In Brief

See further details on...

December 30, 2011

AMENDMENTS TO THE TAX ACTS AND THE TAX AND
SOCIAL SECURITY PROCEEDINGS CODE

In force as of 1 January 2012

In the State Gazette issue 99 dated 16 December 2011 there have been published Amendments and Supplementations Act to the Value Added Tax Act (VATA), Amendments and Supplementations Act to the Corporate Income Taxation Act (ASACITA), Amendments and Supplementation Act to the Excise Duties and Tax Warehouses Act, Amendments and Supplementation to the Individuals Income Tax Act and Amendments and Supplementation Act to the Tax and Social Security Proceedings Code.

The major changes in the tax legislation may be summarized as follows:

1. Amendments to the Value Added Tax Act in force as of 1 January 2012

Taxable base

• The taxable base for related party transactions shall be:
  • no lower than the market price for a taxable supply where the remuneration for the transaction is lower than the market price and the recipient has the right of full deduction of input VAT;
  • no lower than the market price for an exempt supply where the remuneration for the transaction is lower than the market price and the supplier does not have the right of full deduction of input VAT;
  • no higher than the market price for a taxable supply where the remuneration for the transaction is higher than the market price and the supplier does not have the right of full deduction of input VAT.
• The taxable base of transactions in new buildings (or parts thereof), the adjacent land to new buildings and regulated land plots shall be determined according to the general rules.

The reason for the above amendment is the non-conformity of VATA with the provisions of Directive 2006/112/EC and some requests for the interpretation of these provisions sent by Bulgarian Courts to the European Court of Justice.

VAT-exempt supplies related to the establishment or transfer of construction rights

The establishment or transfer of construction rights shall be considered as a VAT-exempt supply until the moment of issuance of the construction permit. Before the amendment such supplies were exempt from VAT until the moment of completion of the rough construction of the building. The amendment is aimed at reducing VAT frauds related to real estate transactions.
 
VAT in tourism

The rate of 9% shall be applied to accommodation in hotels as well as to hiring out of plots in sites for camping or caravanning. Up to now the said reduced rate was applied only to accommodation in hotels.
The margin scheme on supply of general tourist service will apply only for tour operators, who supply the service directly to final consumers (travelers). Before the amendment the provisions of VATA were too general and in practice the margin scheme was applied also to transactions between one tour operator and another tour operator. The amendment was motivated by the non-conformity of VATA with the provisions of Directive 2006/112/ЕС.

Taxable dealers of second-hand goods

A new provision is introduced which allows deduction of input VAT under the general rules for imported second-hand goods by taxable dealers. So far taxable dealers were allowed to deduct input VAT upon the subsequent supply of second-hand goods (if that supply was taxed under the general VAT regime).
A transitional provision is introduced which allows input VAT for goods imported before the change to be deducted till 31 December 2012.

Other amendments

Individuals who are VAT registered sole traders are given the right to choose whether to remain VAT registered individuals in case of deletion of the sole trader from the commercial register. The choice shall be made within 14 days of the entry of deletion in the commercial register.

VAT returns shall compulsorily be submitted electronically when more than 5 entries have been made in any of the purchase/sales ledgers.

2. Amendments to the Excise Duties and Tax Warehouses Act in force in 2012

• Express definitions of the terms “Customs suspension arrangement” and “Importation of excisable goods” are introduced. The change is of explanatory nature.
• The energy products with the following codes under the CN 3811 11, 3811 19 00 and 3811 90 00 are included in the scope of the goods for which excise duty suspension arrangements can apply.
• The excise rate for gasoline and kerosene has been increased and an excise rate for natural gas  is introduced as follows:
  • Gasoline and kerosene – from BGN 615 to 630  per 1000 litres
  • Natural gas used as motor fuel – BGN 0,85 per 1 gigajoule
  • Natural gas used as heating fuel for business needs – BGN 0,10 per 1 gigajoule
  • Natural gas used as heating fuel for household needs – BGN 0 per gigajoule

3. Amendments to the Corporate Income Tax Act (CITA)

Certain provisions of CITA have been amended by the Amendment and Supplementation Act to the Individuals Income Tax Act (ASAIITA), namely:

Taxable persons undergoing liquidation/insolvency proceedings are obliged until the moment of their deletion to submit annual operations reports (instead of financial statements) along with annual tax returns under CITA.

The Transplantation Fund Centre (TFC) has been excluded from the list of persons, donation to whose benefit are tax deductible under Art. 31 of CITA (the TFC was closed in 2011).

4. Amendments to the Individuals Income Tax Act (IITA)

Generally the amendments and supplementations to IITA in force as of 2012 (with some exceptions) are aimed at improving the legal framework – to achieve administrative economy or ensure clarification.

Relief from the obligation to submit an annual personal income tax return

The cases of relief from the obligation to submit annual personal income tax returns under Art. 50 IITA have been supplemented to encompass individuals that have received only employment income from one or more employers, including also when annual recalculation of personal income tax has not been made and/or the employment relation is terminated throughout the year. The conditions for the relief in these cases are the tax on the total annual tax base to equal the advance tax withheld and the relevant individual not to claim tax allowances. These changes shall be applied with respect to 2011 as well.

