Changes to Bulgaria's tax legislation

Contrary to expectations, no changes are planned so far regarding the exclusion of certain payments under the amended Ordinance N-18, which concerns fiscal devices. Such changes may be announced during the public consultation, which will run until 2 October, or ahead of the second reading.

The VAT Act

In the VAT Act, the bulk of the changes relate to the forthcoming large-scale change to the VAT system across the European Union, in particular to the harmonisation and simplification of certain rules in line with EU Directive 2018/1910 of 04.12.2018 amending Directive 2206/112/EO. These are the so-called Quick fixes, rapid measures decided upon at the end of 2018 and due to enter into force in 2020.

The amendments concern the following points:

• A simplified regime for call-off stock — where the transfer to a regular customer takes place after the goods arrive at a warehouse in another EU country. This procedure must be completed within 12 months of storage in that country. The consignor and the prospective recipient must keep a register. At present the goods remain the property of the supplier until they are received by the customer, and there is an intra-Community supply in the supplier’s country and an intra-Community acquisition (ICA) in the country of storage, as well as a domestic supply when they are handed over to the customer. The supplier must be VAT-registered in the EU member state where the warehouse is located. Instead, under the new regime there will be a direct intra-Community supply of the goods to the customer.
• Intra-Community transport in a chain of successive supplies of goods: it is determined which part of the linked supplies the zero-rated transport relates to (normally the supply of goods made to the intermediary operator by its supplier).
• A requirement for a valid VAT identification number of the recipient of the goods in an EU member state other than the one in which the dispatch or transport of the goods began, as a condition for the zero rate (in connection with a ruling of the European Court).
• Confirmation of transport carried out from one EU country to another by at least two items of non-contradictory evidence.

These changes, which require substantial alterations to the way EU supply reporting is organised, will be published separately.

Among the changes there is also one contentious text. The draft provides that where two or more related or ostensibly unrelated persons successively carry out homogeneous activity at the same site (sites), the taxable turnover of each subsequent person will include the turnover of all persons who carried out activity at the site/sites before them, over a period of no more than 12 consecutive months preceding the current month. In addition, clarifications are proposed as to when the activity carried out by the persons is considered “homogeneous”. The supplementary provisions to the law define “ostensibly unrelated persons” as differing from the relatedness criteria under item 3, para. 1 of the supplementary provisions of the DOPK, according to which persons involved in management are deemed related where an economic, organisational, family or other connection exists between them allowing them to agree non-standard terms.

The text is hard to understand and ambiguous. It promises good earnings for lawyers, but may well harm bona fide buyers.

Other changes concern the charging of VAT on new buildings in the event of their improvement (a new independent site, a new status), as well as the adjustment of tax already charged on an improvement carried out, which will be made over 20 years. To counter VAT avoidance on real estate through the transfer of shares and holdings in partnerships, the supply and transfer of shares and holdings equivalent to shares in a partnership is made taxable where it gives the holder the legal or actual right to possess immovable property or part of it.

Changes to the Corporate Income Taxation Act

Changes to the Corporate Income Taxation Act were announced as far back as last year, when individual measures against aggressive tax planning, such as the limitation of interest deductions, were put to a vote. They relate to ATAD (the directive containing measures against tax avoidance), more precisely to so-called hybrid mismatches and exit taxation. The first applies to situations where mismatches in the classification of legal entities or instruments may result in untaxed income in transactions with a cross-border element, and the second, for example, to the transfer of assets to another country where a lower tax rate applies.

The Personal Income Tax Act

Against this background, the changes to the Personal Income Tax Act are less significant. The most important of them concern hidden profit distribution, which is taxed as dividends, as well as liquidation shares treated as employment income. The obligation to attach TELK and NELK decisions to annual tax returns for the use of tax reliefs is removed. In the statement under Art. 73, the need to declare awards is removed. The income of students and athletes is treated as employment income.

We would remind you that the amendments already voted through will enter into force from next year.

The Local Taxes and Fees Act

There is an important change in the Local Taxes and Fees Act. The obligation to file a declaration on the gratuitous acquisition of property, other than real estate and vehicles, has reappeared. This removes the owner’s obligation to submit a document from the competent authority to the local administration when deregistering a vehicle.

It is proposed to change the method of calculating the tourist tax to a calendar month basis. It will now be based on data contained in the Unified Tourist Information System on the exact number of nights spent by tourists at a given site.

Changes to the Excise Duties Act

The changes to the Excise Duties Act include the introduction of new obligations for postal operators, among them opening consignments where excise goods are suspected to be inside and reporting to the customs authorities on customers in the risk group.

For companies and sole traders that carry out no activity

An important change concerns companies that carry out no activity. Changes to the Accountancy Act are envisaged under which companies carrying out no activity will declare this circumstance once (counting from the 2019 reports) rather than annually, as has been the case until now. Art. 38, on sole traders that have carried out no activity, explains that this circumstance likewise does not need to be declared in the Commercial Register.