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Bulgaria

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Business climate in Bulgaria improved in May 2017

The National Statistical institute says that in In May 2017, the business climate in Bulgaria increased by 3.2 percentage points in comparison with April, due to more optimism in all sectors: surveyed – industry, construction, the retail trade and services.
In the construction sector, the indicator went up by 2.9 percentage points.
However, the NSI noted, the most recent study shows also an increase in the number of clients of the construction sector who had delayed making payments.
About the retail trade, the indicator climbed by 5.6 percentage points, with volume of sales expected to increase both from the domestic and foreign markets over the next three months.
In May, the indicator in the service sector increase by 4.7 percentage points, as managers had more favourable opinions about demand for services.
(Source: IBNA)

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Bulgaria: Specialized VAT fraud unit

Alessandro PasutBulgaria’s Deputy Finance Minister has confirmed plans for the formation of a specialized unit within the National Revenue Agency to deal exclusively with value-added tax (VAT) fraud in relation to high risk goods transiting through Bulgaria.
The unit will focus entirely on intra-Community transactions by electronically registering goods imported into, or exported from Bulgaria, or goods placed in customs warehouses bound for other European Union member states.
The unit would in particular look at the trade in known high-risk goods, such as mobile phones, with teams based at five border checkpoints along the nation’s frontiers with Greece and Romania. They would be responsible for checking consignments in vehicles, and tax documentation.
GPS devices are also to be deployed in sealed goods containers allowing for vehicles to be tracked in real time. This would tackle a type of VAT fraud that manipulates EU rules covering zero-rate goods exported to other member states. It would serve to prevent high-value goods, declared as being exported to the European Union, being replaced by lower-value equivalents. Under this type of fraud, the high-value goods, instead of being exported, are sold to the domestic market free from value-added tax.

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Bulgaria: reporting and declaration of transactions

Reporting and declaration of transactions

The minimum amount of the total receivables from and obligations to foreign persons with regard to commercial loans and other transactions, which are not financial loans that must be declared, is increased from BGN 50,000 to BGN 200,000 or its foreign currency equivalent.

There is an obligation to submit to the BNB statistical forms for quarterly reporting of the operations with foreign persons related to services, remuneration and gratuitous revenues and payments when this has been requested in writing by the Deputy Governor in charge of the Banking Supervision Department or a person authorized by them.

The deadline for submitting the quarterly reports to the BNB has been extended until the 20th day of the month following the reporting quarter (the deadline for the report for the 4th quarter is 25 January), except for the reports related to granting/receiving financial loans where the deadline remains unchanged – until the 15th day of the respective month.

The Ordinance introduces an obligation for annual reporting with statistical forms to the BNB in relation to direct investments in real estate abroad. Reporting on a monthly basis is required in the case of real estate transactions between local and foreign persons.

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Bulgaria: the act on the economic and financial relations with companies registered in preferential tax regime jurisdictions

Alessandro PasutBULGARIA

The act on the economic and financial relations with companies registered in preferential tax regime jurisdictions, the persons related to them and their beneficial owners entered into force on 1 January 2014. Its main goal is to prevent tax avoidance and not to permit the acquiring of public funds and management of financial resources by companies, which are registered in preferential tax regime jurisdictions.

The Act imposes a prohibition for companies, registered in preferential tax regime jurisdictions, and the persons related to them, to be directly or indirectly involved in certain activities. Following the entry into force of the Act, companies registered in preferential tax regime jurisdictions will no longer be able to be shareholders in companies that carry out licensing activity, to participate in privatization, concession or public procurement, to acquire lands and forests from the state forest funds, etc.

The prohibition is applicable to any person related to the companies registered in preferential tax regime jurisdictions as well, i.e. companies that have direct or indirect control over such legal entities, as well as their subsidiaries.

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Bulgaria: the production and export of clothing and textiles revives

The production and export of clothing and textiles revives. According to the National Statistical Institute and Eurostat, Bulgarian export of clothing and textile marked growth in 2013. Last year export reached 1.8 billion euros – the highest level of Bulgarian exports since 2007. A 7-percent growth in export has been marked in comparison to 2012. Out of those 1.8 billion, export of textiles totaled € 328 million or about 18% of the total exports of the country.

Here is more from the President of the Bulgarian Association of Apparel and Textile Producers, Radina Bankova:
“Export of textiles and clothing is now going through another boom and is close to the strongest years before the crisis. European countries remain our traditional markets. We are glad that a significant recovery of the interest of these countries towards our production has been marked. A great number of major companies have been returning to Bulgaria because of its geographical location, traditionally good relations and technological capabilities of Bulgarian enterprises. Bulgaria’s biggest export market remains Germany, followed by Italy, France, Greece and Spain. Domestic consumption is relatively small. Although in 2013 a 25% rise was marked, it remains below the level of 10 percent of total production.”

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Bulgaria: transactions between local and foreign persons

An ordinance of the Bulgarian National Bank (BNB) on the Balance of Payment Statistics, International Investment Position and Securities Statistics was promulgated in March. It introduces some changes in the regime of reporting and statistical declaration of transactions concluded between local and foreign persons.
A major difference from the previous regime is the need for statistical declaration of each account opened abroad by a local person and not only of accounts opened in relation to financial loans which have been granted.
Operations on, balances and other changes in the amount of a financial loan, received by or granted to a foreign person, should be reported to the BNB using quarterly statistical forms only in the event that at the time of the declaration or as of 31 December of the year preceding the reporting, the amount of the loan is equal to or larger than BGN 500,000 or its foreign currency equivalent.

