On 21 November 2019, the Bulgarian parliament passed amendments to its tax legislation, specifically in the areas of corporate income tax and value-added tax.
Highlights of these amendments, which will go into force on 1 January 2020, are summarised below.
Corporate Income Tax Act
By implementing EU Directives 2016/1164 (ATAD I) and 2017/952 (ATAD II), Bulgaria will apply new rules for taxing trans-border transactions in cases of hybrid mismatches, which exploit differences between tax systems in order to avoid tax payments in any jurisdiction. The changes also address taxation when a business leaves Bulgaria.
Hybrid mismatches often allow companies and individuals to achieve double non-taxation: double deduction, deduction without inclusion and non-taxation without inclusion. The new measures aim at eliminating these arrangements in order to stop tax-base erosion, profit shifting and tax avoidance through the use of hybrid instruments and entities that receive different tax treatment in different jurisdictions.
New exit tax rules were designed to prevent entities from avoiding tax by transferring residence, activities or assets out of Bulgaria without an exit tax being imposed on deemed capital gains.
Value-Added Tax Act
Following EU Directive 2018/1910 of 4 December 2018, Bulgaria has introduced "quick fixes" for simplifying VAT rules for transactions on intra-Community supplies (i.e. supplies traded by EU member states). These fixes include:
- clear harmonised requirements on the evidence necessary for applying the 0% VAT rate for intra-Community supplies of goods;
- simplifying rules and creating new reporting requirements for “call-off stock”; and
- creating new rules for chain transactions between EU member states.
Non-established entities involved in the supply of goods into Bulgaria that are taxable under VAT will be required to register up-front before making the supply. They will no longer have to meet the BGN 50,000 (EUR 25,600) threshold for registration, which will now only apply to Bulgarian entities. Non-established entities will need to register for VAT in Bulgaria at least seven days before they make the local VAT supply or receive an advance payment for this transaction.
Following a decision by the European Court of Justice, the new law introduces clear rules for VAT credits for construction and improvements and repairs of public infrastructure if the person or entity to be taxed can prove that these developments are directly linked to its economic activities.
Also according to the amendments, goods entering the area of Bulgaria's continental shelf and exclusive economic zone will be subject to VAT, and there are now explicit rules for re-exporting goods from these areas.
Lastly, the law simplifies how online shops report sales in that debit and credit card payments will no longer require the issuing of a cash receipt.