Value-added tax (VAT)
The standard VAT rate is 20%. A reduced VAT rate of 9% applies to certain tourist services. Temporarily, from 1 July 2020 until 31 December 2021, the scope of the 9% reduced rate is expanded to include restaurant and catering services (except for supplies of alcoholic beverages), certain baby and children food, and certain products for baby hygiene, as well as books (as defined in the legislation).
Some activities are zero-rated, including intra-Community supplies, exports of goods to countries outside the European Union (EU), international transport of goods (i.e. transport to or from countries outside of the European Union), and supplies of goods and services related to aircraft and vessels, subject to statutory limitations.
Some supplies are VAT exempt without the right to a VAT credit, including (but not limited to) certain land transactions; leasing of residential property to individuals; financial, insurance, gambling, educational, and health services; and provision of food products to a food bank free of charge, subject to certain statutory conditions. Options to charge VAT exist for certain land transactions, leasing of residential property to individuals, and finance lease contracts.
Input VAT shall be deducted proportionately depending on the percentage of the use of the goods or the immovable property for business purposes.
The VAT Act provides for mandatory VAT registration upon certain conditions (e.g. for all companies upon reaching a statutory threshold of 50,000 Bulgarian lev (BGN) taxable turnover in Bulgaria for a period not longer than two consecutive months, including the current month).
Foreign taxable persons not established in Bulgaria and planning to perform taxable supplies in the country for which VAT is due by the supplier are subject to mandatory VAT registration (irrespective of their taxable turnover in Bulgaria), subject to certain exceptions.
Voluntary VAT registration is also available. The Bulgarian legislation does not provide for retroactive VAT registration.
A special VAT regime applies to the so-called call-off stock mechanism in case of supplies to other member states. Where a taxable person transfers one's own goods from Bulgaria to another EU member state with a view to these goods being supplied to an (already known) customer in that member state, subject to certain conditions, the Bulgarian taxable person will not be required to register for VAT purposes in that member state. The same rules apply in the mirror situation (goods dispatched from another member state to Bulgaria).
The following mechanism for VAT recovery applies to VAT-registered companies: the positive or negative difference between the output VAT charged by the company and the input VAT for the respective month results, respectively, in a VAT payable or a VAT refundable position. The VAT payable should be remitted to the state budget not later than the 14th day of the month following the respective month. VAT refundable is offset against any VAT payable in the following two months, and any remainder is effectively recovered within 30 days thereafter.
The following statutory periods for VAT refunds apply:
- 30 days for persons that have performed supplies subject to zero-rate (e.g. exports) within the last 12 months exceeding 30% of the total value of all taxable supplies performed by them in the same period, as well as by large investors meeting certain specific conditions.
- Two months and 30 days in all other cases.
It is possible to claim a refund for VAT paid with respect to assets acquired not earlier than five years prior to the VAT registration, under certain conditions. In the case of real estate, the term is 20 years.
The cash accounting regime may be applied by persons with a taxable turnover below 500,000 euros (EUR) for a period of 12 months and a number of other requirements. Taxpayers authorised to apply this regime remit VAT upon receiving a payment from their counterparts and are entitled to VAT credit when they make a payment to their suppliers. Under this regime, a person who has received an invoice from a supplier that is using the cash accounting regime will be entitled to VAT credit upon payment of the invoiced amount.
The telecommunications, broadcasting, and electronically supplied services rendered to EU non-taxable persons (e.g. private individuals, public bodies) are subject to VAT in the country where the customer is established, has its permanent address, or usually resides. This rule has a significant impact on the pricing strategies and the profit margins of the suppliers. In order to apply the correct VAT rate, the suppliers need to collect information to identify the location of their customers. In addition, under this rule, the suppliers are required to register for VAT purposes and pay VAT in different EU countries where they have customers. In order to avoid such administrative difficulties, a possibility for registration under the Mini One Stop Shop (MOSS) is available. Examples of services that are impacted by this VAT rule include the following:
- Fixed and mobile telephone services.
- Access to Internet, website supply, and web hosting.
- Radio and television programmes transmitted over a network or distributed via the Internet.
- Supply of software and associated updates.
- Supply of music, films, games, images, texts, and information.
- Distance maintenance of programmes and equipment.
- Supply of distance teaching.
As of 1 January 2019, a relief for smaller suppliers of telecommunication services, radio and television broadcasting services, and electronically supplied services is introduced. Where the turnover for such services is below a threshold of EUR 10,000 per calendar year, the supplier should charge VAT under the Bulgarian rules. The supplier can opt to apply the existing rules and charge VAT in the country of the recipient even before its sales reach EUR 10,000 per calendar year.
Customs duties are calculated in accordance with the EU customs tariff and regulations.
