Following the adoption of the latest amendments in the Tax and Social Security Procedure Code („TSSPC“) promulgated in State Gazette issue 92 from 17.11.2017 and in the Law on Value Added Tax (“LVAT”) promulgated in State Gazette issue 97 from 5.12.2017, in force as of 2018, the more important changes in the tax laws have been outlined herein below. Furthermore, amendments in the Law on Local Taxes and Fees (“LLTF”), which will change the way household waste fees are determined, will take effect as of 01.01.2020.

  • Corporate Income Taxation:

Change in the obligation for filing of annual tax return

As of 01.01.2018 taxable entities who did not conduct activity for the respective calendar year in the meaning of the Law on Accountancy will no longer be under the obligation to file an annual tax return and annual activity report.

As of the same date the statutory provision providing possibility to apply 1% discount (but not more than BGN 1,000) from the annual corporate tax due, if the annual tax return and the annual activity report were filed electronically until 31st of March, is abolished.

  • Personal Taxation Highlights:

Change on the attachments to the annual tax return in respect to the amount of taxes and social security contributions paid abroad

The scope of possible evidence through which the amount of taxes and mandatory social security contributions that have been paid abroad is now broadened. Following the amendment, evidencing will be possible by way of any type of evidence and not only with certificates issued by the competent authorities of the foreign state. Thus, local taxable persons will be able to prove the amount of the taxes and social security contributions paid abroad by attaching to their annual tax return any evidence in that respect, which broadens the possibility to attach different documents and facilitates the process.

Declaring of non-taxable income

Local natural taxable persons will have the option to declare their non-taxable income in the annual tax return. The aim is to optimize tax inspections and tax audits of natural persons in relation to comparison between the property acquired during the year and the income declared by the persons.

Amendments in filing of declarations

The amendments provide for the declaration under Art. 55, paragraph 1 of the Law on Taxes on Income of Natural Persons (“LTINP”) from enterprises who are payers of income to be filed electronically only. Thus, such filing will be made consistent with the filing of the declaration under Art.201, paragraph 1 of the Law on Corporate Income Taxation, which uses the same template but could be filed electronically only.

The conditions, under which 5% discount on the tax to be paid if the annual tax return is filed electronically, will be changed. The maximum threshold of the discount will be decreased from BGN 1,000 to BGN 500. The annual tax return should be filed and the tax should be paid until 31st of January (rather than as it was so far the annual tax return to be filed until 31st of March and the tax to be paid until 30th of April) in order the discount to be applied.

The term for filing of the reference under Art. 73, paragraph 1 of LTINP is changed. The reference should be provided until 15th of March and not until 30th of April, as it was so far. This is also applicable for the reference on the income paid during 2017 – such reference should be filed not later than 15.03.2018.

  • VAT Highlights:

Change in the terms for filing of application for mandatory VAT registration and new option for voluntary registration

As of 01.01.2018 new regulations will apply in respect to the terms for filing of application for mandatory registration under LVAT. The term for filing of application for mandatory registration under LVAT in the cases, where taxable turnover of BGN 50,000 in the preceding twelve months has been reached, is decreased from 14 to 7 days as of expiration of the month during which such turnover was reached. Newly regulated case is the situation where such turnover has been reached for not more than two consecutive months in which the application for mandatory registration should be filed not later than 7 days as of the date on which the turnover was reached.

The term for filing of application for registration under LVAT is decreased from 14 to 7 days as of occurrence of the respective circumstance also for the special cases of mandatory registration (upon merger, upon establishment of unincorporated entity and upon inheritance).

It should also be noted that pursuant to the amendments, in case of non-compliance with the obligation for filing of an application for registration under LVAT where the turnover of BGN 50,000 has been reached for not more than two consecutive months, upon registration at the initiative of the revenue authority tax should be due also for the taxable supply through which the taxable turnover has been exceeded.

Filing of application for VAT deregistration by the entity will no longer be required in cases of termination of entity without liquidation, of unincorporated entity or of social security cash desk. Deregistration in these cases will be made ex officio upon initiative of the revenue authority through issuing of an act for deregistration.

Effective as of 01.01.2019 the persons will have the option to apply for voluntary LVAT registration before the Registry Agency together with the application for initial registration under the Law on Commercial Register and the Register of Non-profit Legal Entities. It will be possible the application for registration to be made by a lawyer explicitly authorized by way of written power of attorney. In these cases, the persons will be relieved from the obligation to provide report on the taxable turnover for the purposes of the voluntary LVAT registration.

New on declaring of VAT

Except for explicitly specified cases, filing of VAT returns, VIES declarations and LVAT ledgers on paper will no longer be possible. Effective as of 01.01.2018 declaring under LVAT will be made only electronically under the terms and conditions of TSSPC.

Obligation for preparing and filing of an inventory list for the available assets and services, in order tax credit deduction for assets and services received before the date of LVAT registration to be available, will no longer apply. Such list also will no longer be required upon subsequent registration, upon mandatory registration in case of merger and upon inheritance.

