November 2018 / Bulgaria

November 5 2018

Bill to amend corporate income tax adopted by parliament

On 1 November 2018, a Bill to amend the Corporate Income Tax Act (CITA) was adopted by the parliament. With respect to the tax treatment of leasing, the following additional amendments were adopted. A new article 11a of the CITA provides that:
  • income and expenses related to operational lease contracts recorded in the accounts of the lessee will not be recognized for tax purposes;
  • rights to use assets under operating lease agreements may not be included in the tax depreciable value of a tax depreciable asset of the lessee; and
  • income and expenses relating to operating leases will be recognized for tax purposes if they concern the lease of a right to use assets. In such a case, the income and expenses must be determined in accordance with National Accounting Standard 17 on leases.
A new article 50(2) of the CITA defines from which fixed tangible assets a lessee derives taxable income. The article covers those assets classified as depreciable fixed tangible assets with a right of use in connection with finance lease according to the international accounting standards. Article 82 of the CITA on the corrections of the financial results due to changes of the accounting policy will not apply where the change in the accounting policy concerns the application of the International Financial Reporting Standard 16 on operational leases.
November 5 2018

Amendment to Corporate Income Tax Act gazetted

On 2 November 2018, an amendment to the Corporate Income Tax Act was published in the State Gazette. The amendment envisages that donations of up to 10% of the accounting profit of a company are tax deductible if they are made to social enterprises listed in the register of social enterprises to enable them to carry on their social activities and/or achieve their social goals. The amendment will take effect on 2 May 2019.
November 6 2018

Amendment to VAT Act – consultation held

On 5 November 2018, the Ministry of Finance published for public consultation a proposal for amendments to the VAT Act. It is proposed that the activity of an individual under any legal relationship which creates relationships similar to those of an employment relationship will not be regarded as an economic activity. This is the case if the conditions of a contract are similar to that of employment. In such case, the remuneration is paid by the employer who bears the liability for the activities carried out. In addition, it is proposed that the public register of the National Revenue Agency for VAT registration should also include information regarding VAT registration and deregistration of the taxable persons. The public consultation will be open until 5 December 2018. Further developments will be reported when they occur.
November 6 2018

Amendment to individual income tax – consultation held

On 5 November 2018, a proposal to amend the Personal Income Tax Act (PITA) was published for public consultation by the Ministry of Finance. It is proposed to regard the following relations as employment relations for PITA purposes:
  • between a sports club and professional athletes under the Physical Education and Sports Act; and
  • between a sports club and coaches under the Physical Education and Sports Act.
The public consultation will be open until 5 December 2018. Further developments will be reported when they occur.
November 6 2018

Obligatory transfer pricing documentation proposed

The Ministry of Finance initiated a public consultation on a bill to amend the Tax and Social Security Procedures Code. The bill proposes the implementation of obligatory transfer pricing documentation for certain entities and certain transactions depending on balance sheet data of companies and materiality of transactions. Entities with a balance sheet value of assets exceeding BGN 8 million (EUR 4 million) and net sales revenue exceeding BGN 16 million (EUR 8 million) will be required to prepare transfer pricing documentation on transactions with goods (exceeding BGN 400,000), services (exceeding BGN 200,000), intangible assets (exceeding BGN 200,000) and financial assets (exceeding BGN 200,000). Transfer pricing documentation will also need to cover loan transactions exceeding BGN 2 million or interest payments exceeding BGN 100,000. The public consultation will end on 5 December 2018, after which the bill, as amended, is scheduled to be delivered to the parliament for voting.
November 13 2018

President vetoes 2019 tax package

On 7 November 2018, the parliament voted on the tax package containing amendments to the tax laws, which was then scheduled to be published in the State Gazette. However, before allowing official publication of the amendments, the President decided to put a veto on the package, due to disagreement on the envisaged increase in real estate local tax and vehicle tax rates.
November 22 2018

Amendments to tax legislation approved at final reading by parliament

Following the veto imposed by the President on the amendments to tax legislation, on 22 November 2018, the parliament discussed and approved at final reading the amendments. The parliament did not agree with the reasons for the President's veto and did not change the texts that had been approved earlier this month. As a next step, the President must issue a decree for promulgation of the amendments in the State Gazette. Further developments will be reported when they occur.
November 27 2018

Proposal to amend VAT Act gazetted

On 27 November 2018, a proposal for amendments to the Value Added Tax (VAT) Act was gazetted. The most important details are summarized below.

Introduction of threshold for digital services

A threshold of BGN 19,558 (EUR 10,000) is introduced regarding the place of supply of digital services by EU suppliers to non-taxable persons established in other EU Member States. Under the new rule, if the supplies of telecommunication, broadcasting and electronically supplied services in the current and/or previous calendar years are below this threshold, their place of supply will be where the supplier is established, provided that it is established in only one EU Member State. This amendment implements the provisions of Directive (EU) 2017/2455.

