Global

Details

  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Bulgaria: VAT essentials 

Essential information regarding VAT as it applies in Bulgaria.


Scope and Rates

What supplies are liable to VAT?


VAT is due on:


  • taxable supplies of goods or services performed against consideration
  • intra-Community acquisitions with a place of supply in Bulgaria, performed against consideration by a VAT registered person or by a person who is obligated to register for VAT purposes in Bulgaria
  • intra-Community acquisitions of new transport vehicles with place of supply in Bulgaria performed against consideration
  • intra-Community acquisitions of excise goods with place of supply in Bulgaria performed against consideration by a tax liable person or a non-taxable legal person(within the meaning of the VAT Act) not identified for VAT purposes in Bulgaria
  • import of goods.

Please note that under the Bulgarian VAT Act certain free-of-charge supplies are to be treated as such performed against consideration and thus, fall into the scope of the law. Improvements to hired assets (subsequent expenses leading to additional economic benefit from the respective asset or creation of new asset) made by and at the expenses of tenants or lessees are deemed as supplies of services in favor of the lessor whereby the lessees should self-charge VAT. Simple repairs of assets not leading to additional economic benefits from the asset are not considered supplies against consideration.


What is the standard rate of VAT?


The standard VAT rate applicable in Bulgaria is 20 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a reduced rate of 9 percent on accommodation provided at hotels and similar establishments, including the provision of vacation accommodation and letting out of places for camping sites or caravan sites.


Additionally, there is a zero rate VAT applicable on:


  • supplies of goods transported or dispatched outside the European Community
  • intra-Community supplies of goods
  • international transport of passengers
  • international transport of goods
  • supplies related to international transport
  • supplies of non-Community goods placed under a special customs regime (such as temporary warehousing, customs warehousing, inward processing, temporary importation with full exemption from duties)
  • services consisting in work on goods (such as processing or repair) when the recipient of the services is a person established outside the country and the goods are imported within the Community in order to be processed and after the works are accomplished they are exported to a third country/territory
  • supplies of non-investment gold when the recipient is a Central Bank
  • supplies related to duty-free trade
  • services rendered by agents, brokers and other intermediaries acting in the name and on behalf of a third person in relation to any of the supplies mentioned above.

The Bulgarian VAT Act provides for VAT exemption on the following supplies:


  • supplies related to health care
  • supplies related to welfare and social security work
  • supplies related to education, sports, or physical education
  • supplies related to culture
  • supplies related to religious denominations
  • supplies of non-profit nature
  • supplies related to land and buildings (under certain circumstances)
  • supplies of financial services
  • supplies of insurance services
  • gambling
  • supplies of postage stamps and postal services
  • supplies of goods or services for which no input VAT credit was utilized because:

    • - the goods/services were used for the performance of VAT exempt supplies only (not applicable for persons who initially did not exercise input VAT credit or exercised it partially but ultimately used the goods or services solely for taxable supplies and, on this ground, subsequently fully deducted VAT or made upward correction of the partial VAT credit) or
    • the input VAT deductibility was explicitly restricted by the VAT Act.

What are the other local indirect taxes beside VAT?


Other indirect taxes in Bulgaria are excise duties, insurance premium tax and custom duties

top

Registration

Who is required to register for Bulgarian VAT?


Generally, VAT registration is required for each tax liable person whose VAT taxable sales with place of supply in Bulgaria reach the VAT registration threshold of BGN 50,000 (approximately EUR 25,560) for a period no longer than 12 consecutive months. Tax liable persons that trade below the registration threshold can choose to register for VAT purposes on a voluntary basis.


Apart from the above general types of VAT registration, the VAT Act provides for other grounds for applying for a VAT registration as outlined below.


Are there penalties for not registering or late registration?


If a tax-liable person fails to fulfill in due terms its obligation to submit an application for a mandatory VAT registration, the revenue authorities are entitled to register the said person ex-officio and to assess the following penalties:


  • additional VAT liability equal to the VAT which the person did not charge due to the fact that it remained unregistered (from the date when the person should have been registered for VAT if an application had been submitted until the date he was actually registered by the revenue authorities or when the ground for registration was no longer valid)
  • administrative sanction equal to the above additional VAT liability
  • penalty interest for late payment of VAT calculated on the amount of the output VAT not charged due to the failure to apply for VAT registration
  • administrative sanction for failing to submit an application for a mandatory VAT registration in the range of BGN 500 - 5,000 (approximately EUR 256 – 2,556)

Is voluntary VAT registration possible for an overseas company?


