Governments have recently encountered serious problems with regard to the so-called “sharing economy” or the “common usage”. This term arose from the need for cost optimization and can be expressed through the following question: Why should I buy a certain asset when I can borrow it from someone for a certain period of time for a favourable price? This means that the sharing economy relies on an asset that is not continuously used by its owner, thus, it creates an opportunity to lend that asset to other people for a certain period of time. The objects of this economy can include belongings and/or services of all kinds, e.g. vehicles, bicycles, agricultural and photographic technology, clothing, construction tools, fitness equipment, sports equipment, apartments, parts of apartments - rooms or even just sofas as well as taxi or luggage transport services. Examples of similar lending of assets are known around the world and have not only existed for a few years. On the contrary, this phenomenon has existed for a long time, it is now just made much easier by technical progress. There are hundreds of websites that connect people looking for and offering specific goods or services.

Like any new phenomenon, the sharing economy creates initial difficulties that need to be overcome. Here are some of the main problems that governments face in this regard:

1. The first problem concerns the collection of taxes and fees for these services. There are two reasons for this problem:

• The first reason is the unlimited supply of goods and services that can be offered in this way. It is impossible to include all possible options even if the laws are constantly changing.
• The second reason is the impossibility created by technological progress, or at least the extreme difficulty of being able to trace the goods and services lent. If in the beginning the group of people to whom one could offer a certain good or service was limited to the neighbouring districts, today it has grown by a hundredfold.

Some believe that а great percentage of the people are not even aware that they are making taxable supplies within the meaning of the law and have to pay taxes on them. For this purpose, the collection and storage of the data should also be worked on in order to be able to control tax payments.

2. Unfortunately, tax collection is far from being the only problem. Governments also have certain consumer, privacy and competition protection issues to consider.

• According to the Bulgarian Consumer Protection Act, the basic rights of consumers include the right to information, the right to protection from risks arising from the purchase of goods and services that could harm their body, health or property, and a right to protection of their economic interests when purchasing the goods and Services. The insufficient regulation of the sharing economy could lead to a multitude of lawsuits from dissatisfied consumers.
• The scandalous misuse of Facebook users' personal data by Cambridge Analytica is still a hot topic today. After the entry into force of the new Regulation (EU) 2016/679, some websites have tightened up their measures in this regard, but for the majority of them this process is still pending. The more difficult control of sharing can also lead to more serious problems in this regard.
• Unfair competition is such a breach of the generally accepted rules and standards of business competition that leads to the violation of legal regulations and unwritten rules of fair business conduct. The Bulgarian Commission for the Protection of Competition is responsible for supervising the compliance with the Law on Protection of Competition, which regulates matters related to unfair competition. In general, it concerns the prohibition against slandering the reputation of competitors, misleading as to the characteristics of goods and services, misleading and comparative advertising, counterfeiting of products/services likely to mislead the consumer, unfair poaching of customers and disclosure of trade and business secrets. Violation of these principles could lead to the destruction of certain businesses, disruption of the organization of the production process and impeding innovation and technical progress.

The best-known examples of the sharing economy in Bulgaria include Uber, which offers ridesharing, and Airbnb, which rents out rooms. Uber's operations in Bulgaria were suspended some time ago due to the company's dispute with the Commission for the Protection of Competition - in our view, a purely lobbyist decision to protect the local taxi industry. The renting of real estate via the Airbnb platform continues to this day.

As mentioned above, the big question that remains for the state is how to collect information on revenues from Airbnb “landlords” for tax purposes. This goal can undoubtedly be achieved in two ways. The German tax authorities provide an example for this. In order to find out who generated income via the platform and whether they paid taxes on it or not, the German tax authorities sent an inquiry to the portal's headquarters in Dublin, Ireland. After the list of names has been issued, the state checks whether the legal regulations for the rental have been complied with.

Taxation of rental revenue from Airbnb in Bulgaria

Here we will look at some taxes that are levied on rental income from platforms such as Airbnb, Booking, and others.

1. Corporation tax according to the Corporate Income Tax Act
If the income accrues to a legal entity, taxation is carried out in accordance with the Bulgarian Corporate Income Tax Act. Profit is calculated at 10% on an annual basis.

2. Tax under the Personal Income Tax Act
If the lessor is an individual and not subject to license tax, he is obliged to declare the due taxes by filing Declaration No. 55 of the Personal Income Tax Act. The tax return is made on a quarterly basis. If the landlord is a legal entity, he must withhold the tax when paying the rent. The landlord then has to submit a declaration in accordance with Art. 55 of the Personal Income Tax Act and pay their taxes to the tax authorities.

Registration Deadlines and Tax Rate
The tax declaration according to Art. 55 of the Personal Income Tax Act is made by the last day of the month following the quarter. The tax return for the first quarter (January – March) must be submitted by April 30th, for the second quarter (April – June) by July 31st, and by October 31st for the third quarter (July – September). The same deadlines apply to the declaration and tax payment, regardless of whether the income was earned by an individual or a company that withheld the tax from the rent paid. The tax rate is 10%.