All entities that are holders of customs procedures shall be registered in the electronic system of the Customs Agency.
Excise duties are charged as a percentage of the sales price or customs value or as a flat amount in Bulgarian lev per unit (or per other quantity measures, depending on the type of the excisable good), unless a suspension regime applies. Excisable products include petrol and diesel fuel, liquefied petroleum gas (LPG), heavy oil, kerosene, beer and spirits, tobacco and tobacco products, and electricity.
The applicable rates include the following:
- Unleaded petrol: BGN 710 per 1,000 litres.
- Diesel: BGN 646 per 1,000 litres if used as motor fuel and BGN 646 per 1,000 litres if used for heating purposes.
- LPG: BGN 340 per 1,000 kg if used as motor fuel and BGN 0 per 1,000 kg if used for heating purposes.
- Kerosene: BGN 646 per 1,000 litres if used as motor fuel and BGN 646 per 1,000 litres if used for heating purposes.
- Natural gas: BGN 0.85 per gigajoule if used as motor fuel (may be increased to BGN 5.10 if the European Commission (EC) rules that the rate is incompatible with the state aid rules); BGN 0.60 per gigajoule if used for production purposes; and BGN 0 per gigajoule if used by households.
- Biogas: Zero rate.
- Heavy oil: BGN 646 per 1,000 kg if used as motor fuel for vessels.
- Electricity: BGN 2 per MWh (zero rate if used by households).
- Beer: BGN 1.50/hl/°Plato.
- Wine: Zero rate.
- Ethyl alcohol: BGN 1,100 per hectolitre.
- Cigarettes: 25% ad valorem plus BGN 109/1,000 pieces (minimum total of BGN 177 per 1,000 pieces).
Lower rates may apply in certain cases (e.g. beer produced by independent small breweries).
The Excise Duties and Tax Warehouse Act provides for the tax warehousing regime and regulates the production, storage, and movement of excisable products under duty suspension.
The annual property tax rate is determined by each municipality and ranges from 0.01% to 0.45% of the tax value of property. Individuals and legal entities that are owners of immovable property (i.e. land and buildings) are liable for property tax. For individuals and residential properties of enterprises, the taxable base is the tax value as determined by the municipal authorities based on certain statutory criteria. The taxable base for properties of enterprises is the higher of the property’s gross book value and its tax value determined by the respective municipal authorities.
A garbage collection fee is payable for immovable property at a rate determined by the local municipal council annually.
A transfer tax is due on the value of transferred real estate or motor vehicles, subject to certain exemptions (e.g. contributions in-kind, acquisitions under the Law on Privatisation and Post-privatisation Control). The rate of the transfer tax ranges from 0.1% to 3% and is determined by each municipality.
There are no stamp duties in Bulgaria.
Upon payment of salaries, the employer should withhold personal income tax (PIT) at a flat rate of 10% due on employment remuneration, bonuses, and certain fringe benefits and should remit it to the tax authorities by the 25th day of the following month.
National insurance contributions
National insurance contributions include social security and health insurance contributions.
The aggregate rate of social security contributions is 24.7% to 25.4%*, of which 14.12% to 14.82%* is payable by the employer and 10.58% is payable by the employee.
The aggregate rate of health insurance contributions is 8%, out of which 4.8% is payable by the employer and 3.2% is payable by the employee.
The total national insurance contribution rate (social security and health insurance) is 32.7% to 33.4%*, out of which 18.92% to 19.62%* is payable by the employer and 13.78% by the employee.
* The range is due to the rate of contributions payable to the ‘Accident at Work and Occupational Illness Fund’, which is due only by the employer and can vary from 0.4% to 1.1%, depending on the employer’s economic activity. The rate for the administration and services sector is 0.5%.
Insurance premium tax
A tax of 2% is levied on all insurance premiums paid under insurance agreements covering risks insured in Bulgaria. Life insurance, reinsurance, aircraft, vessels, and international transport insurance agreements are exempt from this tax. The taxable base is the insurance premium received by an insurance company under an insurance agreement.
Insurance companies and their tax representatives are liable to collect the tax and remit it to the budget quarterly by the end of the month following the quarter when the insurance premium was collected.
The tourist tax is levied with respect to the number of nights spent in hotels and other places for accommodation. The municipalities may determine the tax within a range of BGN 0.20 to BGN 3 per night, depending on the type of accommodation facility.
The tax is payable on a monthly basis by the 15th day of the following month.
The following corporate expenses are subject to a one-off tax:
- Representative expenses related to a company’s business.
- Social expenses provided to employees in kind (monetary social expenses are subject to PIT).
- Expenses in-kind related to the private use of company assets.
The rate of the one-off tax with respect to the above expenses is 10%. Both the expenses and the related one-off taxes are deductible for CIT purposes.