Yes.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


Foreign suppliers are not required to register for VAT purposes, if all supplies performed within the territory of Bulgaria fall within any of the below simplifications:


  • supply of services subject to VAT reverse charge and foreign supplier is not established in the country
  • supplies falling under the supply-and-install simplification and foreign supplier is not established in the country but is established in another member state
  • supplies performed by the intermediary in a triangulation ( see below)
  • supplies of gas, electricity, heat and refrigerator energy where foreign supplier is not established in the country and recipient is VAT registered in Bulgaria.

Does an overseas company need to appoint a fiscal representative?


Non-EU foreign persons who are obliged to or wish to register might do it only by securing the services of a fiscal representative in Bulgaria.


The fiscal representative can only be (i) an individual with a permanent address in Bulgaria or who permanently resides there or (ii) a local legal entity which is not subject to liquidation proceeding or has not been declared bankrupt and does not have unpaid tax and social liabilities.


The representation is established with an agency agreement signed before a notary. The fiscal representative acts in the name of the foreign person before the revenue administration on all VAT matters and is jointly and severally liable for the VAT liabilities of the foreign person.


The requirement for a fiscal representative does not apply to foreign persons from EU countries who may register without appointing a fiscal representative.

top

VAT grouping

Is VAT grouping possible?


There is no VAT grouping under the Bulgarian VAT legislation.


Can an overseas company be included in a VAT group?


N/A.

top

Returns

How frequently are VAT returns submitted?


VAT returns should be submitted on a monthly basis, together with the VAT purchases and sales ledgers by the 14th of the month following the month to which they relate.


Are there any other returns that need to be submitted?


The VAT Act provides for a variety of returns to be submitted by taxpayers in different situations. Below we comment on the general reporting requirements (that is on returns and ledgers which are to be submitted in the general case).


VAT Sales and Purchases Ledgers


VAT sales and purchases ledgers basically represent lists of all tax documents (that is, invoices, credit/debit notes, protocols for self-assessment of output VAT) issued and received during the respective tax period.


VIES return


VIES returns (equivalent of the European Sales List) should be submitted by VAT registered suppliers involved in intra-Community trade. The following supplies are to be reported in the VIES returns:


  • intra-Community supplies of goods
  • triangulation operations (if acting as an intermediary under certain specific circumstances)
  • supplies of services with a place of supply on the territory of another member state

A VIES return is to be submitted on a monthly basis only if in the respective month there are transactions subject to reporting through a VIES return. The deadline for submitting the VIES return is the 14th of the month following the relevant tax period.


Intrastat Returns


Intrastat returns are to be filed by all persons registered for VAT purposes in Bulgaria whose turnover from intra-Community trade exceeds the 2013 threshold of BGN 240,000 (approx. EUR 122,710). The said threshold is the same for both commercial flows (arrivals and dispatches).


The Intrastat returns are to be filed to the revenue authorities by the 14th of the month following the month during which the arrivals/dispatches have been performed. The first return may be submitted by the 20th of the month following the month of arrivals / dispatches.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Where the value of the taxable amount is in a foreign currency, for Bulgarian VAT reporting purposes it should be determined on the basis of the Bulgarian leva equivalent of the respective currency at the exchange rate of the Bulgarian National Bank at the day when the tax is due. The Bulgarian leva equivalent may also be determined at the exchange rate of the European Central Bank at the time when the tax is due. Conversion of currencies other than the euro shall be carried out by applying the exchange rate of any of these currencies against the euro.

top

VAT recovery

Can a business recover VAT if it is not registered?


Yes. Bulgaria has transposed the provisions of Directive 2008/9/EEC (refund to EU-resident companies) and the 13th Directive (refund to non-EU resident companies in their local VAT legislation).


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Yes, Bulgarian VAT can be recovered by foreign persons established in third countries which refund VAT or similar taxes to Bulgarian persons. These countries are Croatia, Switzerland, South Korea, Norway, Macedonia, Canada, Moldova, Serbia, Israel, Ukraine and Iceland. However, as the list has not been updated lately, possibility for reclaim needs to be analyzed on a case-by-case basis.


Are there any items that businesses cannot recover VAT on?


