Bulgaria: proposed changes to the material tax law

On 31 October 2011 the Council of Ministers of Bulgaria approved the proposal of the Ministry of Finance for changes in three of the five material tax laws, namely the VAT Act, the Personal Income Tax Act and the Excise Duties and Tax Warehouses Act. The approved drafts have already been filed with the Bulgarian Parliament for further discussion and adoption.

We have summarized below the major proposed changes in the three material tax laws.

The VAT Act: Trying to get in line with EU rules and the practice of the Court of Justice of the EU

Real estate

The determination of the VAT taxable base amount for supplies of: (1) a regulated plot of land and (2) (parts of) new buildings and the land thereto will be subject to the general rules.

The establishment or transfer of the right of superficia will be considered as a VAT exempt supply if realized up to the issuance of the construction permit and not, as is the case under the current regime, up to the rough construction completion.

Related party transactions

The general rule that the taxable base of supplies between related parties should be the market price will be repealed and replaced by the respective narrower EU rules.

Self-employed persons

The draft provides that under certain conditions the individuals performing an independent economic activity (i.e. self-employed persons) may remain VAT registered after their deregistration from the Commercial Register without going through the burdensome process of VAT deregistration.

Second-hand dealers

Second-hand dealers of goods other than works of art, collectors’ items or antiques will be able to claim, when applying the normal VAT regime, deduction of the already paid import VAT under the common rules and not, as is the case under the current regime, upon a subsequent supply.

Tourist services

The draft provides for numerous substantial and technical changes in the tourist services sphere. The main changes are aimed: (1) to guarantee access to the lower VAT rate (9%) for hotels accommodation by all end consumers; and (2) to limit the application of the special tourist services VAT regime by tour operators.

Technical issues

Introducing obligations for:

• all entities which exploit fiscal devises to keep all documents issued by or in connection to those devices; and
• all VAT registered entities to submit their VAT declaration and the related sales and/or purchase ledgers electronically if any of the ledgers contains more than 5 records.

The Personal Income Tax Act: Cutting off some administrative burdens

Premises leasing

Income from leasing of a premise under the condominium ownership regime (managed by owners meeting) will be subject to a 10% final tax, payable to the budget by the lessee, if a legal entity or a self-employed person. As a result, the lessor will effectively receive the after tax income amount and will no longer be obliged to declare the income in his annual income declaration.

Anti-tax evasion measure

The draft proposes an obligatory declaration of profits from gambling and the disposal of financial instruments when the total profit of the respective activity is more than BGN 5,000 per calendar year.

Tighter requirements for the 5% reduction of the due outstanding tax

To benefit from the 5% reduction of the due outstanding personal income tax upon early payment or electronic submission of the annual declaration, individuals will have to remit their advance tax within the statutory terms.

Administrative issues

All individuals who have received only employment income during a given year will be released from having to submit an annual income declaration under certain conditions. In order for this measure to be effective, new rules will be enforced which will be to the burden of employers.

The annual personal income tax, as well the tax payable by sole traders, will be rounded down to each Bulgarian lev.

Measures against bribing

The draft of the Personal Income Tax Act proposes to change the Corporate Income Tax Act to explicitly state that any costs representing bribery or covering bribing of local or foreign officials will not be recognized for tax purposes.

The Excise Duties and Tax Warehouses Act: Bulgaria keeps harmonizing its law as per EU rules

• Definitions of the terms “customs suspensive procedure or arrangement” and “importation of excise goods” will be introduced.
• The banderol reports can also be submitted through electronic means.
• The excise rates of the kerosene and gasoline will be increased.
• An effective excise rate for natural gas, when used as a motor or heating fuel, will be introduced.

The proposed changes, as amended by the Parliament, to the three material tax acts should take effect as of 1 January 2012.

Law: amendment of the VAT Act, the Personal Income Tax Act and the Excise Duties and Tax Warehouses Act