Bulgarian lawmakers recently passed sweeping amendments to the tax legislation which will go into effect on 1 January 2019.
Highlights of the main changes, which were passed on November 26, include:
Corporate Income Tax Act
In accordance with the EU's Anti-Tax Avoidance Directive (Council Directive 2016/1164 or ATAD), Bulgaria will apply new rules for the deduction of interest on expenses for tax purposes. Under these new rules, interest on expenses for all loans will be deductible for up to 30% of earnings before interest, taxes, depreciation, and amortisation (EBITDA) on an annual basis. Disallowed interest expenses may be carried forward or back, if all conditions are met.
Restrictions will only apply where expenses above EBIDTA are more than EUR 3 million per annum. Existing capitalisation rules will apply on smaller-scale loans.
Also regarding the ATAD, the amendments include rules requiring local companies to report the profits of affiliates under their control (i.e. controlled foreign companies) that may not have sufficient business activity, but are located in low-tax jurisdictions.
Value Added Tax Act
A limit of EUR 10,000 has been set for supplying telecommunication, radio, television and electronic services to non-taxable persons. If the value of these services is below this threshold, the location of this supply will be considered the EU member state where the supplier is based.
Also, there are new rules on VAT for single-purpose and multi-purpose vouchers in accordance with EU Directive 2016/1065. The new rules will not apply to:
- instruments that entitle the holder to receive a discount upon receipt of goods or services; - travel, cinema, museums and similar tickets and stamps; and - food vouchers issued by a certified issuer.
A delayed self-charge on VAT upon the import of goods will be introduced effective 1 July 2019, and will be applicable to importers of aluminium, nickel, sulfur, tin, lead, zinc and organic chemical products. If certain conditions are fulfilled, the importer will be able to self-charge VAT after import clearance instead of the tax being charged immediately upon import.
The self-charge mechanism on local supplies of grain and technical crops has been extended until 30 June 2022.
Local Taxes and Fees Act
The property tax for cars and light commercial vehicles up to 3.5 tonnes in gross weight will be calculated under a new model based on the vehicle's year of production, engine power (i.e. value component) and the applicable European Emission Standards (i.e. eco component).
Tax relief for a primary residence or house may be applied to only one property in a given country. Furthermore, increased rates will apply to properties that are located in a resort, are not the main home of a taxable person, and are not leased or registered as accommodation property under the Tourism Act.
Real estate tax will not be levied on new buildings until they are under real use up to two years after construction is completed.
Social Security Insurance Budget Act
In addition, parliament raised the maximum social security income to BGN 3,000 (EUR 1,530) per month. The maximum social security income is currently BGN 2,600.