The input VAT deductibility is restricted for the following purchases:


  • goods / services used for the performance of VAT exempt supplies
  • goods / services to be used for the performance of free-of-charge supplies or transactions outside the scope of the independent economic activity of the entity - This restriction is subject to certain exceptions
  • goods / services to be used for entertainment and representative purposes
  • the purchase of passenger cars (i.e. a car with no more than 5 seats apart from the one for the driver) or motorcycles - This restriction is subject to certain exceptions related to the use of the vehicle
  • goods / services related to the maintenance, repair and exploitation of purchased passenger cars or motorcycles.

top

International Supplies of Goods and Services

How are exports of goods and services treated?


Exports of goods


0 percent VAT applies


Services


The VAT treatment of services depends on the type of the service rendered but as a general rule services with a place of supply in Bulgaria are subject to 20 percent VAT. In the same time, services provided to foreign clients qualifying as taxable persons are usually with a place of supply in the country of the recipient and as such do not involve local VAT (the B2B rule).


How are goods dealt with on importation?


Generally, importation is subject to 20 percent Bulgarian VAT (charged by the customs authorities on the customs value of the goods). However, there are certain exceptions which are explicitly outlined as exempt importation (e.g. goods imported by the EU, European Central Bank, European Atomic Energy Community, EU institutions, etc.; importation of human organs, tissues, cells, blood; goods which are to be subsequently intra-Community supplied; aircrafts and ships except those for sports and entertainment purposes; importation of natural gas through a transmission network, etc.)


How are services which are brought in from abroad treated for VAT purposes?


When rendered by a foreign supplier to a taxable person in Bulgaria services in general are subject to VAT reverse charge.


If the recipient is a non-taxable person, services will in general be taxed in the country of the supplier. However, the following services provided to a non-taxable person will be considered with a place of supply in Bulgaria and will generate VAT taxable turnover for the foreign supplier:


  • electronic communication services, radio and television broadcasting - when the supplier is established outside the Community, the recipient is established in Bulgaria and the service is effectively consumed on the territory of the country
  • electronically performed services – when the supplier is established outside the Community and the recipient is established in Bulgaria
  • transport of goods within the Community – when the transport starts in Bulgaria
  • transport of goods outside the Community – when the transport takes place in Bulgaria according to the distance covered
  • forwarding, courier and postal services in relation to transport of goods within the Community – when the dispatch starts in Bulgaria
  • short-term hiring of means of transport – when the means of transport is actually put at disposal to recipient in Bulgaria
  • long-term hiring of means of transport – when the recipient is established, has his permanent address or usually resides in Bulgaria
  • intermediation services – when the place of supply of the underlying supply is in Bulgaria.

A foreign supplier providing the above services and reaching the statutory threshold of BGN 50,000 would have to (i) register under the VAT Act and (ii) start charging Bulgarian VAT for all supplies with place of supply in Bulgaria (including services rendered to Bulgarian clients qualifying as taxable persons).

top

Invoices

Is a business required to issue tax invoices?


Yes.


What do businesses have to show on a tax invoice?


A tax invoice has to contain the following mandatory items:


  • name of the document – invoice
  • inscription “original” on the first copy
  • subsequent number containing 10 Arabic digits in one or more series, beginning with 0000000001
  • date of issuance of the invoice
  • name and address of the supplier
  • VAT identification number of the supplier (or other identification number if not registered for VAT purposes)
  • name and address of the customer
  • VAT identification number of the customer (or other identification number if not registered for VAT purposes)
  • quantity and description of the services or goods supplied
  • date of the taxable event or date of receipt of the payment
  • unit price (VAT excluded)
  • taxable base of the supply – if shown in other currency, it should also be indicated in BGN
  • trade discounts and rebates (if these are not included in the unit price)
  • the applicable VAT rate – when the VAT rate is 0 percent or when the supply is VAT-exempt, the grounds for applying zero rate or exemption should also be indicated
  • the amount of tax due – if shown in other currency, it should also be indicated in BGN
  • amount to be paid (if different from the sum of the taxable base and the VAT charged)
  • the circumstances which define the goods as a new means of transport: applicable to an intra-Community supply of new means of transport.

Can businesses issue invoices electronically?


Yes, invoices may be issued electronically.


Is it possible to operate self-billing?


Yes.


Can a business issue VAT invoices denominated in a foreign currency?


