What are the changes in the Tax Legislation as of 18.02.2022 Published in the State Gazette
Tax legislation – VAT
For special types of baby food, a reduced VAT rate of 9 % shall apply.
The reduction shall also apply to foods with specialized milk formulae and dietary foods which are for special medical purposes for infants under CN codes 2106 90 92 and 2106 90 98 under tax legislation.
N.B. The application of the reduced rate of 9% for various restaurant catering services, books, use of sports facilities, tour operator services, also baby food and baby diapers has been extended by a previous change in the law (promulgated on December 31, 2021) until December 2022.
Duration of the first tax legislation
The first tax period /from the date of VAT registration to the end of the month/ will also include the date of the VAT registration itself. Until now, it remained unclear whether that day was wholly or partly included in the first tax period.
Abolition of VAT registration in case of liquidation of branches of foreign companies.
The newly introduced rule states that in case of liquidation and deletion of a branch of a foreign company from the Bulgarian commercial register, a mandatory removal of VAT registration is carried out. It will be carried out by the revenue authorities. Before the change, for greater certainty, taxpayers submitted an explicit application when removing registration of VAT branches.
Making adjustments to invoices and protocols
- invoice adjustments
You enter an explicit option to cancel invoices where the wrong VAT rate has been applied. Also, if a tax adjustment notice has entered into force.
If the customer has been denied the right to deduct a tax credit /for wrongly charged VAT/ with an effective tax adjustment notice, the supplier has the right to invoke the newly introduced rule and correct the wrongly issued invoice.
Such adjustment must be made according to the existing rules for cancellation of wrongly issued invoices /have a cancellation protocol that contains the signatures of the vendor and the customer/.
Before the change, it was not clear whether invoices could be corrected in the event of an effective tax adjustment notice. Now the law is clear that it is possible to make such an adjustment.
- adjustments to VAT reverse charge protocols.
There is an explicit possibility to correct reverse charge protocols when a tax adjustment notice enters into force.
In the same way, as cited above in point (a), according to the law, in such cases the existing procedure for the cancellation of protocols must be applied.
On food vouchers
Until now, goods and services purchased through food vouchers have been subject to VAT at the time of purchase at the checkout of the grocery store or restaurant. Following the change in the law, it is necessary to analyse whether food vouchers are classified as “vouchers for a specific purpose” or are “multi-purpose vouchers”.
This classification was introduced into law in 2019.
If the place of execution of the delivery of the goods or services is known in advance (for example, it is in Bulgaria) and the VAT rate is known in advance (e.g. 20%) – food vouchers should be considered as vouchers for a specific purpose, which are taxed at the time of sale of the voucher (e.g. from the issuer to the employer).
It should be said that, notwithstanding the above, given that food vouchers can currently also be used to pay for baby food or restaurant services subject to 9 % VAT, food vouchers cannot be classified as vouchers for a specific purpose for 2022.
This is why food vouchers in 2022 are classified as multi-purpose vouchers, for which the existing practice of taxation of goods and services at the grocery store or restaurant checkout is maintained.
After 1 January 2023, it is also possible to make changes to the treatment of food vouchers for VAT. This will depend on whether the reduced VAT rates for restaurant services and baby foods will be abolished.
As for trade in goods with customers and suppliers in Northern Ireland, strict rules are introduced.
If the supplier or customer holds a VAT number that starts with an XI, all transactions in goods sent to or arriving from Northern Ireland will be regarded as deliveries within the EU.
Northern Ireland taxpayers with a VAT number starting with a XI have the right to act as intermediaries in tripartite operations – this is explicitly stated in tax legislation.
Deliveries and imports with a zero VAT rate
Here are the new rules for applying a zero rate of VAT to goods or services aimed at:
- NATO’s armed forces,
- the EU armed forces,
- countermeasure for COVID-19 / commissioned by EU/EU authorities/
Before the introduction of the new rules, similar ones were in force, the differences came from the more specific prerequisites for the application of the zero rate.
- A taxpayer can deregister from VAT in Bulgaria, provided that the deliveries made by the taxpayer in Bulgaria are covered by the new one-stop-drive (OSS) regimes and if the supplier is registered for OSS in another Member State;
- Remote sales that are not reported under OSS mode will be reported by invoice /also if the customer is a natural person/;
- There are other ecommerce policy updates that aim to clarify and accurately show the existing rules.
2.1. Extended definition of what is a taxable person under CITA
The definition of taxable person under CITA is expanded to include certain hybrid /”transparent”/ entities. ATAD II EU Directive.
What conditions does this apply to:
- One or more related foreign partners hold /directly or indirectly/ at least 50% of the voting rights /share capital/ the right to the share of the profit of the hybrid entity and
- If these foreign partners are located in jurisdictions that consider the hybrid entity to be a taxable person in Bulgaria.
- The rules do not apply to collective investment schemes within the meaning of the law. No visible effect is expected from this change for Bulgaria.
Specifying rules for the tax treatment of sales contracts with reverse /operating/ leasing to sellers /lessees/ who apply the international accounting standards /”IAS”/
For controlled foreign companies, the rules will also apply to company’s subject to alternative types of taxes.
If there’s anything else we can be of help to you, don’t hesitate to contact us here