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Bulgaria: Corporate Income Tax

The latest amendments to the Corporate Income Tax Act introduce, among others, new rules for the correction of accounting errors. Taxable persons are requested to notify in writing the revenue authorities about accounting errors made in prior period. Subsequently, the tax office will have to amend the taxable base and the amount of the corporate income tax liability for the relevant past period.

As of 2013, monthly and quarterly advance payments have to be calculated on the basis of the tax profit forecast for the current tax period. Pursuant to the new rules, taxable persons whose net revenues in the previous year did not exceed BGN 300,000 will not be obliged to make advance payments. These entities will have the option to make quarterly advance payments. Taxable persons with a net revenue above BGN 3,000,000 will have to make monthly advance payments.

As of 2013, advance payments for the current tax year have to be reported in the corporate tax return for the previous year. Monthly and quarterly advance payments for 2013 have to be reported in the corporate tax return for 2012.

 

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Bulgaria: Tourist tax unconstitutional

At the beginning of April the Bulgarian Constitutional Court ruled that the tourist tax, introduced in Bulgaria in April 2011, is unconstitutional.

When the Law on Local Taxes and Fees was amended last year, the tourist tax replaced the local tourist fees that hotel owners had to pay per overnight stay. The new tax was estimated on the annual occupancy of hotels and other accommodation establishments but set a minimum threshold of a 30% occupancy rate. Thus, the tax authorities acted on the assumption that every hotel had an occupancy rate of at least a 30% in a given year.

The motive for the introduction of the new tourist tax was the fact that it was widely believed that under the previous taxation method hotel owners misreported the number of stays in the hotels in order to pay lower fees.

The members of Parliament who had filed the complain with the Constitutional Court stated that the new tax in fact taxes the number of hotel beds, rather than the actual number of hotel stays in a given year.

According to the complainants’ arguments, the tourist tax, which is supposed to be an income tax, has been turned into a property tax thus mixing the two taxation concepts and contradicting the principles in the Bulgarian Constitution. The new tax is also said to be in violation of the principle that taxation must take into account the actual income.

In its ruling the Bulgarian Constitutional Court has agreed with the arguments of the complainants, stating that it is the number of overnight stays that need to be taxed, while the minimum 30% occupancy rate threshold turns the tourist tax into a property tax.

The judges ruled that this contradicts the Constitution in its requirement that income and property taxes be clearly differentiated. They have also based their sentence on a 1996 case in which the same court ruled that the two type of taxes mentioned above cannot be mixed in Bulgarian legislation.

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Bulgaria: VAT refund

VAT refund. Taxable persons established in another EU member state may claim a refund of the Bulgarian VAT paid in 2011 by 30 September 2012. Taxable persons established outside the EU may seek reimbursement by 30 June 2012.

Commercial register: As of 1 January 2012, the fees for electronic registration were reduced to 50% of the regular fees. In future joint-stock companies must submit their applications to the Commercial Register electronically.

After 1 January 2012, free access to the Commercial Register’s database will be limited to publicly available information such as company names, companies’ representatives and registered capital. Full access will be granted only to registered users.

Labor Code. Amendments to the labor Code were officially approved by Parliament and published in the State Gazette. The most important amendments refer to temporary work agencies.

Under the new rules, only 30% of a company’s personnel may be employed through a temporary work agency. The agency must undergo a special registration procedure with the National Employment Agency and maintain a group insurance or a bank guarantee of at least BGN 200,000 in order to secure their liability towards the employees.

Employees cannot be held responsible for breaches of labor rules. However, the Labor Inspection can impose fines on any employee working without an official employment contract. Employees returning from pregnancy or maternity leave and/or on leave of absence for raising a child can negotiate with their employers’ flexible working hours for a certain period of time.

The number of company representatives in national trade unions and employers’ organizations has been increased.

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Bulgaria: New VAT regulations

The European Council has adopted a regulation for the implementation of measures in order to ensure uniform application of the provisions of the VAT Directive 2006 in all Member States. The regulation enters into force on 1 July 2011 and has a direct effect in the Member States without having to be transposed into their national legislation.

New responsibilities of the supplier are introduced by the regulation. In the case of cross border services, the supplier has to determine if the customer is a taxable person or not. EU recipients, providing valid VAT identification numbers, will be deemed taxable persons with respect to reverse-charge services. Non-EU business customers will have to prove their tax status providing certificates, VAT or a similar number. Otherwise, suppliers will have to charge local VAT.

If the customer is established in more than one country, the service will be taxed at the place of the fixed establishment receiving the service. The supplier should determine this place based on economic criteria as well as based on the contractual and payment arrangements.

The regulation provides criteria for the determination of the place of establishment of the taxable person. According to the wording it is the place where the central business administration  is performed.

For the purpose of the application of the VAT reverse charge, the Regulation clarifies the criteria for determining whether the fixed establishment is involved in a supply. The fixed establishment is considered to be involved if its VAT number is provided, while it is not considered to be involved if it provides only administrative support.

Administrative cooperation in the tax field. The European Council has adopted a new directive which sets out the rules and procedures for the exchange of information between EU Member States in tax matters. It extends cooperation to direct taxes of any kind and establishes deadlines for providing information. Tax officials will be able to participate in administrative enquiries on the territory of another Member State. This directive should be implemented into the Bulgarian law by 1 January 2013.

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