Bulgaria Clarifies Rules on Bad Debt Relief and Zero-Rated Supplies

Bulgaria has gazetted amendments to the Rules for the Implementation of the VAT Act, including the introduction of the right to reduce the tax payable on uncollectable supplies and zero-rated supplies.

Rules for the practical application of the provisions of the law introduce the right to reduce the tax base and the tax payable on supplies where there is a total or partial non-payment that may become definitively uncollectible. These rules govern:

• the type and content of the credit note and debit note, and of the report to be drawn up for the procedure of reducing the tax base and of the tax due in case of an irrecoverable debt;
• the method for determining the reduction of the tax chargeable in cases of total non-payment of the supply, where the recipient of the supply was an unregistered person at the time of supply;
• a formula to determine the reduction of the tax charged in case of partial non-payment of the supply; and
• a procedure established for declaring and accounting for the documents issued in case of reduction of the tax base and tax charged on uncollectible debts.

The amendments also revise the provisions on the required proof of zero-rated supplies, such as the clarification on documentation required to prove the right to zero-rating by a non-EU supplier when goods are dispatched or transported to a third country by a non-EU supplier. The rules also clarify the documents necessary for tax exemption and for the import of goods into the territory of Bulgaria by armed forces of other Member States or other organizations of the European Union.

The rules also implement a number of technical changes to facilitate the application of the Value Added Tax Act, such as amending the formula for determining the tax due in cases of the supply of a common tourist service. The amendments also clarify that where recipients of supplies of goods or services with the place of supply in Bulgaria are natural persons permanently residing in other Member States, who habitually reside within the territory of the country, will be certifiable by documents other than identity documents.

The full text of the gazetted legislation, published in State Gazette No. 55 of 27 June 2023, is available here (in Bulgarian only).