Social security contributions and taxes: what changes in 2021

A note for employers

The amounts of social security contributions (the “Pensions”, “ОЗМ”, “Unemployment” and “Health” funds) will rise in 2021 because of the increase in wages, but the percentage rates remain unchanged compared with previous years.

In 2021, up to 60 working days of unpaid leave count towards the “осигурителен стаж”. The amount of “здравни осигуровки” for persons on unpaid leave has been increased – it must now be paid on a base of 325 leva. The amount of “здравни осигуровки” paid by the employer for days of temporary incapacity due to illness, pregnancy, childbirth and childcare is also increasing – payments are now made on the minimum wage, which is 650 leva.

The maximum monthly amount of the “осигурителен доход” is retained — 3000 leva. This means that on the part of the salary exceeding 3000 leva only the 10% personal income tax is paid. In effect, company managers can in this way use the profit received even before the end of the year and the payment of dividends, which makes sense with significant turnover. The minimum monthly income for registered farmers and tobacco producers is 420 leva, together with a zero contribution to the “Гарантирани вземания на работниците и служителите” fund.

Exemption from social security contributions and from contributions for supplementary social insurance and life insurance will apply only if, by the end of the month in which the expenses are accrued, the liabilities are not recorded on the tax and social security account or as enforceable at the National Revenue Agency (NAP).

The tax-free amount of food vouchers has been increased from 60 to 80 leva per month for each employee.

The contribution rates to the “Трудова злополука и професионална болест” fund will also change by activity group.

Taxes for individuals

Personal income tax is retained at 10%. This applies both to Bulgarian citizens and to foreigners paying taxes in Bulgaria. Tax deductions for persons with reduced working capacity are also retained. If working capacity is 50%, the taxable amount is reduced by 7920 leva per year (including the year in which working capacity was reduced and the year in which the decision on this expired), or by 660 leva per month.

For 2021, a significant increase in tax deductions for individuals with minor children is envisaged. The amount on which a parent may not pay tax is increasing:

• for one child – from 200 to 4500 leva;
• for two children – from 400 to 9000 leva;
• for three or more – from 600 to 13500 leva;
• for a child with a disability of 50% or more – from 2000 to 9000 leva.

Also in 2021, the taxable amount under Art. 28, para. 1 of the ЗДДФЛ is reduced by the amounts specified in para. 2, items 1–3 of the same law, as well as by the difference between the permissible amount of the tax relief for 2021 under Art. 22в provided for in paragraph 1 and the amount of the tax deduction used from the taxable amount for the same year; as well as between 9000 leva and the amount of the deduction used under Art. 22г for 2021.

A new tax relief for individuals is being introduced. From the total annual tax base, payments made during the year for labour costs of builders in connection with the improvement or repair of residential property are deducted. The amount of the deduction is up to 2000 leva; to obtain it, the following conditions must be met simultaneously:

1. the property must be located on the territory of Bulgaria;
2. the recipient of the relief is the owner or one of the owners of the property;
3. the work is carried out by specialists from an EU country or a country of the European Economic Area;
4. the residential property is not part of the enterprise of a person carrying out business activity;
5. there are documents confirming payment for the work;
6. the taxpayer and the person who carried out the repair are not related parties.

The relief will apply to income received after 01.01.2021.

Another piece of good news. Individuals will no longer have to issue a document on their income if the funds were received by bank transfer, or the income was subject to final tax, or the income was exempt from tax as received for rent or other paid provision of agricultural land, or when the payer issued a “Сметка за изплатени суми”.

What else is new in 2021?

For companies, the deadlines for filing tax returns and paying taxes are being extended: from 1 March to 30 June of the following year. This applies to returns under Art. 92 of the Corporate Income Tax Act and Art. 50 of the law on personal income tax returns for sole traders and registered farmers. Other individuals file their returns, as before, by 30 April.

The deadlines for publishing annual financial statements are also extended to 30 September. Declarations of no activity may be filed until 30 June. The extension of deadlines will also apply to the closing of the annual accounts for 2020.

As for individuals, they can pay their taxes with a 5% discount if they file the declaration by 31 March electronically, provided a number of conditions are met (no enforceable liabilities at the time the declaration is filed and payment of the additional tax by 31 March). The discount may not exceed 500 leva.

