Bulgaria: VAT changes effective from January 2013

Changes to the VAT Act were published in the State Gazette issue No 94 of 30 November 2012 and will come into force on 1 January 2013.

The key changes are set out below.

VAT treatment of repairs and improvements by a holder/user of rented/used asset

Improvements made free of charge by a holder/user of rented/used asset are treated as taxable supplies for consideration. Input VAT will be deductible under the general rules. The tax base includes all direct costs of the improvement. When the improvement is not a condition and/or obligation under the respective contract, the chargeable event occurs upon the physical return of the asset along with improvements by the holder/user upon termination of the rental agreement or suspension of the use of the asset.

A free-of-charge repair of a rented/used asset is not a taxable supply (regardless of the term of the rental contract) but input VAT will be deductible under the general rules.

Right to deduct input VAT

Input VAT will also be deductible, under the general rules, on rentals of motorbikes and cars (with fewer than seven seats) as well as on transport and taxi services. There will no longer be a requirement for seats in the cars to have been installed by the manufacturer. A deduction is still available where the car or motorbike has a mixed use, as long as the main activity qualifies for a deduction (more than 50% of the turnover for the last 12 months).

Any input VAT deducted may not be adjusted if it is shown that the person using the goods (not only the owner) was not responsible for the destruction, shortage or scrap caused by accidents or disasters.

Input VAT may be deducted on goods and services at the time they begin to be used for taxable supplies when, at the time of acquisition, they had been exempt or designated for other activities (not connected to the taxpayer’s independent economic activities).

The period for submitting a list of available assets at the date of VAT registration is being extended from 7 to 45 days.

The scope of joint liability (under Art. 177 VATA) for unpaid VAT by previous suppliers is extended to supplies also by persons not registered for VAT at the time of the supply.

Intra-Community Trade

Where there is a continuous supply of goods within the EU/EEA lasting more than a calendar month, the end of each calendar month during the relevant period is the date used as the chargeable event and for calculating the tax base (or the date of termination, for the month in which the supply ends).

Supplies of goods within the Community made for the purpose of evaluation or work on the said goods provided that they are re-dispatched to the sender in Bulgaria is not an intra – Community supply. Vice versa, in case of receipt of goods sent or transported by another Member State to Bulgaria that are re-dispatched to the sender, there will be no intra – Community acquisition.

Determining the tax base

Where the tax base is not in BGN, the European Central Bank exchange rates could be used to convert amounts in Euros and all other currencies (based on their exchange rate to the Euro).

The tax base must not include any penalties or interest which is compensatory in nature.

The tax base of the advanced payment in case of barter supplies is equal to the tax base of the supply with the earlier date.

The tax base for supplies from the grantor to the concessionaire under conssession for construction agreements, where the consideration (partially or wholly) is determined in goods or services is equal to the amount of the investment agreed without compensation (if such is due by the grantor according to the agreement). Transitional provisions are provided.

Place of supply for vehicles and vessels

There are new rules (implementing Directive 2008/8/EU) for determining the place of supply for the rental/use by a non-taxable person of a vehicle for more than 30 days or a vessel for more than 90 days.