Does buying a car in the company's name count as activity?

Recently, the manager of a Bulgarian company decided to buy a good car. He was not planning to run a business — the company was set up solely to buy the vehicle. On the advice of acquaintances, the manager decided to save money: he did not start the company’s activity, did not pay social security contributions (osigurovki), and calmly used the car for personal purposes.

Imagine his surprise when a routine inspection by the National Revenue Agency (NAP) (the tax authority) ended not merely with a warning, but with huge fines in euros under several articles of the law at once. The manager was genuinely bewildered: “But the company wasn’t operating, there were no sales, where do the fines come from?”

So where does the trap actually lie when a company is registered solely to buy a car? Let’s break this case down in detail, based strictly on the legislation currently in force in Bulgaria.

🔍 The main misconception among many company owners and even many accountants

The most popular myth, stubbornly believed not only by business owners but also, unfortunately, by many accountants: “Activity is when a company has commercial sales and profit.” From the point of view of Bulgarian law, this is fundamentally wrong.

Any business transaction already constitutes carrying out an activity. Buying a car necessarily involves:

• Signing a purchase and sale contract on behalf of the legal entity.
• Paying the invoices for registration with the KAT, the eco tax and the local tax.
• Taking out the mandatory insurance policies (Third-party liability, Casco).

Since the company carries out these transactions, it means the manager is performing his work of managing assets. And since he is working, a direct legal obligation arises to start the activity and pay social security contributions.

⚖️ What does the law say?

Case law and official clarifications from NAP (for example, Instruction No. 20-00-1230) interpret any actions involving representation of the company, disposal of its bank account and the signing of contracts as “упражняване на трудова дейност” (carrying out labour activity) by the manager. By buying a car, you automatically activated the company.

📉 The myth of quick mothballing

Sometimes accountants propose a “clever” plan: start the activity for a month, buy the car and register it with the KAT, then file a declaration suspending the activity, “mothball” the car on the balance sheet and go back to “sleep” so as not to pay contributions.

On paper it looks smooth. But if the car continues to actually drive on the roads, NAP will prove at the very first inspection that the mothballing was fictitious. And here are the fines this entails:

Additional assessmentof social security contributions with interest (КСО)

NAP has direct access to the camera databases of BGTOLL (the vignette system) and the KAT. If a “mothballed” car is caught on camera, the company is deemed active retroactively. The manager will have to pay all the concealed social and health insurance contributions for the entire period of the fictitious “sleep”, plus interest (the statutory penalty interest at the BNB rate + 10% per annum for each day of delay).

Finesfor misstated reporting

Filing an inaccurate declaration of suspension of activity (ОКд-5) and failing to submit the monthly reports on insured persons (Declarations 1 and 6) exposes the manager to personal fines under чл. 355 от КСО — from €25 to €130 for each concealed month.

Taxpenalties and non-recognition of expenses (ЗКПО)

• NAP will exclude these expenses from tax accounting entirely.
• Under чл. 59 от ЗКПО, tax depreciation ceases to be charged only if the asset is mothballed and not used in the activity for at least 12 months. Fictitious short-term mothballing is illegal.
• The company will be additionally assessed 10% corporate income tax on the amount of these non-recognised expenses.
• For submitting inaccurate data in the company’s annual tax return (ГДД), чл. 264 от ЗКПО provides for a fine of between €250 and €1500.

Finesunder the Закон за счетоводството (ЗСч)

Since the costs of maintaining the car (local tax, insurance, roadworthiness inspection) were paid somehow (most likely in cash out of the manager’s pocket) but were not officially recorded in the accounts of the dormant company:

• The National Revenue Agency (NAP) qualifies this as conducting concealed financial transactions and a breach of the basic principle of documentary substantiation (чл. 4 от ЗСч).
• The fine for the company ranges from €250 to €2500, and for the manager personally from €100 to €1000 (по чл. 74 от ЗСч).

⚖️ Bottom line: is the game worth the candle?

Trying to save around €150–200 a month on the manager’s minimum social security contributions while actually using the car of a “dormant” company is an enormous and unjustified risk. Bulgaria’s tax system is fully digitalised, and an inspector can match a company’s status against the movement of its property in literally a few clicks.

If you are buying a car in the name of a legal entity and plan to drive it, be prepared for two lawful options: either honestly pay the manager’s monthly social security contributions and keep full accounting records, or genuinely put the car in a garage in full, real mothballing. NAP no longer forgives a third way.