Advance payments are made on the estimated taxable profit for the relevant year, as before, but the net revenue for the previous year is used to determine whether advance instalments have to be made. To declare advance payments, a declaration must be filed between 1 March and 15 April. The deadline for paying the final advance instalment has been moved from 15 to 1 December, and the new deadline for filing the declaration under Art. 88 of the Corporate Income Tax Act is 15 November. The permissible excess of corporate tax over the advance instalments determined is now 25% instead of 20%.

The use of SUPTO (software for managing sales at a retail outlet) becomes entirely voluntary. If software from the National Revenue Agency (NAP) list is used, certain benefits are available:

1. The possibility of accelerated refund of the tax credit within 30 days after filing the VAT return (in force from 12.12.2020).
2. On a first violation (failure to issue a fiscal receipt), the retail outlet will not be sealed (in force from 12.12.2020).
3. The possibility of rapid depreciation, at the annual tax depreciation rate, of assets such as SUPTO or the right to use SUPTO from the NAP list, as well as computers, computer peripherals or mobile phones on which software from the same list is installed.

A new NAP sanction is envisaged for those who have chosen SUPTO from the NAP list but at the same time use other software that is not included in that list. Individuals who are not traders pay a fine of 1,000 to 3,000 leva in this case; legal entities and sole traders face property sanctions of 5,000 to 10,000 leva. In the event of a repeat violation, the amount of the sanctions increases.

The DOPK (Tax and Social Insurance Procedure Code) now provides for a new sanction for the unjustified application of a DTT (double taxation treaty). From 01.01.2021, those who fail to pay, or pay a reduced amount of, tax under the Corporate Income Tax Act or the Personal Income Tax Act without proven grounds for applying a DTT will be penalised. Individuals in such a situation face a fine, while sole traders and legal entities face property sanctions of 5% of the unpaid tax, but no more than 15,000 leva. In the event of a repeat violation, the sanction is doubled.

The reduced VAT rate of 9% also applies to home delivery of food from 01.12.2020 to 31.12.2021.

Distance sales under the VAT Act

From 01.07.2021, new rules and schemes come into force in respect of supplies to non-taxable recipients in the EU. These are:

• Intra-Community distance sales within the EU – until the end of 2020 this was the distance selling regime.
• Distance sales of goods imported from countries and territories outside the EU. The goods are dispatched or transported from third countries via the supplier to a recipient (non-taxable) in an EU country.
• Domestic distance sales. Here the goods are dispatched or transported within the territory of one EU country by a taxable person who is not established in the EU.
• Supplies made through an electronic interface (a device or program that provides communication between two independent systems or between a system and the end recipient, and may include a website, portal, platform, application interface, etc.)
• Rules are introduced for the import of goods under the special regime for distance sales from countries outside the EU, as well as a special regime for declaring and deferring payment of import tax. This applies to consignments whose value does not exceed 150 euros (in leva), with the exception of excise goods, for non-taxable persons who are established, have a permanent address or usually reside in an EU country.

Changes are envisaged in the “Non-EU” and “EU” regimes, which from 01.07.2021 extend to all other services provided to non-taxable persons established in the EU. The “EU” regime also covers domestic distance sales of goods and intra-Community distance sales.

Once the volume of supplies increases, individuals will declare and pay VAT in only one EU country, regardless of where the tax is due. As a result, there is no longer any need to monitor turnover for distance sales and register accordingly in another EU country.

Taxable persons registered to apply the “Non-EU” and “EU” regimes may continue their registration under the relevant regime by submitting an application to update their data electronically. The application can be filed from 1 April to 30 June 2021.

A threshold of 10,000 euros is introduced for determining the place of supply for intra-Community distance sales and supplies of telecommunications services, radio and television broadcasting services, and electronically supplied services provided to non-taxable persons, where the supplier, including an operator of an electronic interface, is established, has a permanent address or usually resides in the territory of only one EU country.

Until this threshold is reached, supplies are considered to be made in the supplier’s EU country. Once the threshold is exceeded, the place of supply is deemed to be the recipient’s country. The total value of the supplies, excluding VAT, must not exceed 10,000 euros in the current calendar year and in the previous year, or the equivalent amount in the national currency of the EU country in which the supplier is established.

Still have questions? The specialists at Bulgarian Expert will always help you find your way through changes in tax legislation.

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The Council of Ministers has approved a draft act amending and supplementing the Value Added Tax Act