Recently, the Council of Ministers of Bulgaria submitted a bill of tax amendments to Parliament. If passed, the amendments will take effect in 2016. Notable amendments from the bill include:
1. Dividend taxation:
The bill implements the latest amendments in the EU Parent Subsidiary Directive (Directive 2011/96/EC). The amendments limit tax exemptions on profit distributions received from a subsidiary if profits are tax deductible at the distributing subsidiary. Further to the amendments, the receipt of dividends that resulted in the decrease of the taxable base at the distributing entity will be regarded as taxable income regardless of the accounting treatment of the distribution at the level of the distributing entity.
2. State Aid:
The bill also implements the EU Commission Guidelines for Regional State Aid 2014-2020. As required by the guidelines, tax relief shall only be granted with advance approval by the Revenue Authorities under a special certification procedure involving approval by the Investment Agency.
It also introduces a number of amendments resulting in new qualification criteria for state aid. Certain criteria will be considered at group level rather than on a stand-alone basis. State aid will not be available to entities in the transport or energy sector or in the production, processing or marketing of agriculture products.
3. New definition of preferential tax regime
Further to the latest developments in tax avoidance measures proposed by OECD, the EU Commission and G-20, the term “preferential tax regime” now covers jurisdictions that have or allow no information exchange and have tax rates lower than 60% of the domestic corporate income tax rate.
4. Value Added Tax
Input tax credit on expenses for the acquisition and use of real estate and vehicles valued over BGN 5,000 will be proportioned between types of actual usage, if these goods are used for both business and non-business purposes. Companies must proportion the expenses based on a specific calculation model. Each company will be obliged to report all goods with mixed usage for business and non-business purposes and the specific input credit for each item. Failure to report will render all such goods as non-business and will result in refusal of VAT deductibility.
Input tax credit on cars and aircraft used for both business and non-business purposes will be limited to 70% of the total input tax (when applying this restriction, the above pro-rata reporting model will not be applied).
The reverse charge mechanism on agricultural products will be extended to 31 December 2018, the maximum term allowed under Directive 2013/43/EC
5. Real Estate Tax
All land plots within the construction boundaries of cities will be subject to real estate tax irrespective of the underlying status of the land – agricultural, construction, etc.
6. Cash Transactions
The maximum amount that can be payable as a cash payment is decreased to BGN 5,000 (from BGN 15,000) for all transactions. Partial cash payments of less than BGN 5,000 for transactions exceeding BGN 5,000 should also be performed via bank transfer.