The following article provides quick overview of the most important tax law amendments in Bulgaria, following the Brexit, anti covid 19 measures, data protection measures and the membership request of Bulgaria in the Organization for Economic Co-operation and Development (OECD).
I. Amendments in the Income Taxes on Natural Persons Act (ITNPA)
The natural persons who obtain income from rental and other commercial activity and are not obliged to issue a receipt, shall not point their personal identification number (EGN in Bulgarian) within the documents they issue. The documents shall contain only the name of the persons and shall be issued in 2 copies – one for the tax payer and one for the income receiving person (Art. 9, para. 2 of the ITNPA in relation to Art. 6, para. 3 of the Accounting Act).
The new Art. 22e of the ITNPA provides a new tax relief for improvements and/or renovations of a residential property. This allows domestic and foreign residents from a EU member state to deduct up to BGN 2,000 of the labor costs for improvement and renovation works from their annual tax base. The prerequisites are listed in detail under Art. 22e, para. 1 of the ITNPA. It is important to point out that such relief can be used by all co-owners at the same time, provided that the total amount of the tax reliefs does not exceed BGN 2,000. Otherwise the co-owners would be obliged to pay the tax corresponding to the tax credit to the Bulgarian National Revenue Agency (NRA).
The annual tax declaration of natural persons, exercising commercial activity, including but not limited to sole proprietors and farmers, who are taxed as sole proprietors, shall be submitted to the NRA between 1st of March and 30th of June on the following year. The change in deadline also applies to the annual tax declarations for 2020, which shall be submitted in 2021. For all other natural persons the period for the filing of the annual tax declarations stays the same – between 10th of January and 30th of April on the following year (Art.53, para. 1 of the ITNPA).
According to Art. 67 Para. 4 and 5 of the ITNPA the deadlines for tax payments coincide with the deadlines for submission of the tax declarations – until 30 of June for the sole proprietors, as well as for the farmers, which are taxed as sole proprietors and until 30th of April for all other natural persons.
A small explanatory correction was introduced through Art. 53, para. 6 of the ITNPA with regard to the tax relief for individuals, who submit their declaration according to Art. 50 of ITNPA online.
The prerequisites remain unaffected, as follows:
1) the declaration shall be submitted until 31st of March on the following year;
2) the tax shall be paid within the same period;
3) the person shall not have any unpaid taxes at the time the tax declaration is submitted. The tax reduction of 5% up to 500 BGN remains unchanged.
The amendments of Art 43, para. 8 of ITNPA aligns the conditions for advance tax payments for natural persons, exercising commercial activity, including such exercising commercial activity as sole proprietors and farmers, with the conditions for the advance tax payments for commercial legal entities under the Corporate Income Taxation Act.
1. Temporary tax law amendments, in force until 31st of December 2025:
Art. 152, para. 1 and 2 of the Markets in Financial Instruments Act extends the definition of "disposal of a financial instrument", whereas the “growth markets” are added, which are versatile trading systems that help small and medium-sized businesses capital raise. This amendment reflects within Art. 13, para. 1, it. 3 and Art. 37, para. 1, it. 3 of the ITNPA, which describes the tax-free income according to ITNPA.
Para. 1, it. 12, 13 and 14 of the additional provisions to the ITNPA extends the scope of the definitions for additional voluntary pension and health insurance. As a result, natural persons are now entitled to deduct from the tax base the social insurance contributions they have made not only in Bulgaria, the EU and the European Economic Area (EEA), but also in member states of the Organization for Economic Co-operation and Development (OECD).
2. Other law amendments, which affect the ITNPA:
According to the Law on Amending and Supplementing of the Bulgarian Commercial Register Act, natural persons, acting as sole proprietors and farmers, shall submit their management report only online (Art. 51 of ITNPA in relation to Art. 20, para. 5 of the Statistics Act).
II. Amendments in the Corporate Income Taxation Act:
1. Filing of the annual tax declarations:
The final term for the submission of the annual tax declaration under Art. 92 of the Corporate Income Taxation Act remains unchanged –30th of June on the following years, but a commencement date is being provided – 1st of March on the following year (Art. 92, para. 2 of the Corporate Income Taxation Act). The annual tax declarations shall be submitted within the period 1st of March – 30th of June on the following year. This amendment applies also for the state companies (Art. 252, para. 1 and para. 2 of the Corporate Income Taxation Act), as well as for the persons, who are taxed for their ship management activity (Art. 259, para. 2 and 3 of the Corporate Income Taxation Act). Such entities shall pay their annual tax until the 30th of June on the following year.
