January 2022 / Bulgaria

20 Gennaio 2022

Bulgaria Plans to Amend Corporate Income Tax Act and Implement Hybrid Mismatch Rules

The Bulgarian parliament has approved at first reading the following amendments to the Corporate Income Tax Act:

  • implementation of the rules for hybrid mismatches provided in the Anti-Tax Avoidance Directive (2016/1164) (ATAD);
  • extension of the scope of application of the provisions for controlled foreign companies (CFCs) which will be applied to all Bulgarian taxable persons that are subject to corporate income tax in the country and have CFCs regardless of their form of taxation; and
  • clarification of the tax aspects of lease buy-back agreements, which are classified as operating leases under the International Accounting Standards.

As a next step, the proposal will be voted at second and final reading by the parliament.

The full text of the proposal, approved on 20 January 2021, is available here (in Bulgarian only).

18 Gennaio 2022

Bulgaria: Forecast for Economic Growth in 2022

Economic growth in 2022 will remain at last year's levels amid growing fears of inflation

Economists of UniCredit Bulbank forecast economic growth of 3.6% in their latest report. Experts slightly reduce the forecast for annual GDP growth for 2022, compared to the expected 3.9% three months ago, due to more severe and prolonged disruptions in supply chains and the looming higher and longer-term inflation. Its growth is projected to reach 6% on average for the whole of 2022, with the main reasons continuing to be related to high energy prices, supply chain disruptions, and base effects. Economists expect these factors to have a temporary effect in 2023, inflation to fall to 3% on average for the year, and economic growth to accelerate to 4.3%, with unemployment falling to levels corresponding to full employment.

Bulgaria: 7.8% annual inflation in December

Economic forecasts for inflation are based on the assumption that electricity and heat prices for households will rise by 15% in April 2022. According to economists, inflation will have an adverse effect on consumer confidence and the structure of GDP is likely to change.

Increase in investments at the expense of private consumption in the structure of GDP

Private consumption will contribute less to economic growth in 2022 than in 2021, mainly due to projected higher consumer price inflation. This year the rise in prices will reduce the disposable income of households to a much greater extent than in 2021. Despite lower consumption levels, economists at UniCredit Bulbank expect an increase in investment growth, driven mainly by larger projects in the public sector. They expect public investment in support of the green transition and digitalization, funded by the EU's Next Generation mechanism, to stimulate potential growth, with the necessary reforms.

Without a significant increase in wages

The expected higher inflation in 2022 will not lead to a significant increase in wages, according to a new analysis by UniCredit Bulbank. Unemployment and other important labor market indicators show that the economy has not yet reached full employment. It is also important to note that the share of managers who report problems with finding labor now compared to the period before the pandemic is lower in Bulgaria than in other CEE countries (see chart), for which such data are available. All this indicates that the process of recovery in the labor market is slower in Bulgaria than in most CEE countries, and this has a positive side, as what is happening in the labor market is not among the factors contributing to the increase of inflation at the moment.

The development of the economy in 2022 will continue to be closely linked to the course of the Covid-19 pandemic. Despite the emergence of the new variant Omicron, the prospects are for vaccines to remain effective and for the percentage of the vaccinated population to increase, although most likely leaving below the required values to achieve group immunity. Under these conditions, the negative impact of new waves of the pandemic on the growth trajectory should be more limited than in the past.

Source: Novinite

20 Gennaio 2022

Bulgaria Plans to Implement EU Legislation on Excise Duties

The Bulgarian parliament has approved at first reading the following amendments to the Value Added Tax Act:

  • Excise Framework Directive (Recast) (2020/262) of 19 December 2019 laying down the general arrangements for excise duties;
  • Council Directive (EU) 2020/1151 of 29 July 2020 amending Directive 92/83/EEC on the harmonization of the structures of excise duties on alcohol and alcoholic beverages; and
  • Council Directive (EU) 2019/2235 of 16 December 2019 amending VAT Directive (2006/112) on the common system of value added tax and Excise Directive (2008/118) concerning the general arrangements for excise duties as regards defence efforts within the Union framework.

As a next step, the proposal will be voted at second and final reading by the parliament.

The full text of the proposal, approved on 20 January 2021, is available here (in Bulgarian only).

20 Gennaio 2022

Bulgaria Plans to Extend Scope of Reduced VAT Rate

The Bulgarian parliament has approved at first reading the following amendments to the Value Added Tax Act:

  • implementation of Council Directive (EU) 2021/1159 of 13 July 2021 amending VAT Directive (2006/112) in response to the COVID-19 pandemic, and Council Directive (EU) 2019/2235 of 16 December 2019 amending EU VAT Directive (2006/112) and Excise Directive (2008/118);
  • introduction of rules for adjustments of incorrectly issued invoices even when a tax audit assessment notice has entered into force;
  • extension of the scope of application of the reduced 9% VAT rate by including specialized milk formulas (with partially hydrolyzed protein and formulas for children with allergies) and dietary foods for special medical purposes intended for infants (falling within EU code 2106 90 92 and EU code 2106 90 98);
  • inclusion of food vouchers within the scope of application of the special VAT rules for vouchers (currently, they are explicitly excluded from this scope); and
  • various clarifications concerning the new VAT rules for e-commerce applicable as from 1 July 2021 and the supplies of goods between Bulgaria and Northern Ireland.

As a next step, the proposal will be voted at second and final reading by the parliament.

The full text of the proposal, approved on 20 January 2021, is available here (in Bulgarian only).