additional voluntary pension insurance, voluntary health insurance and voluntary unemployment insurance and professional qualification;
- Lump-sum allowances in cash or in kind, provided to workers and employees for medicines, prolonged sickness, childbirth, death of a family member or other accidental events;
- Funds, provided in the form of food vouchers to workers and employees, including those working under management contracts, in compliance with the provisions of the CITA. I.e. if the amounts exceed BGN 80 and the additional requirements of the CITA do not apply to the enterprise, insurance contributions must be paid on the entire amount of the expenses (in both cases the contribution assessment ceiling must be taken into account).