3. Patent Tax
The lpatent tax is to be paid by the individuals who rent temporarily via Airbnb, Booking and others. It is important to note that only natural persons and sole traders (ET) can be subject to patent tax. This tax cannot be applied to commercial companies, even if they carry out patent activities.
Patent tax is levied on accommodation with up to 20 rooms rated one or two stars or registered under the Bulgarian Tourism Code - the tax is set per room depending on the location of the accommodation and varies between BGN 25 and BGN 250. Typical for this tax is that the assessed amount applies for the year, the income of the person in the last year (Art. 61z section 1 of the Local Taxes Act) must not exceed € 51.129 (BGN 100.000 till 2025) and the person according to the VAT Act (Art. 61z section 2 of the Local Taxes Act), with the exception of the registration for the provision of services in accordance with Art. 97a and for intra-community acquisitions in accordance with Art. 99 and Art. 100 section 2 of the VAT Act.

Those subject to license tax submit the tax return on submission and declare circumstances relevant to the tax assessment by January 31 of the current year. If the business activity begins after this date, the tax return must be submitted immediately before the activity begins.

The license tax is to be paid in four equal payments as follows:

1) For the first quarter – up to January 31;
2) For the second quarter – until April 30;
3) For the third quarter – until July 31;
4) For the fourth quarter – ended October 31.

If the property does not meet the requirements for license tax, the Personal Income Tax Act then applies for the taxation.

4. Tourist tax
The tourist tax is charged for all overnight stays, regardless of whether the landlord is an individual or legal entity. As the tourist tax is a municipal tax itself, its amount is imposed by the Municipal Council and by a corresponding order, varying from BGN 0.20 to BGN 3.00 per overnight stay. The tax return for the past year must be submitted by January 31st. The due tax must be paid by the taxpayer by the 15th day of the month following the month in which the overnight stay was made. The tax is to be paid to the municipality where the property is located.

5. Tax liabilities of individuals and legal entities under the VAT Act when renting real estate
The platforms Airbnb and Booking are foreign suppliers. And the landlord (individual or legal entity) is the recipient of mediation services. In accordance with Art. 97a, section 1 the recipient of the service must be registered under the Bulgarian VAT Act 7 days before the service is rendered. The registration according to Art. 97a section 1 is a special registration, and in this case the registered person has no right to deduction of VAT tax credit. Registration is done by submitting an application for registration under the VAT Act to the National Revenue Agency, and the registration procedure is usually completed within three business days of submitting the application. Persons registered under this regime owe VAT only on services received from the relevant foreign persons. This means that persons are not required to charge VAT on their supplies of goods and services.

If desired, the person may also be registered under the VAT Act, according to Art. 100 of the VAT Act, and VAT registration is obligatory when a turnover of € 51.129 (BGN 100,000) is reached (Art. 96 of the VAT Act). The taxation with the license tax does not apply to the VAT registration. The taxpayer has each sale taxed by 9 per cent. To benefit from this reduced rate of 9%, individuals must have registered or categorized their tourist facilities in accordance with the Tourism Act.

6. Liabilities of the natural person when renting real estate according to the Social Insurance Code
If the property is rented out on a long-term basis (for residential purposes, business activities of a legal entity), no insurance premiums are to be paid. A social security obligation only arises if the landlord is unemployed and only health insurance contributions (amounting to 8% per cent) have to be paid on the taxable income.

Unlike long-term leases, short-term leases where individuals engage in commercial activities require those individuals to register as self-insured persons and pay social security and health insurance contributions.
Registration is done by submitting a declaration for registration as a self-insured person to the National Revenue Agency within 7 days of starting the activity.
The requirement to register as self-insured persons does not depend on the chosen taxation option. This means that this obligation arises both for persons who are subject to patent tax and for persons who are taxed as sole traders.

Contribution amounts and covered social risks
Self-insured persons are subject to compulsory social insurance for disability due to general illness, old age, and death, i.e., for the DOO's "Pensions" fund. At their discretion, they may also insure themselves for general illness and maternity - the General Illness and Maternity Fund of the National Social Security Institute, with the amount of insurance contributions being as follows:

• insurance contributions for persons born before January 1, 1960;
• for the Pension Fund of the National Social Security Institute (NSSI) – 19.8%;
• for health insurance – 8%;
• if they have chosen to also insure themselves for the General Illness and Maternity Fund of the National Social Security Institute, the insurance contribution for this fund is 3.5%;
• insurance contributions for persons born after December 31, 1959;
• for the Pension Fund of the National Social Security Institute (NSSI) – 14.8%;
• for health insurance – 8%;
• Universal Pension Fund – 5;
• if they have chosen to also insure themselves for the General Illness and Maternity Fund of the National Social Security Institute, the insurance contribution for this fund is 3.5%.

7. Annual tax return according to Art. 50 of the Personal Income Tax Act
If an individual person has rented their property on a long-term basis, they must submit an annual tax return in accordance with Art. 50 of the Personal Income Tax Act by April 30th of next year. The tax return must be filed regardless of whether the income tax has been paid in advance or not. If the person has paid license tax during the year, they are exempt from submitting a tax return in accordance with Art. 50 of the Personal Income Tax Act.

Although individuals are taxed under the Local Taxes and Fees Act (LTFA) for performing patent activities, they are still required to file an annual tax return under Article 50 of the Income Tax Act (ITA).
By submitting the return, individuals should declare their income generated from patent activities by completing Appendix No. 7 for income from activities subject to patent tax.
It should be noted that the declaration of this income is for information purposes only and does not create any additional tax liability for individuals.
The return must be filed by April 30 of the year following the year to which it relates.