September 2023 / Bulgaria

The European Central Bank (ECB) adopted an opinion expressing a positive assessment of the draft new law on the Bulgarian National Bank (BNB), which will enter into force on the date specified in the European Council decision on the adoption of the euro in Bulgaria. The objective of the draft law is to achieve the necessary level of legal convergence of the BNB within the Eurosystem. The ECB also makes several proposals for technical amendments to the draft law in order to achieve greater clarity, such as the way in which the BNB forms provisions and the inclusion of further references to applicable European acts. The draft of the new law on the BNB, which makes the technical changes proposed by the ECB, will be sent to the Ministry of Finance for public discussion and submission to the National Assembly.

The net flow of foreign direct investment in Bulgaria from January to July was over EUR 2bn, 32.5% (EUR 505m) higher than in the same period a year earlier, according to data published by the Bulgarian National Bank (BNB).

In July alone, the flow was up by EUR 137m, slightly down from the positive flow of EUR 145.5m a year earlier. Share capital was positive and amounted to EUR 356.5m, as was the reinvestment of profits, which amounted to EUR 1.6bn.

The largest net positive direct investment flows into the country for the seven months of 2023 came from the Netherlands (EUR 556.9m), Belgium (EUR 248.6m) and Germany (EUR 216.1m), while the largest net negative flows were to Switzerland (EUR 43m) and Italy (EUR 35.8m).

According to preliminary figures, the net flow of foreign direct investment for the January-July period reached EUR 358.9m, compared to EUR 353.1m for the same period last year.

Source: Confindustria Bulgaria

The Ministry of Finance expects stable economic growth in Bulgaria in the second quarter of 2023, despite the fact that current data show a decrease in industrial production and a slowdown in economic growth to 1.8%.

The economic growth rate is expected to remain steady in the third quarter, with a decline in demand for services and retail sales in the next three months. The inflation forecast says that there will be a slight acceleration of the annual inflation rate according to the Harmonised Index of Consumer Prices (HICP) in the third quarter of 2023, due entirely to services in the summer tourist season.

Regarding the generalised increase in interest rates perpetrated by both the US Federal Reserve Board (FRB) and the European Central Bank (ECB) to cope with rising inflation, interest rates in Bulgaria are expected to remain more or less unchanged.

The Ministry of Finance has published for public consultation a proposal to amend the Accountancy Act, aimed at implementing into national legislation the provisions of Amending Directive to the Accounting Directive (2013/34) as regards the Disclosure of Income Tax Information by Certain Undertakings and Branches (2021/2101) (the Public Country-by-Country Reporting (CbCR) Directive).

The Ministry also proposed the following amendments to the Local Taxes and Fees Act (LTFA):

• clarification of the provisions related to the use of tax relief for buildings that have received certificates of energy consumption class; and
• Subjecting income of individuals gathering seeds, mushrooms, medicinal and aromatic plants to patent tax under the LTFA, instead of to personal income tax under the PIT Act.

The public consultation, issued on 26 September 2023, runs until 26 October 2023.

As part of the annual package with amendments to the tax legislation, the Ministry of Finance has published the following proposals for public consultation.

• Corporate income tax:
  • implementing EU rules ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups.
• Individual income tax:
  • introducing statutory expenses in the case of a sale or exchange of financial assets; and
  • introducing financial incentives for disclosures to tax authorities.
• Indirect tax:
  • introducing deferred payment of import VAT in the case of centralized clearance;
  • clarifying reporting obligations of payment service providers; and
  • extending the scope of goods subject to excise duties by including products to be heated, vaporized or inhaled.
• Other taxes:
  • clarifying the tax relief for buildings with certificates of energy consumption class; and
  • implementing EU rules regarding the disclosure of income tax information by certain undertakings.