New VAT rules for vouchers

In line with the provisions of Directive (EU) 2016/1065, detailed rules are introduced regarding the VAT treatment of single-purpose and multi-purpose vouchers. However, it is specifically stated that the new VAT rules for vouchers will not be applicable to:
  • instruments that entitle the owner to receive a discount when receiving goods/services;
  • tickets for travelling, cinema, museums and other, as well as postal stamps, etc.; and
  • food vouchers issued by a person with a permit issued by the Minister of Finance.

Postponed accounting of import VAT

Currently, VAT on importation must be effectively paid to the customs authorities upon importation of goods; self-assessment by the taxable person is allowed only in very limited cases (e.g. for large investment projects). As from 1 July 2019, the possibility of VAT self-assessment in the VAT return will be extended to importers of goods such as aluminium, nickel, sulfur, tin, lead, zinc and organic chemical products. In addition, certain criteria are introduced, for example, each of the imported goods declared in the customs document must have a customs value of at least BGN 50,000, and the importer must have no unsettled tax and social security liabilities.

Longer period for application of domestic reverse charge rules for grain and technical crops

The period for the application of the domestic reverse charge rules for grain and industrial crops is extended to 30 June 2022.

Register of e-shops to be created by tax authorities

E-shops will be required to register in a special register to be set up and maintained by the National Revenue Agency.

Abolishment of the minimum collateral for trading liquid fuels

Currently, in certain cases, suppliers and recipients of liquid fuels are required to provide, to the tax authorities, collateral at an amount of 20% of the taxable base of the supply but not less than BGN 50,000. Under the amendments, the minimum required amount of BGN 50,000 will be abolished.

Extension of the list of VAT zero-rated supplies

The following supplies will be subject to 0% VAT:
  • supplies for immediate needs of qualifying vessels and aircraft; and
  • intermediary services related to international adoption under the Family Code.

Amendments to VAT deregistration rules

The requirement for mandatory VAT deregistration upon initiation of a company's liquidation proceedings is abolished. Instead, companies will have an opportunity to remain VAT registered until the end of the liquidation proceedings.

Administrative simplifications

The following administrative simplifications are introduced:
  • an opportunity for VAT deregistration within 12 months after the beginning of the year following the voluntary VAT registration (currently, this period is 24 months); and
  • e-shops will be allowed to issue and send electronically fiscal receipts in cases where there is no physical contact between the seller and the buyer. It is envisaged that the rules for issuing of electronic fiscal receipts will be provided in Ordinance N-18 of 2006 issued by the Ministry of Finance.
The above amendments will enter into force on 1 January 2019, with the exception of the new rules for postponed accounting of import VAT, which will be applicable as from 1 July 2019.
November 28 2018

Amendments to Personal Income Tax Act gazetted

On 27 November 2018, amendments to the Personal Income Tax Act were published in the State Gazette. Below is a summary of the main changes.

New tax rules for awards

The monetary and non-momentary awards which are not provided by the employer will be subject to a one-off tax due by the payer. Currently, such income should be reported by the recipient in his/her annual personal income tax return. In addition, awards with an amount of up to BGN 100 (currently BGN 30) will be exempt from Personal Income Tax.

One-off tax for subsidies and State aid

Subject to a one-off tax will be the gross amounts received from individuals (not registered as farmers) in the form of State aid, subsidies or other support from the European Agricultural Guarantee Fund, the European Agricultural Fund for Rural Development or amounts from the national budget.

Extended mandatory electronic submission of documents to tax authorities

It will be mandatory to submit electronically the following documents to the National Revenue Agency:
  • all declarations and reports of self-insured persons;
  • the annual report for income paid to individuals under article 73, paragraph 1 of the Personal Income Tax Act; and
  • information on the income paid by employers to residents of other EU Member States.

New administrative simplifications

The following administrative simplifications will be introduced:
  • abolishment of the requirement for providing a declaration by the spouse that he/she will not apply for tax relief for young families, children (including children with disabilities);
  • regarding tax relief for children (including those with disabilities), it will be allowed that the relief can be used by both parents (currently only one parent may use it);
  • it is provided that traders that did not perform economic activities (as per the Accountancy Act) during a tax year will be exempt from the requirement to submit annual activity reports.
The above amendments will be effective from 1 January 2019. In addition, as of 1 January 2020 the abolishment of the requirement for employers to provide paper notes on income paid, taxes and social/health securities withheld from their employees unless they request such documents, is envisaged. The information which is included in these notices will be submitted by employers to the National Revenue Agency.
November 28 2018

Amendments to Local Taxes and Duties Act gazetted

On 27 November 2018, amendments to the Local Taxes and Duties Act were published in the State Gazette. A summary of the main changes is given below.

Increased real estate tax for certain immovable property in resorts

Immovable property in Bulgaria is subject to annual real estate tax of between 0.1‰–4.5‰ of the tax value of the property. However, as from 1 January 2019, increased rates will apply to immovable property that meets the following criteria:
  • located in a resort;
  • not the main home of a taxable person;
  • not leased; and
  • not registered as accommodation under the Tourism Act.
The increased rates for immovable property meeting the above criteria will be as follows:
  • 5‰-7‰ of the tax value for property in balneological, climatic mountain and climatic seaside resorts of national importance; and
  • 4.5‰-6‰ for immovable property in other resorts.

