Mandatory VAT registration

On 1 April 2025, an amendment to Bulgarian legislation concerning the taxation of value added (VAT) comes into force, which has important consequences for businesses and entrepreneurs. Under the new provisions, all traders whose taxable turnover exceeds BGN 100,000 over the last 12 months will be required to register under the VAT Act. You must register within 7 days of the end of the tax period in which you reached such turnover, by submitting an application for registration (Article 96, paragraph 1, first sentence of the VAT Act).

What is VAT?

Value added tax (VAT) is an indirect tax levied on the value of goods and services in the course of their production, distribution and sale. Any trader carrying out taxable supplies of goods or services in Bulgaria is required to charge and pay this tax if they are not registered under the VAT Act.

Why are these changes being introduced?

This change was introduced in order to broaden the scope of VAT taxation and improve tax collection by bringing in more small and medium-sized enterprises. The changes affect both new registrations and cases of deregistration. Companies with a turnover of less than 100,000 pounds sterling as at 1 April 2025 but already registered for VAT do not need to submit an application for deregistration if they wish to retain their status.

The changes to the threshold for mandatory VAT registration as of 1 April 2025 are being introduced in order to:

1. Improve VAT collection — by bringing more small and medium-sized enterprises into the VAT system, the state aims to increase revenue from this tax, which is one of the main sources of budget funds.
2. Eliminate the grey sector — small businesses that do not exceed the current threshold (BGN 100,000) often do not register for VAT and thus avoid paying taxes. Lowering the threshold is intended to strengthen control over such businesses and make them pay what they owe.
3. Move closer to EU standards — in many European countries the threshold for VAT registration is lower, and Bulgaria is following the trend of lowering the threshold in order to align with European practice and improve its tax system.
4. Increase competitiveness — as more companies registered in the VAT system are able to issue invoices, the risks of unfair competition are reduced by ensuring greater transparency in the markets.

The change to the mandatory VAT registration threshold will have a significant impact on small businesses, and its main consequences will be as follows:

Obligation to register for VAT:

• Small businesses that have already exceeded the new turnover threshold of 100,000 pounds sterling will have to register for VAT if they have not already done so. This means they will have to start charging VAT to their customers and filing VAT returns.
• For some businesses this may lead to additional administrative costs and effort, as they will have to keep more thorough accounting records and comply with new reporting rules.

Additional costs and administrative burden:

• VAT registration may entail additional costs for accounting services, as well as more frequent filing of tax returns.
• For small businesses that have not previously had to deal with such obligations, this may lead to an increased administrative burden.

Benefits of VAT recovery:

• On the positive side, small businesses that register for VAT will be able to recover VAT on their costs relating to the purchase of goods and services for the business. This can be useful for companies that purchase significant volumes of goods or services with VAT.
• Such businesses will be able to issue invoices with VAT to their customers, which may improve their reputation and open up new business opportunities with VAT-registered customers and partners.

Competition and transparency:

• With VAT registration, small businesses will be obliged to be more transparent in their financial operations, which may increase their competitiveness on the market. This will also reduce the scope for unfair competition, such as tax evasion.

Impossibility of avoiding VAT:

• Small businesses that have not reached the new threshold and have not registered will not be able to avoid VAT, since some of their customers may require invoices to be issued.

Increased control and inspections:

• When more small businesses register for VAT, this will lead to closer control by the tax authorities and will likely increase scrutiny of the accuracy of these businesses’ reporting.

Ultimately, these changes will have a different impact depending on the specifics of each business. Some companies will benefit from the ability to recover VAT on their expenses, while others may face difficulties associated with an increased administrative burden and costs.