Art. 219, para. 4 of the Corporate Income Taxation Act repeals the obligation for submission of a tax declaration for income, obtained from auxiliary and secondary activities according to the Gaming Act. This amendment also applies for 2020. According to Art. 219 (5), however, the same persons are obliged to submit a management report between 1st of March and 30th of June on the following year.
2. Amendments concerning the advance tax payments:
Whether an advance tax payment is due or not, and the amount of the advance tax payment shall be decided on the basis of the net income for two years ago, but not for the previous year. Considering the abovementioned the newly incorporated companies shall not pay any taxes in advance for the year of their incorporation, as well as for the following year. The criteria whether an advance tax payment is due or not, as well as their nature (every month payments or quarter payments) remains unchanged.
The declaring of the advance tax payments for the current year is no longer executed through the annual tax declaration for the previous year, but through a separate tax declaration according to Art. 88 and Art. 87a of the Corporate Income Taxation Act. We would like to kindly remind you that this tax declaration has so far only been used for correction of the advance tax payments, but not for their initial registration.
The advance tax payments for the current year shall be declared between 1st of March and 15th of April (Art. 87, para. 1 of the Corporate Income Taxation Act). The final term for the correction of the advance tax payments is being changed to 15th of November for the current year.
The payment terms are also amended:
- the monthly advance tax payments for January, February and March shall be paid until the 15th of April. The advance tax payments for April-November shall be paid until the 15th of the relevant month. The advance tax for December shall be paid until the 1st of December, instead of 15th of December.
- the advance tax payments for the first two quarters shall be paid until the 15th of the month, following the relevant quarter. The final payment date for the advance tax for the third quarter is 1st of December. No advance tax payment is due for the fourth quarter.
The difference between the corporate tax to be paid and the advance tax payments already done was increased from 20% to 25% (Art. 89, para. 1 of the Corporate Income Taxation Act).
3. Other amendments of the Corporate Income Taxation Act:
Art. 55, para. 7 of the Corporate Income Taxation Act introduces a restriction on the annual depreciation rate of up to 100% in relation to software for sales management in the commercial objects and for the devices on which the software is installed (PC, mobile phones, etc.). Such assets shall be written off in full for one year.
The amount of the tax-free meal vouchers is increased to up to BGN 80 per month (Art. 209, para. 1 of the Corporate Income Taxation Act).
The conditions for tax exemption of the social expenses for additional social security contributions and life insurance installments are being changed. Applicable is the lack of enforceable public debts up to the end of the relevant month (Art. 208 of the Corporate Income Taxation Act).
А new Article 130a was adopted within the Bulgarian Tax Insurance Procedure Code (TIPC), which provides a choice of how to proceed with the surpluses reported with the tax declaration. The entity can now choose between the option to offset the surplus with the current/future tax liabilities, also specifying their exact type (taxes, income tax, additional pension insurance or health insurance), or to reimburse the surplus (Art. 129 of the Corporate Income Taxation Act), which was previously valid, but is also subject of an examination by the NRA. If the entity does not exercise its right under Art. 130a of the Corporate Income Taxation Act, Art. 129 automatically applies, with the deadline running from the date of submission of the declaration (tax return).
4. Temporary amendments until 31.12.2025:
In both the Corporate Income Taxation Act and the ITNPA, the scope of the disposal of financial assets is expanded to include the growth markets (Section 1, p. 25, it. D of the additional provisions of the Corporate Income Taxation Act. Thus, trading in financial instruments on such market (Art. 44 of the Corporate Income Taxation Act), the interest income from bonds (Art. 195, para. 6 of the Corporate Income Taxation Act) and interest income from loans, given to foreign persons - issuer bonds or other debt instruments (Art. 195, para. 6, it. 2 of the Corporate Income Taxation Act) which are admitted to such a market, are exempt from tax.