Changes to determining the real estate tax

The correction coefficient increasing the real estate tax for immovable property that has features such as aluminium joinery, air conditioning installation, etc., will be abolished.

Amendments to tax relief for main home

If more than one main home is declared, the full amount of the real estate tax will be due for all homes owned by the taxable person. Also, no reduction of the waste collection duty will be applied in such cases.

New concept for motor vehicles tax

The motor vehicle tax for cars and light commercial vehicles with a weight of up to 3.5 tonnes will be determined based on a formula including a property and an ecological component. The property component will take into account the engine power and the manufacturing year of the car. The ecological component will reflect the ecological category of the car based on the European Emission Standards (Euro 1, 2, 3, 4, 5 or 6). In addition to the above, various other amendments to motor vehicle tax relief are introduced, e.g. abolishment of the tax relief for cars with catalytic converters, the possibility for applying tax relief for cars with engine power above 74 kW, etc.

New administrative simplifications

In the case of transactions involving motor vehicles, notaries public will be required to check in the relevant registers whether there is any unpaid tax on vehicles. In addition, the notaries public will be obliged to inform the local municipalities of the transfers of immovable property and motor vehicles performed, as well as the taxable base and local tax paid, within 7 days.

Postponed introduction of the new concept for calculation of waste collection duty

The new concept for the calculation of waste collection duty based on generated waste had initially been scheduled to be introduced as from 2020. However, this year it was decided to postpone introduction of the new concept until 2022. The above changes will be applicable as from 1 January 2019. In addition, an exemption from real estate tax is introduced for new buildings until they are put into use, but not later than 2 years after completion of the structural works. This rule will be applied as from 1 January 2020.
November 30 2018

Budget Acts approved by parliament at second reading

On 27, 28 and 29 November 2018, the parliament approved at second (final) reading, the amendments to the following Budget Acts:
  • the State Budget Act for 2019;
  • the Act on the Budget of the State Social Security for 2019; and
  • the Act on the Budget of the National Health Insurance Fund for 2019.
November 30 2018

Amendments to Corporate Income Tax Act – gazetted

On 27 November 2018, amendments to the Corporate Income Tax Act were published in the State Gazette. The main amendments are summarized below.

Limitation of interest deduction rule

A new rule is introduced for limitation of interest deduction, which implements the provisions of the European Union Anti-Tax Avoidance Directive (EU) 2016/1164 (2016). Under the rule, the exceeding borrowing costs for a tax year will be deductible for up to 30% of the tax-adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of the taxable person. Any restricted interest can be carried forward indefinitely. The limitation of interest deduction will no longer be applicable when the exceeding borrowing costs are up to EUR 3 million. Also, the new rule will not be applied to credit institutions.

Amendments to thin capitalization rule

Although in August 2018, the Ministry of Finance proposed to abolish the thin capitalization rule, subsequently it was decided to keep it, but an amendment was introduced so that restricted interest expenses can be carried forward indefinitely (currently it is possible for a period of up to 5 years).

Controlled foreign company (CFC) rule

According to the new rule, a Bulgarian taxable person with a CFC, under certain conditions, will be required to include a share of the CFC's taxable profit into its taxable profit and thus be subject to Bulgarian corporate income tax. Between the first and the second reading of the draft bill at the parliament, amendments were introduced to the initial texts and the CFC rules will not be applicable in terms of CFCs which are not subject to corporate income tax in the jurisdictions where they are tax residents. Bulgarian taxable persons with CFCs will be obliged to keep a register with specific details on the CFCs. This register should be provided to tax authorities upon their request.

New tax rules for certain operating lease agreements

The new rules concern the tax treatment of expenses/income of a lessee under operating lease agreements to which the rules of IFRS 16 Leases (effective as of 1 January 2019) will be applied. It is provided that such income/expenses will not be recognized for corporate income tax purposes and instead, the income/expenses determined as per the National Accounting Standard 17 Leases applied to these agreements will be recognized for corporate income tax purposes. In addition, right-of-use assets in relation to operating lease agreements under IFRS 16 Leases will not be recognized as tax depreciable assets of the lessee.

Other amendments

An option is introduced for the submission of corporate income tax returns in cases when a taxable person did not perform an activity in the tax year in order to report tax on expenses, incurred losses, or reporting hidden profit distribution. Certain amendments are introduced regarding the filing and payment of corporate income tax, withholding tax, tax on expenses and alternative tax in cases of liquidation or termination for insolvency of a company and when a permanent establishment of a foreign company is ceasing its activity. In this respect the last tax period of such companies/permanent establishments will be from 1 January of the year of the deregistration until the date of the deregistration and the last corporate income tax, withholding tax, tax on expenses and alternative tax to be due within 30 days after the date of the deregistration. The above amendments will be applicable as of 1 January 2019.