Travel Expenses: NAP Rules

TAXES AND ACCOUNTING IN BULGARIA

Travel expenses in Bulgaria: when does NAP recognise them and what mistakes do company owners make?

Air tickets, hotels, transport, per diems — can a Bulgarian company pay these expenses for its owner or manager?

You have registered an EOOD (single-member LLC) in Bulgaria, you run an international business and you travel for work. You meet clients in Germany, attend trade fairs in Italy, hold negotiations with suppliers in Poland. The company pays for tickets and hotels, and the accountant receives the invoices. But during an audit NAP may refuse to recognise the expenses, even if the trip really was a business one.

1. Under what conditions does NAP recognise travel expenses?

The basic rule is contained in Art. 33 of the Corporate Income Taxation Act (ZKPO). For expenses to be recognised, there must be a business purpose, relations between the person and the company that are provided for by law, documentary evidence, and compliance with the applicable rules on business trips and accounting.

The law separately restricts the recognition of expenses of partners and shareholders who travel solely in their capacity as business owners. A business purpose and an invoice do not in themselves guarantee that the expenses will be recognised.

2. Who is entitled to travel expenses?

Art. 33 of the ZKPO provides for the recognition of travel expenses of employees and of persons engaged under non-employment contractual relations, including managers and members of management bodies.

3. The owner of an EOOD works as a self-insured person: can his business trips be paid for?

The mere fact of being registered as a self-insured person does not automatically create a right to have travel expenses recognised. NAP assesses the legal basis of the individual’s relations with the company.

NAP clarification No. 94-00-15 of 15.03.2018 deals with the owner of an EOOD without a DUK who is insured as a self-insured person and performs personal labour. For the expenses to be recognised, it must be proven that there are non-employment contractual relations aimed at a specific result in the company’s activity.

Example: the owner of an IT company flies to a meeting with a client in the Netherlands. If he works solely as a self-insured person and there is no proper contractual basis, the tickets and hotel may not be recognised, even if the meeting did take place. However, the status of a self-insured person does not in itself rule out other contractual relations.

4. Can a DUK be concluded without remuneration?

The existence of a management contract without remuneration does not in itself preclude the recognition of expenses. NAP clarification No. 24-39-42 of 27.04.2016 examined a situation in which the owner performed personal labour for remuneration, while management was carried out under a contract free of charge. Where the relevant relations exist and the trip is connected with the company’s activity, the expenses may be recognised. The contract must reflect the actual relations; the consequences for taxes and insurance should be taken into account.

5. Which expenses can be included in a business trip?

If the conditions of the law are met, the company may pay for air tickets and transport, hotels, per diems and necessary additional costs (for example, parking and road tolls). But the procedure for reimbursement and taxation depends on the status of the person and the applicable rules, especially in the case of foreign trips and non-employment relations.

6. What documents are required?

Depending on the situation: the contractual basis of the person’s activity; a business trip order, where required; tickets, boarding passes, proof of payment; hotel invoices; invitations, correspondence, conference programmes; contracts, reports on meetings and assignments. Under Art. 10 of the ZKPO, the documents must faithfully reflect the business transaction. An order and an invoice do not replace the necessary contractual basis.

7. Seven main mistakes

1. An owner acting as a self-insured person arranges a business trip for himself without checking the basis. Being registered as a manager and paying contributions do not guarantee that the expenses will be recognised.

2. Personal holiday disguised as a business trip. A family trip and entertainment do not become work-related just because the company paid for them.

3. No evidence of a business purpose. Tickets and invoices confirm payment but do not explain why the trip was necessary.

4. Documents drawn up after the fact. Formal paperwork may contradict the actual circumstances.

5. Business and personal days are not separated. A two-day conference does not justify a week of family holiday at the company’s expense.

6. Per diems are calculated incorrectly. You need to check the applicable rules and the person’s status.

7. Treating any purchase made with a corporate card as an expense. Personal restaurant bills, purchases and entertainment do not automatically become business expenses.

8. What happens if the National Revenue Agency (NAP) does not recognise the expenses?

Unrecognised expenses increase the taxable financial result. For example, if EUR 3,000 of travel costs are excluded from expenses and this increases the positive tax base by the same amount, the additional corporate tax at the 10% rate will be EUR 300; interest may also apply.

If the company has in fact paid for the owner’s personal needs, the transaction may additionally be classified as «скрито разпределение на печалбата» — hidden distribution of profit. This can trigger dividend tax and a 20% penalty under the conditions of чл. 267 ЗКПО, in particular where no declaration has been filed. However, the non-recognition of expenses under чл. 33 ЗКПО does not in itself automatically mean a hidden distribution of profit.

9. How should business trips be organised properly?

Before buying tickets, check the legal basis on which the person works for the company, the applicable secondment rules, the documentation procedure and the business purpose. For an EOOD (single-member LLC) where the owner combines management, sales and service delivery, such an analysis is particularly important. It is better to determine the tax treatment in advance rather than at the annual closing.

Conclusion

NAP assesses who travelled, on what basis they acted in the company’s interests and what confirms the business purpose. Owners of an EOOD who work as self-insured persons without a management contract need a separate analysis of their contractual relationships. Payment by the company does not in itself create a right to tax recognition.

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Bulgarian Expert provides accounting services and tax support for businesses in Bulgaria. We analyse the status of owners and managers, check the grounds for recognising expenses and help organise document flow correctly.

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Legal basis: чл. 10, 26, 33 and 267 ЗКПО; NAP clarifications No. 94-00-15 of 15.03.2018 and No. 24-39-42 of 27.04.2016; Наредба за командировките в страната; Наредба за служебните командировки и специализации в чужбина. This information does not replace individual tax advice.