The Ministry of Finance has published a proposal to amend the Corporate Income Tax Act (CIT Act) for public consultation. The main changes suggested are the following:

• implementing the provisions of the Minimum Taxation Directive (2022/2523) ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups within the Union. In addition, a domestic top-up tax is introduced;
• introducing a new scheme for State aid to farmers in the form of deferred corporate income tax; and
• aligning the tax regime applicable to financial institutions with that for non-financial enterprises. This alignment ensures that income and expenses from subsequent valuations, including revaluations and impairments, of financial assets and liabilities will be treated consistently for tax purposes.

The public consultation, issued on 26 September 2023, runs until 26 October 2023.

The Ministry of Finance has published a proposal to amend the Individual Income Tax Act (PIT Act) for public consultation. The main changes suggested are the following:

• introducing 10% statutory expenses deductible for individuals deriving income from the sale or exchange of financial assets, including virtual currencies;
• introducing a tax relief for individuals registering cash receipts with a digital receipt system of the National Revenue Agency;
• expanding the definition of "employment relationship" to include legal relationships that, by their nature, involve labour without the need for a formal employment contract; and
• exempting income of individuals from the sale or exchange of movable property to persons having the right to collect, transport, recover or dispose of waste in accordance with the Waste Management Act from taxation.

The Ministry also proposed amendments to the Tax and Social Security Procedure Code (TSSPC) by introducing financial incentives for disclosures to tax authorities.

The proposal outlines a financial incentive for persons submitting information containing specific facts and circumstances that were not known to the tax authorities, which lead to the establishment and collection of additional taxes, mandatory insurance contributions and interest in connection with hidden and/or undeclared taxable transactions, income, profits and assets. Under this proposal, if certain conditions are met, individuals who disclose such information may receive remuneration equivalent to 10% of the additional revenue collected by the budget as a result of their disclosures.

The public consultation, issued on 26 September 2023, runs until 26 October 2023.

The Ministry of Finance has published a proposal to amend the Value Added Tax Act and Excise Duties and Tax Warehouse Act (EDTWA) for public consultation.

The main changes to the VAT Act suggested are the following:

• introducing deferred payment of import VAT in the case of centralized clearance when importing goods;
• introducing a measure allowing taxable persons that have not registered for VAT purposes in a timely manner to issue tax documents that include the applicable VAT for the periods for which they should have been registered;
• prolonging the 0% VAT rate for supplies of bread and flour until 30 June 2024; and
• introducing a measure allowing the recipients of supplies to withhold payment if the supplier fails to provide a fiscal receipt at the time of the transaction.

The amendments to the Regulations for the application of the VAT Act introduce new reporting obligations for payment service providers. These obligations cover the formatting and submission procedures for information related to cross-border payments. The electronic form must meet the requirements provided in the Commission Implementing Regulation (EU) 2022/1504 of 6 April 2022. This Regulation lays down detailed rules for the application of Council Regulation (EU) No. 904/2010 regarding the creation of a central electronic system of payment information (CESOP) to combat VAT fraud. The information from the register must be submitted with a qualified electronic signature following the guidelines set out in the Tax and Social Security Procedure Code. The submission must be made through a standard electronic form outlined in Implementing Regulation (EU) 2022/1504. The Executive Director of the National Revenue Agency must approve the format, structure and validation scheme of the file.

The main proposals to the Excise Duties and Tax Warehouse Act (EDTWA) are the following:

• extending the scope of goods subject to excise duties by including the heated products with content other than tobacco, based on plants, herbs or fruits, regardless of whether they are treated with nicotine. From 1 January 2024, these products will be subject to an excise duty rate of BGN 331 per kilogram;
• introducing a regime for distance sales of excise goods released for consumption in Bulgaria which are sent to individuals in other EU Member States; and
• introducing various clarifications for customs formalities as outlined in the Union Customs Code. These clarifications specifically relate to goods subject to excise duties that are dispatched to or received from certain third countries.

The public consultation, issued on 26 September 2023, run until 26 October 2023.