VAT registration — is it mandatory?

VAT registration for companies in Bulgaria is mandatory in certain situations:

• When turnover exceeds 50 thousand leva over 12 calendar months within Bulgaria.
• If foreign trade activity in the field of services is planned — from 1 lev.

It should be taken into account that in these cases of foreign trade activity, VAT registration is mandatory, even if in fact it turns out to be zero.

The VAT Act sets deadlines for registering a company as a VAT payer. It is recommended to clarify these deadlines in advance by consulting a lawyer or an accountant.

Preparing a foreign trade transaction requires mandatory determination of the jurisdiction and status of the partners. If the companies are registered in the EU, you can find out whether they are VAT payers using the system designed for the exchange of VAT information – VIES

Since Bulgaria is a member of the European Union, it is subject to Council Directive 2006/112/EC on the common system of VAT in the European Union. The main points contained in the directive:

• Value added tax must be applied to all transactions carried out in the European Union by VAT payers – any organisations and persons that supply taxable goods and services in the course of business. Imports made by a VAT payer are also subject to tax.
• The list of taxable transactions includes supplies of goods/services within a single EU country; supplies of goods within the EU from one country to another; imports from outside the European Union.
• VAT is levied in accordance with the nature of the transaction, for example, upon the delivery of goods or services. The tax may be charged on a purchase within the European Union upon delivery of the goods.
• A taxable supply includes all payments intended for the supplier.
• The taxable event for imports into the EU is considered to be the moment the goods reach the first EU country.
• The basis for imported goods is their customs value. The tax base includes customs duties, other taxes and charges. The only exception is VAT.

Which rules apply to the place of a transaction depends on the type of product supplied, the nature of the transaction and whether the shipment falls into the following categories:

• Supply of goods – when the place of delivery of the goods and the place of taxation coincide.
• Intra-Community acquisition. In this case taxation takes place in the European Union country to which the goods sent from another EU member country arrive.
• Import. Pursuant to Article 60 of the Directive, VAT is paid in the EU country where the goods directly arrive from outside the European Union. Exception: if on entry the goods fall under a suspensive customs procedure or similar arrangements, then, pursuant to Article 61 of the Directive, the place of taxation is the EU country where that procedure or arrangement ceases to apply to the goods.
• Supply of services. Taxes are levied at the place where the service is supplied. This is affected by the nature of the service and the status of its recipient. It is necessary to distinguish between a taxable person (a legal entity or entrepreneur, who is not necessarily a VAT payer) and a non-taxable private individual who is the final consumer. Only by learning the exact details of the nature of the service and the status of its recipient can the place of supply of services be determined. Thus, B2B services between businesses are taxed at the place where the client is established, as a result of which zero VAT becomes possible. B2C services supplied to private individuals are taxed at the place where the supplier is established. Because of a number of exceptions, it is recommended to consult a specialist additionally before concluding a service transaction.

The Directive provides for VAT exemptions, as well as the application of reduced rates to specific services and goods listed in Annex III to the document. The list of exceptions includes financial, insurance and social services, and medical care. A number of exceptions are mandatory for EU member countries; others are optional.

There is also a right of deduction, for example, for supplies of products or exports to a country that is not part of the EU. A taxable person has the right to deduct the amount of VAT that was paid for products or services acquired in the European country where these transactions were carried out. Input VAT can be deducted from the VAT charged on taxable transactions, which include domestic supplies. The right of deduction cannot be used if the taxable person is entitled to a special scheme or carries out exempt economic activity. Possibilities for limiting or adjusting payments are provided for.

If an EU enterprise arranges a triangular transaction for the supply of European goods to a third country, and the goods do not end up in the country where the company is registered, then that firm loses the right of deduction.

The Directive contains obligations for taxable persons and certain categories of persons who are not subject to tax. In general, all taxable persons must pay VAT when making taxable supplies of services and goods. The list of exceptions includes specific transactions with payment of VAT on supplies of natural gas. Derogations from the standard VAT rules are also allowed for EU countries, in particular in order to prevent certain types of fraud and tax evasion. Special simplified VAT regimes are provided for – for example, for farmers and certain kinds of small enterprises.

VAT transactions must be documented correctly. It is necessary to conclude contracts and use strict accountability forms, correctly completed and submitted to the accounting department on time. This is connected with monthly VAT reporting. Violations of the procedure for submitting such reports are punishable by penalties.

List of documentation for international contracts

Purchase of goods:

• A payment order confirming the fact of payment.
• The purchase invoice provided by the seller, Purchase order.
• If the purchase is made by a third party for import into the territory of Bulgaria – a customs declaration obtained from an EU customs office. If a transit sale is made and the goods are sent directly to a third European state, bypassing Bulgaria, a copy of this document is required.
• For a purchase from a third party – a declaration issued by that party’s customs office.
• CMR. For triangular transactions taking place within the EU between VAT-registered companies, a confirmation letter (LADING LIST, PACKING LIST, BILL TO SHIP) is required in addition to the CMR.
• An invoice for transport costs. If the transport is paid for by the buyer, the original document must be provided. If the transport costs are paid by the seller, a copy is provided.

Sale of goods:

• Purchase order, sales invoice.
• A payment order to confirm the fact of payment.
• If the sale is made to a third party – a customs declaration.
• CMR. VAT-registered firms must additionally provide a confirmation letter for triangular transactions in the EU.

Purchase and sale of services:

• Invoice.
• A payment order confirming the fact of payment.
• Proof that the service was ordered or performed and subsequently accepted — a contract, an acceptance certificate, correspondence.

All documents must be translated into Bulgarian.

Company registration in Bulgaria

Accounting services for a company in Bulgaria

Remote control of the company

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