III. Amendments of the Bulgarian VAT Act
1. Amendments related to the billing of the distant sales and the system “Mini One Stop Shop “ (MOSS)
In conjunction with Council Directive (EU) No. 2017/2455 of December 5, 2017 and Council Directive (EU) 2019/1995 of November 21, 2019, some amendments in relation with the previous billing of distance sales and telecommunications services, Radio and television services or electronic services were adopted.
Until now, distance sales, telecommunications services, radio and television services and electronic services have been billed using the mini one-stop shop (MOSS). The guidelines envisage an expansion of the MOSS procedure through the conversion to an OSS concept with regard to all kinds of services that taxpayers resident in third countries and the EU provide to non-taxpayers resident in the EU, as well as with regard to the distance sales of goods by non-taxable persons in front.
There is a threshold of EUR 10,000 without VAT per calendar year for the taxation of distance sales and telecommunications services, radio and television services and electronic services that are provided to non-taxable persons from countries, where the supplier does not reside. The maximum threshold of 70,000 leva for determining the place of supply of distance sales within the state has been abolished.
All EU member-state shall incorporate the changes under these directives into their national law by June 30, 2021. Registration according to the new VAT procedure will start as of 1st of April 2021 and the declarations shall be submitted as of July 1st, 2021. Considering the above previous registrations under Art. 97a and Art. 98 of the Bulgarian VAT are no longer applicable.
1.1. Extension of the scope of the non-EU regulation
In addition to the previous telecommunications services, radio and television services or electronic services, this procedure will include all services provided by taxpayers from third countries to non-taxpayers within the EU as of 1st of July 2021. Taxpayers from third countries will be allowed to choose either a registration for VAT purposes in each individual country or the using of the present procedure.
1.2. Extension of the scope of the EU regulation
As of 1st of July 2021 both the non-EU regulation and the EU regulation will be expanded to include all other services in addition to the telecommunications services, radio and television services and electronic services.
As of 1st of July 2021 the EU regulation will also include intra-community and domestic distance sales of goods. The difference between these two is that in the event of intra-community deliveries there is a delivery of goods between two EU member states and in the event of domestic deliveries there is no such delivery, i.e. H. the goods are already in this country at the time of transport (Art. 14a, para. 5, it. 3 of the Bulgarian VAT Act).
Intra-Community distance selling of goods within the territory of the European Union shall be the supply of goods, for which the following conditions have been simultaneously met (Art. 14, para. 1 of the Bulgarian VAT Act):
- the items are transported or dispatched by the supplier or on behalf of the supplier from one EU member state to another EU member state (Please note, that the registered office of the supplier is irrelevant for this);
- the goods are supplied to a non-taxable person or to a taxable person whose deliveries are not subject to VAT in the Member State, where the transport ends;
- the goods are manufactured within the EU or approved for the free movement of goods, but are neither new vehicles nor objects that are assembled and/or installed by the supplier, second hand goods, art works, collectibles and antiques.
The threshold value for registration according to the EU regulation is EUR 10,000 (or the equivalent in national currency, using the exchange rate published by the European Central Bank for the calendar year (Art. 206, para. 1 of the Bulgarian VAT Act). I.e. VAT is due below this threshold in the member state, where the supplier resides or the transport of the goods begins, and after exceeding this threshold - in the member state, where the transport ends.
In generally the intra-community residents shall be registered in the member state, where they reside and those from third countries - in the member state, where the transport of the goods begins. The deadline for submission of the declaration under this procedure has been extended to the end of the month, following the quarter (Art. 159, para. 4 of the Bulgarian VAT Act).
1.3. Distance sales of goods, imported from third countries (Art. 57a of the Bulgarian VAT Act)
A new legal provision, regulating the distant sales of goods from third countries, such as consignments with a value of maximum EUR 150, was adopted.
Distance sales of goods, imported from third countries or territories shall be supply of goods, for which the following conditions have been simultaneously met (Art. 14, para. 3 of the Bulgarian VAT Act):
- the goods are dispatched or transported by, or on behalf of the supplier, including where the supplier indirectly intervenes in the dispatch or transport of the goods from third countries or territories to the consignee in a Member State;
- the recipient of the supply is a non-taxable person, who is obliged to charge VAT on the intra-Community acquisition of the goods in the Member State, where the transport ends;
- the goods, exept the excise duty ones, are manifactured or sold on the territory of the EU.