Under the Bulgarian VAT Act, the amounts in the invoice may be stated in any currency, provided that the taxable amount and the amount of the tax are stated in Bulgarian leva, equivalent of the said currency at the exchange rate announced by the Bulgarian National Bank for the date on which the tax became chargeable. The Bulgarian leva equivalent may also be determined at the exchange rate of the European Central Bank at the time when the tax is due. Conversion of currencies other than the euro shall be carried out by applying the exchange rate of any of these currencies against the euro.

top

Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes, there is a relief from VAT for the sale of business as a going concern.

top

Options to Tax

Are there any options to tax transactions?


The following supplies are usually VAT exempt but the supplier has the option to tax them:


  • transfer of ownership over agricultural land, leasing of land, as well as establishment or transfer of limited property rights over a land plot or
  • supply of buildings or parts of buildings, when more than 60 months have passed after the permit to use the respective building was issued
  • renting of buildings or part of them for residential purposes in favor of an individual who is not a trader
  • granting, negotiation and management of credit in relation to a supply of goods under a lease contract (the interest under leased contracts may be treated as VAT taxable).

top

Head Office and Branch transactions

How are transactions between head office and branch treated?


Transactions between head office and branches are not specifically dealt with by the Bulgarian VAT Act. The Regulation for the implementation of the VAT Act, however, contains special provisions regulating such transactions.


The following transactions are considered outside the scope of the VAT:


  • Transactions carried out between branches or structural units in Bulgaria of one and the same entity irrespective of whether the latter is established in Bulgaria or abroad
  • Transactions carried out between branches or structural units in other EU Member State of once and the same entity established in Bulgaria
  • Supplies of services between a person established in another EU Member Sate and its Bulgarian branches or structural unites.

top

Bad Debt

Are businesses able to claim relief for bad debts?


It is not possible to claim relief for bad debts in Bulgaria. Thus, even though a client may not settle its liability towards the supplier, the latter would still have to pay to the budget the VAT accrued for the respective supply.

top

Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


The Bulgarian VAT Act contains explicit provisions concerning the responsibility of tax payers in case of tax abuse. Under these special rules, the recipient of a given supply is kept responsible for the VAT due but not paid in the budget by the respective supplier provided that:


  • the recipient of the supply has utilized this VAT as input VAT credit and
  • the recipient of the supply knew or was deemed to have known that the VAT charged for the respective supply would not be remitted to the budget
  • Under the VAT Act, the recipient of the supply is deemed to have known that the VAT charged for the respective supply would not be paid to the budget if the following conditions are cumulatively met:

    • ­he VAT charged for the supply of the same good/service was not paid in the budget by any of the suppliers in the supply chain
    • the VAT taxable supply is fictitious, evades the law or was performed at a price which differs significantly from the market levels

Please note that the responsibility as outlined above is not dependant on any specific benefit received as a result of the abuse and may be shifted backwards and/or forward in the supply chain as follows:


  • any supplier preceding the person who did not pay the VAT in the budget may be held responsible
  • the analyzed responsibility is generally borne by the direct recipient of the supply for which no VAT was paid. However, if the VAT cannot be collected successfully from this person, any subsequent recipient may be held responsible

In addition, if a supply is performed between related parties where either the supplier or the recipient do not enjoy the right to full input VAT deduction, the taxable base is to be determined on the basis of the open market value of the transaction for VAT purposes.

top

Penalty Regime

What is the penalty and interest regime like?


Under the Bulgarian VAT Act non-compliant taxpayers are generally penalized with monetary sanctions and penalty interest. However, non-monetary sanctions are also possible as follows:


  • sealing a point of sale for a period of up to one month
  • confiscation and destruction of fiscal device which were re-designed or modified by the taxpayer.

Penalty interest is determined on the basis of the basic interest rate announced by the Bulgarian National Bank, increased by 10 percent. The penalty interest rate for the last couple of years was approximately 10.2 percent.

top

Tax authorities

Tax audits


How often do tax audits take place?


Tax audits are performed upon discretionary of the authorities. No particular pattern is followed.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, but these rulings are not binding.


Are rulings and decisions issued by the tax authorities publicly available in your country?


All rulings and decisions issued by the tax authorities are publicly available in Bulgaria.  

top

Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


There is a specific treatment for barter transactions in Bulgaria. The taxable event for each separate supply is determined by the general rules of the law. The supply with an earlier taxable event is considered an advance payment for the second supply.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Qualifying entities registered for VAT in Bulgaria that implement an investment project approved by the Minister of finance has the right to self-charge VAT upon importation of goods.

 

Share this

Share this

Meet the team

KPMG’s Global Indirect Tax team members are based around the world.

Country VAT/GST essentials