Investment gold and gold coins

As of 01.01.2018 a new provision defining investment gold for the purposes of LVAT will take effect. Pursuant to the new provision, gold coins are qualified as investment gold. Thus, the provisions regulating the investment gold for LVAT purposes will also be applicable to gold coins as listed in a special order of the Minister of Finance issued jointly with the Governor of the Bulgarian National Bank.

Repeal of the provisions for refusal of registration of a person, whose owners or representatives have unsettled VAT obligations of more than BGN 5,000

As of 01.01.2018 statutory provisions have been repealed concerning the possibility for the revenue authorities to refuse LVAT registration to a person not providing security and for which data is present that one or several of its owners, managers, procurators, majority shareholders or shareholders have unsettled obligations for value added tax of more than BGN 5,000 or are or have been owners, managers, procurators, majority shareholders or shareholders of persons with unsettled obligations for value added tax of more than BGN 5,000 will be repealed.

Refining the provisions for correction of tax credit

The amendments introduce a rule regulating the undeducted amount of the tax credit, which the persons can deduct upon subsequent taxable supply, in the cases where on the grounds of explicit limitation in the law they have not deducted tax credit upon the manufacture, acquisition or import of goods, upon construction or acquisition of real estate assets or upon receiving of services, which are or would be long-term material assets, but in the course of using these assets tax credit has been deducted as result of annual correction made.

In force as of 01.01.2018 an entirely new provision Art. 79в is introduced in LVAT stipulating further rules for calculation of adjustments in respect to tax credit.

  • Excise Duties:

As of 01.01.2018 amendments in the Law on Excise Duties and Tax Warehouses (“LEDTW”) enter into force, aimed at refining some provisions and facilitating practical implication. Some of the most notable ones include:

  • The definition for “Energy product for heating” is refined by adding that the energy product for heating is not limited to use for heating of premises only.
  • Preparations for smoking with water pipe (narghileh), which except tobacco or tobacco substitutes (plants based products, herbs or fruits or solid products) contain flavoured substances, are explicitly included in the definition for tobacco products and shall be treated and taxed as such in the future.
  • The amendments stipulate that excise bands will be printed by the Bulgarian National Bank’s printing house which, if necessary, can also use other specialized printing houses. Printing of the excise duty bands shall be conducted in compliance of the requirements under Ordinance for the Terms and Procedure on Printing and Control of Securities.
  • In relation to Judgement of the CJEU of 28 January 2016 on Case C-64/15 a regulation has been put in place to cover assessment and payment of excise duty obligations in cases when deficiencies have been found on the territory of the country upon completion of movement of excise duty goods under excise duty suspension regime.
  • Minimum term of validity of not less than a year as of issue date of bank guarantees, provided by licensed warehouse keepers as security for excise duty suspension regime, has been introduced.
  • Prohibition is imposed on publication of announcements or messages in electronic format through which excise duty goods without excise duty bands, goods having CN code 2208 with DUTY FREE excise duty bands as well as tobacco products without excise duty bands, bulk tobacco products or separate pieces and units from opened packaging, tobacco products with sign DUTY FREE, hand-rolled cigarettes or cigarettes made from filter blanks in quantity of more than 40 pieces and tobacco waste are offered for sale. The measure is aimed at preventing practices associated with illegal distribution of excise duty goods via courier services resulting from internet publications for sale of excise duty goods without excise duty bands.
  • As of 01.01.2018 the obligation for provision of declaration that the person has not committed serious or repeated violation of LEDTW will no longer be required upon filing of a request for the procedures under LEDTW for license for management of tax warehouse, a certificate for exemption of final consumer from excise duty, for registration under Article 57а from LEDTW, for a registered consignee, a temporarily registered consignee and registered consignor. In respect to these procedures persons registered in the Commercial Register shall be relieved from the obligation to provide declaration that the person is not in insolvency or liquidation procedure.
  • Amendments to the Law on Local Taxes and Fees:

Amendments in relation to household waste fee in force as of 01.01.2020

As of 2020 the household waste fee will be determined in compliance with the principle of incurring the expenses by the person causing or owning the waste. The amount of the household waste shall be the leading base for determining the amount of the household waste fee.

The amount of the household waste fee for each taxable person will again be the sum of the fee amount for (a) the service for collection and transportation of household waste, (b) the service for treatment of the household waste in facilities and installations and (c) the service for maintaining cleanliness of the territories for public use in the towns and villages. A separate base for calculation should be determined by the municipality councils for calculation of each one of the fees for these services.

The bases for determining of the amount for the household waste fee amongst which municipality councils can choose are as follows:

1. for the service for collection and transportation of household waste and 2. for the service for treatment of the household waste in facilities and installations:

a) individually determined amount of household waste for the real estate, including through bags with specific capacity and bearing capacity;

b) the amount of household waste for the property determined in compliance with the number and capacity of the vessels for collection of the household waste and frequency for their transportation;

c) number of users of the service in the real estate.

