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Bulgaria enacts changes to tax law

Executive summary

Bulgaria published in the State Gazette, on 27 November 2018, certain amendments to the Bulgarian tax legislation.

The key changes, summarized in this Alert include:

  • New tax rules for lessees
  • Interest limitation and controlled foreign corporation (CFC) rules
  • Provisions regarding the taxation of the digital economy
  • Extended application of the reverse-charge for value-added tax (VAT) purposes

The adopted new rules entered into force as of 1 January 2019 except for the application of the VAT reverse-charge mechanism for importation of goods that will enter into force on 1 July 2019.

Detailed discussion

Corporate Income Tax Act

New tax rules for lessees

The new provisions concern lessees applying the International Financial Reporting Standards (IFRS). In particular, costs incurred on operating lease arrangements under the new IFRS 16 leases are not deductible for tax purposes. Moreover, any right-of-use assets recognized are not tax depreciable. Instead, lessees can deduct for tax purposes the costs that would have been recognized under National Accounting Standard (NAS) 17 for the respective operating lease agreements.

Taxpayers that enter into complex lease arrangements will have to recalculate the impact under the NAS to file their tax returns. Companies applying IFRS, which enter into cross-border lease arrangements, may have to re-evaluate their withholding tax chargeability schedule.

The new rules do not affect financial lease arrangements. It is specified that right-of-use assets recognized on financial lease agreements under the new IFRS 16 are depreciable for tax purposes.

Interest limitation and CFC rules

The published amendments also include the new anti-avoidance measures implementing the European Union Anti-Tax Avoidance Directive. The amendments were featured in the draft bill and extensively discussed in the past few weeks. In brief, the new texts introduce a new interest expense limitation rule, as well as a mechanism for effective taxation in Bulgaria of certain foreign subsidiary profits that have been sheltered from tax.

Taxation of the digital economy

Threshold for business to consumer cross-border digital services

The newly adopted threshold of €10,000 changes the applicable VAT rules for cross-border digital services. The new rule addresses suppliers to non-taxable customers residing in Bulgaria and comes into to force effective 1 January 2019.

Registration of online shops for fiscal e-receipts

The new rules introduce the possibility for online sales to be documented through electronic fiscal receipts effective 1 January 2019. The new documenting regime would apply for online stores that are registered with the National Revenue Agency.

The change would impact online sellers of goods or services irrespective of the volume of the sales performed.

VAT treatment of vouchers

Effective 1 January 2019, sales of vouchers would be subject to specific VAT treatment. In brief, sales of single-purpose vouchers would be subject to VAT upon their transfer while multi-purpose vouchers would be taxable at the moment of the actual supply of the goods or services to which they relate.

The new regime would affect sales of product or service vouchers issued after 31 December 2018. The rules would not apply for discount vouchers, cinema vouchers, and food vouchers issued by licensed issuers, among others.

All types of taxable persons that participate in supply chains involving vouchers need to review the nature of their vouchers to determine the applicable VAT treatment which may impact their right to VAT credit and/or obligation to charge timely VAT.

Extended application of reverse-charge

Reverse-charge of VAT for importation of goods

Effective 1 July 2019, VAT-registered importers of certain goods e.g., sulphur, salt, aluminum, and zinc, among others, would be allowed to apply the VAT reverse-charge mechanism.

The new regime would provide a possibility for optimization of the import VAT cash flow. Importers of such goods should check their eligibility to benefit from the self- charging mechanism.

Reverse-charge for cereals and industrial crops

The term for applying reverse-charge on domestic supplies of cereals and industrial crops to VAT-registered recipients is extended to 30 June 2022.

Minimum threshold for guarantee for liquid fuel

The amendments introduce lower amount of the guarantee due for transactions with liquid fuels. The new threshold equals 20% of the taxable base of the transactions and would apply effective 1 January 2019. Guarantee paid as per the applicable rules up to 31 December 2018 could be subject to refund.

EYG no. 012818-18Gbl

Download this Tax Alert as a PDF file.

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