I. CORPORATE TAX
The current Corporate Tax Law (CTL) entered into force on January 1, 2007 (last modified on August, 13 2019). The Law establishes in art. 1 that the benefits of local entities, as well as those of foreign entities will be taxed when they has their origin from operations carried out in Bulgaria. The tax base will be the financial result of applying the tax rules to the accounting result (art. 18 CTL). The tax rate is 10% (art. 20 CTL).
The tax year coincides with the calendar year (art. 21 CTL). The negative tax bases can be compensated with the positive ones of subsequent years, up to a maximum of 5 years (art. 70 CTL). Taxpayers must make payments on account of the tax monthly or quarterly (art. 83-87 CTL). The monthly payment will correspond to taxpayers who had declared benefits the previous year, serving that benefit as the basis for calculating the payment on account. The quarterly payment will fall on the other taxpayers, and will be calculated on the benefit obtained in the current year.
The depreciation schedule is essential. Depreciable assets are (art. 48 CTL): material fixed assets, intangible fixed assets, real estate, with the exception of land. Amortizable assets must be included in a depreciation plan that contains the relevant information for the calculation of the annual allowance for depreciation (art. 52 CTL): identification of the item, time of entry into operation, tax-depreciable value, endowment of the corresponding year, etc.
Article 55 of the CTL divides the assets into seven categories and sets the maximum rates
of annual depreciation corresponding to each one, according to the following table:
CATEGORY ELEMENTS MAXIMUM TYPE
I Buildings; power transmission devices, communication lines 4%
II Machinery and productive equipment 30%
III Means of transport (except motor vehicles) 10%
IV Computers and so on, software and right to use software 50%
V Motor vehicles 25%
VI tax tangible and intangible assets for which there is a limited period of use under a contractual relationship or a legal obligation 33% 1/3 annual
VII Other fixed assets 15%
Dividends distributed by local companies in favor of foreign entities are subject to a withholding tax that will be considered as final (art. 194 CTL). This tax will be withheld by the entity that distributes dividends and will be calculated on their gross amount (art. 197 CTL). The tax rate applied will be 5% and 10% for the rest of the income (art. 200 CTL).
On January 1, 2007, the current Law on Value Added Tax (LVAT) entered into force, which repealed the previous law of 1999. The last amendment to the Law has entered into force on April 19, 2019. The law adopts the regulations included in the Sixth VAT Community Directive. The management of this tax corresponds to the tax and customs addresses of the Bulgarian Ministry of Finance. VAT is applicable to all persons who carry out independent economic activities, whatever the objective or the result of the activity (art. 3 LVAT), and covers the transmission of goods and the provision of services, intra-community acquisitions made within the territory of Bulgaria, and the imports (art. 2 LVAT).
There are three types applicable to operations subject to tax (art. 66 LVAT):
20%, applicable to deliveries of goods, provision of services and imports of goods and services; 9%, applicable to accommodation services provided by hotelier (applicable since April 1, 2011), provided when is organized by travel. 0% applies to exports, both the cases included in the LVAT itself, and those contemplated in International Treaties ratified by Bulgaria (art. 172-173 LVAT). The settlement is done monthly (art. 87 LVAT). The refund of VAT to be returned, if requested, will occur within a maximum period of 30 days (art. 92 LVAT).
Any natural or legal person, whether or not
resident in Bulgaria, and who has had a taxable turnover of at least BGN 50,000
during the previous twelve months is required to register for VAT purposes by
submitting a standard registration form within a period of 14 days after the
end of the calendar month in which you have reached that amount (art. 96 LVAT).
The Law regulates the obligations of the parties regarding documentation (art.
112-122 LVAT) and accounting (art. 123-126 LVAT). The invoice must be issued
within five days from the operation (or from the payment in case of advance
payment), and in a minimum of two copies. The mandatory information contained
in it is essentially: number and series of the invoice; date of issue; name,
address and fiscal number of the parties; description of the goods or services
object of the operation; the price (and commercial discounts, if they exist); the
tax base; the type of tax applied; the accrued tax; the final amount to be
paid; issuer signature; etc.
Article 81 of the LVAT regulates the refund of VAT to persons not resident in Bulgaria.
Thus, they can obtain a refund of the VAT paid:
· Taxable persons resident in other EU member states, for the goods acquired and services received in Bulgaria;
· Persons residing in non-EU Member States, registered for VAT purposes in another State, on condition of reciprocity;
· Natural persons not subject to the tax, not resident in the EU territory, who have acquired goods for personal consumption in Bulgaria (the reimbursement will occur after leaving the Bulgarian territory, and as long as the goods are exported without suffering modifications).
III. DOUBLE TAXATION
According to Annex I of the Treaty of Accession to the EU, Bulgaria adheres to the Community framework for double taxation (Convention of July 23, 1990 on the abolition of double taxation in case of correction of the benefits of associated companies, and complementary legislation).
The application of the double taxation Treaties is regulated in the Code of Fiscal Procedure and of the S.S. (effective as of January 1, 2006, last modification in October 2019).
The treaties apply to:
(A) Income of foreign legal entities and foreign
companies: dividends; settlement fees; interest, including those paid for
financial lease contracts; royalties; remuneration for technical services;
leases, payments for leasing contracts, franchises, or factoring; income from
the sale of real estate, shares in shares, financial assets and securities.
(B) Income of foreign natural persons: income, prizes won in competitions; compensation for future benefits and other similar compensation; interests – except those from deposits in commercial banks; dividends from cooperative societies; intellectual property rights by inheritance; other non-exempt or non-exempt income “ex lege”.
IV. BASES OF APPLICATION OF
To request the application of the treaties the foreign person must certify: (A) that he is a local person in the foreign country in accordance with the corresponding treaty (document issued by the tax authority of the corresponding foreign country); (B) that it is the owner (not only the recipient) of income derived from a source in Bulgaria; (C) that he/she dispose of permanent establishment and fixed address in Bulgaria. (D) that complies with the provisions of the corresponding agreement.
V. PROCEDURE FOR APPLICATION FOR THE TAX TYPES OF TREATIES The application request to benefit from the exemptions established in the agreement should be presented in 5 copies to the territorial address of the National Revenue Agency, which should respond within a maximum period of 60 days. In case of denegation the possibility of appeal is contemplated. The countries with which Bulgaria has agreements to avoid double taxation are: Albania, Germany, Algeria, Armenia, Austria, Belgium, Belarus, Canada, China, Cyprus, North Korea, South Korea, Croatia, Denmark, Egypt, Slovenia , Slovakia, Spain, United States of America, Finland, France, Georgia, Greece, Hungary, India, Indonesia, Iran, Ireland, Italy, Israel, Japan, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, FYR Macedonia, Malta, Morocco, Moldova, Mongolia, Norway, Netherlands, Poland, Portugal, United Kingdom of Great Britain and Northern Ireland, Czech Republic, South African Republic, Romania, Russia, Serbia and Montenegro, Singapore, Syria, Sweden, Switzerland, Thailand , Turkey, Ukraine, Uzbekistan, Vietnam and Zimbabwe.
For more information, please contact Kirilova Law & Associates.