3. for the service for maintaining cleanliness of the territories for public use in the towns and villages in the municipality:

a) number of users of the service in the real estate;

b) unfolded built and/or not build area of the real estate.

The municipality councils shall choose the bases for calculation of the amount of the fee for each one of the services through including them in the respective ordinances for determination and administration of the local fees and prices for services.

Owners and occupants with right in rem to use of real estates subject to real estate tax should declare before the municipality circumstances of importance for calculation of the amount of the household waste fee as well as any change thereof through filing of standard form declaration following procedure and within term as stipulated in the respective ordinances for determination and administration of the local fees and prices for services. It will be possible the declarations to be filed electronically following procedure under TSSPC.

Owners and occupants with right in rem to use of real estates subject to real estate tax have the obligation until 31.03.2019 to declare before the municipality number of users of the services in the respective real estates and in case the real estate has been acquired after such deadline and before 31.12.2019 – within two months as of acquisition.

Non-compliance with the obligations of the persons for declaring would lead to imposition of a fine between BGN 10 and BGN 400 (for natural persons), respectively financial sanction between BGN 100 and BGN 3,000 (for legal entities).

Other amendments

Effective as of 01.01.2018 the evidencing of payment of the tax on motor vehicles for the purposes of annual technical inspection for roadworthiness will be possible through check via automatic exchange of information between the informational system for electronic registration of the routine inspections of motor vehicles operated by the Ministry of Transport, Information Technology and Transport and:

a) the system for exchange of information operated by the Ministry of Finance or

b) the respective system for administration of local taxes and fees of the municipality.

Effective as of 01.01.2018 no fee shall be due for request and receipt of information for presence or lack of obligations of the parties towards the respective municipality.

In addition to the electrical automobiles, motorcycles and mopeds, exempted from motor vehicles tax will also be motor vehicles from categories L5е, L6е and L7е, defined in Art. 4 of Regulation (EU) No 168/2013.

  • Amendments to the Tax and Social Security Procedure Code:

Amendments in relation to the liability of shareholders for unsettled obligations for taxes and/or social security contributions of the company

The amendments further specify when transfer of shares by the majority shareholders in a way that they are no longer majority shareholders could be considered as acting in bad faith. Until the amendment (in force as of 21.11.2017) acting in bad faith was supposed to occur if disposal has been made before declaring of bankruptcy or rejection of the claim for declaring of bankruptcy, which was not a precise wording. The amendments specify that acting in bad faith is considered to occur when disposal by the shareholder has been made before the earlier between the following two dates: 1. promulgation of the debtor’s claim for opening of bankruptcy proceedings in the Commercial Register; 2. registration of resolution of the bankruptcy court for opening of bankruptcy proceedings for the debtor.

New provision stipulates that liability of shareholders for unsettled obligations for taxes and social security contributions of the company should drop off when the bankruptcy court terminates the bankruptcy proceedings because rehabilitation plan was approved or based on agreement for settlement of the payment of the monetary obligations in compliance with the rules under the Law on Commerce.

It should also be noted that the procurator is added to the persons bearing liability for unsettled obligations of the taxable entity for taxes or mandatory social security contributions.

Decrease of administrative burden

As of 01.01.2018 Customs Agency and municipalities shall ex officio provide information for the presence or lack of obligations for the parties. Thus, the persons shall be relieved from the obligation to provide the competent authorities and other authorized parties with certificate for presence or lack of liabilities, issued by National Revenue Agency (“NRA”), Customs Agency and the municipalities.

Amendments refining filings of country-by-country reports

The amendments explicitly stipulate that notifications from taxable persons in relation to country-by-country reports shall be filed electronically following procedure and in format as approved with an order of the Executive Director of NRA. The wording of the TSSPC before the amendment did not stipulate the procedure for filing of these notifications.

In force as of 21.11.2017 a rule was introduced aiming to clarify that the obligation for filing of country-by-country report does not apply in cases where the sum of the revenues of the group according to its consolidated financial statements for the tax year preceding the reporting tax year, calculated in local currency of the jurisdiction the ultimate parent entity is tax resident of, does not exceed the threshold for filing of country-by-country reports as determined in this jurisdiction, notwithstanding that its value in Bulgarian levs exceeds the amount of BGN 1,466,872,500. This rule shall apply when the jurisdiction of which the ultimate parent entity is tax resident has determined a threshold, which is approximately corresponding to the value of EUR 750,000,000 calculated in the local currency of that jurisdiction as at January 2015.

  • Amendments to the Law on Accountancy:

The definition for “Net sales revenue” has been refined and brought in compliance with the definitions of “net turnover” under Directive 2013/34/EU (the Accounting Directive). As a result, the definition for “Ordinary activity” is repealed as it is no longer necessary.

In force as of 01.01.2018 persons who did not conduct activities during the preceding year will be relieved from the obligation to file annual accounting statements. This circumstance should be declared through declaration to be announced in the Commercial Register not later than 31 March of the following year where fees under the Law on Commercial Register and the Register of Non-profit Legal Entities for announcement of the declaration shall not be due.