The importers of such goods could either pay VAT when the goods are delivered at the border or register themselves using this procedure. If they are registered under this regulation, the importers shall point their identification number (Import One Stop Shop /IOSS/).
1.4. Special regime for declaration and deferred payment of import tax in the event of distance sales of goods imported from third countries or regions (Art. 57b-d of the Bulgarian VAT Act)
Persons, who haven’t chosen the application of the rules for the distance selling of goods imported from third countries or territories, can use the special rules for deferring payment of the VAT in case of import of such goods. All other requirements for the application of this the procedure are provided by Art. 57b of the Bulgarian VAT Act.
1.5. Special regime for deliveries, that are facilitated by an electronic interface:
An electronic interface is a device or program, that allows communication between two independent systems or a system and an end recipient and may include a website, portal, platform, application interface, and other similar means. In case a person provides assistance during the distance sales of items, imported from third countries or territories, this person is considered to be the recipient and supplier of those items. In this event the deal is done between the main supplier and the interface and between the interface and the end user.
The interface provides support for delivery in case the delivery conditions are defined through them, the costs are invoiced to the customer and/or the order or delivery of the items is processed. No support is provided, in case the payments associated with the delivery are done through this interface, sales are displayed or advertised or consumers are redirected to other interfaces, where the items are sold without using the first interface.
Regardless of the fact whether the interface is registered with regard to the special regulation or not, the interface shall keep a list of the facilitated deliveries as well as for telecommunications services, radio and television services and electronic services.
2. Amendments following the Brexit
The transition period that followed the UK's exit from the EU ended on 31st of December 2020. As of 1st of January 2021, the trading rules with the UK will change as follows:
With regard to the free movement of goods, Northern Ireland shall be deemed an EU Member State and there is no change to the way goods are declared. However, all other areas of the UK shall be deemed as third countries and all to rules applicable to third countries, shall also apply with regard to such trade.
The VAT ID № with the country prefix "GB" is no longer valid and can no longer be checked on the European Union website. Companies, based in Northern Ireland, will be given a new VAT number, having the prefix "XI" and such numbers could then be checked on the European Union website.
The previous regulations will continue to apply with regard to the VAT refund in Northern Ireland. However, these no longer apply to the UK, as the UK is not yet on the list of countries for which the principle of reciprocity for VAT refunds is applied.
3. Amendments following the COVID-19 pandemic
The supplies of COVID-19 vaccines and the services directly related to them, as well as the COVID-19 in-vitro diagnostics, are tax-free, provided that they meet the requirements of the Law on Medical Products in Human Medicine and the Bulgarian Law on Medical Devices (Art. 36b of the Bulgarian VAT Act).
4. Amendments of Regulation No. N-18 for the cash registers
The obligation for using of software for sales management in sales rooms (SSM) no longer exists. It is now given as an option. As a result, the Bulgarian VAT Law will be amended as follows:
- the manufacturers/distributors of the SSM shall now, upon their discretion, either register the software they have developed/distributed within the list of software approved by the NRA (Art. 118, para. 14 of the Bulgarian VAT Act);
- the persons, who are obliged to issue receipts for cash sales, may now choose to use a software approved by the NRA or a different software (Art. 118, para. 18 of the Bulgarian VAT Act). This does not affect persons who use integrated automated management systems (IAMS) and electronic cash registers (ECR).
- persons, who have decided to use an SSM, approved by the NRA, are entitled to an accelerated VAT return procedure within 30 days since the submission of he VAT declaration (Art. 92, para. 3, it. 5 of the Bulgarian VAT Act);
- persons, who have decided to use an SSM, approved by the NRA, are not authorized to use any other similar software that has not been included within the list of software, approved by the NRA. Otherwise, they will be penalized in accordance with Art. 185b of the Bulgarian VAT Act.
- persons, who have decided to use an SSM, approved by the NRA, but use other similar software that has not been included within the list of software, approved by the NEA, are subject to an enforceable administrative measure - closure of their object for 30 days in accordance with Art. 186 of the Bulgarian VAT Act.