Obligations to issue income certificates

The above described changes are interrelated to amendments and supplementations to Art. 45, para 1 and 2 IITA, introducing additional obligations of employers regarding issuance and provision to employees of statements of taxable employment income and tax withheld. The obligations are defined dependent on the type of employment within the IITA meaning and on whether the employer calculates the annual tax due and makes appropriate adjustments. The following cases are differentiated:

• termination of employment during the year – income statements shall be issued within 1 month of the last payment date but not later than 31 December;
• income earned under relations for personal service to companies/cooperative societies by their members or in the case of joint-stock companies – shareholders of over 5% of the capital, or income earned under employment relations that do not qualify as basic under IITA. In these cases the income payer does not recalculate the personal income tax on an annual basis but is obliged to issue statements of income paid and advance tax withheld;
• income paid by employer under an employment relation qualifying as a basic one under IITA, when the annual amount of tax thereon is not determined or relevant adjustment of advance tax to the annual amount due is not made by 31 January of the following year – income statements shall be issued by 5 February of the following year;
• recalculation of tax on an annual basis actually performed by 31 January of the following year by an employer under an employment relation qualifying as a basic one under IITA - the corresponding income statement shall contain information on tax additionally withheld or refunded. The deadline for provision of income statements is the end of January of the following year.

Enterprises or self-insuring persons that pay income to individuals (including other business or rental income) are obliged to provide relevant income statements and statements of amounts paid either to the individual income beneficiaries or to persons authorized by them.

Penalties have been introduced for payers of income that:

• fail to issue or provide income statements/statements of amounts paid – up to BGN 250 may be imposed for failure on an individual basis, and up to BGN 500 upon second failure established;
• fail to withhold or pay in time tax due – a separate penalty of up to BGN 2,000 has been introduced upon establishment of a second-time failure.

Condominium property rental income

Income from renting out condominium property through a general meeting of owners management body that is accrued by enterprises or paid by self-insuring individuals shall be subject to 10% one-off final tax. Payers of such income that are enterprises or self-insuring individuals shall be obliged to withhold tax from the rent and transfer the tax to the state budget. They shall no longer be obliged to issue income statements and statements of amounts paid. On the other hand, individuals receiving income subject to the above described conditions shall not be obliged to declare such income in annual personal income tax returns.

Other changes

An explicit provision has been introduced that dividend income to the benefit of sole traders shall be subject to withholding tax (5%).

The right to benefit from a 5% discount from outstanding tax payable per personal income tax returns shall not arise for individuals that have failed to timely pay advance tax in cases where it shall be transferred by income beneficiaries themselves. The change shall be applied for 2011 as well.

A requirement has been introduced to round amounts to Bulgarian levs (without stotinki) representing the difference between the annual tax payable and advance tax paid. The change shall be applied for 2011 as well.

The definition of “employment relations” has been supplemented to include also relations with human medicine doctors employed while studying to complete a major.

The Transplantation Fund Centre (TFC) has been excluded from the list of persons, donation to whose benefit may be used as a tax allowance under IITA (the TFC was closed in 2011).

5. Amendments to the Tax and Social Security Proceeding Code (TSSPC)

Time-limit for performing tax audits

According to the Amendment and Supplementation Act to the Tax and Social Security Proceedings Code (ASATSSPC) the initial time limit for performing a tax audit shall be 3 months, even when the tax audited person has made intra-community transactions under the Value Added Tax Act (until now the said time limit was up to 6 months). The respective authority that has assigned the tax audit may extend the time of the audit by up to 2 months (until now it was 1 month). The possibility for extending the time of a tax audit by not more than three years with an order by the Executive Director of the National Revenue Agency (NRA), considering the factual complexity of the case, has been preserved.

The transitional rules provide that pending tax audits shall be finalized until 1 June 2012 subject to the rules before the changes. This transitional time shall not be applicable to pending tax audits extended with an order by the Executive Director of NRA.

Voluntary execution of public liabilities

Additional alternative for non-cash settlement of public liabilities is introduced – payment via POS terminal device using a payment card.

It is expressly provided that non-cash payments shall be considered made in time when the payment is ordered not later than on the last day of the expiry of the time-limit for the voluntary settlement of the public liability and the amount due is received in the relevant account not later than on the following working day.

Mutual assistance with EU member states in recovery of claims

ASTASSPC introduces the statutory requirements of Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures. The more important amendments to Chapter Twenty-seven “A” of TSSPC regarding the transposition of the new Directive are as follows:

• The scope for the mutual assistance for the recovery of claims relating to taxes and duties is expanded. There are listed exhaustively the cases when mutual assistance shall not be applicable;
• The scope of the persons which shall be subject to the mutual assistance has been expanded (with respect to all individuals and legal entities and all legal forms of associations established in the territory of EU);
• It is provided for the possibility representatives of the applicant authority of a member state to participate and to assist in administrative and court procedures in the requested member state;
• The functions of an applicant authority and requested authority in the Republic of Bulgaria shall be performed by a central liaison office at the NRA.

Transitional rules for mutual assistance recovery of claim procedures pending at the time of entry into force of ASTASSPC have been provided for. These procedures shall be completed following the new rules while at the same time preserving validity of procedural actions taken until 1 January 2012.

The amendments enter into force as of 1 January 2012.

The letter hereinabove is only of informative nature and does not represent a specific advice or consultation. Should any questions arise, please do not hesitate to contact us on telephone number: +359 2 9433700, fax number: +359 2 9433707, e-mail: office@afa.bg or at the postal address: 1504 Sofia, 38, Oborishte Str.

Go to In Brief: All