Summary of the published tax changes in CITA in force from March 2022

Tax treatment of leaseback sales contracts classified as operating in cases where the international accounting standards (IAS)

Changes relating to the transposition into national law of rules against European Union tax avoidance practices

Tax rate of tax on expenditure

Changes related to the tax treatment of food vouchers

In this edition of Tax News we summarize the changes in the Corporate Income Taxation Act (CITA) promulgated in issue 14 of the State Gazette of 18 February 2022, issue 17 of 1 March 2022, as well as the relevant provisions of the State Budget Act 2022, published in issue 18 of the State Gazette of 4 March 2022.

Tax treatment of leaseback sales contracts classified as operational in cases where international accounting standards (IAS) apply

• The changes in CITA aim to unify the tax treatment of sales contracts with reverse leases classified as operating leases under IAS, regardless of the accounting standards applied by the lessee.
• Thus, right-of-use assets in connection with leaseback contracts classified as operating leases under IAS are not recognized as tax depreciable assets, and accounting for income, expenses, profits and losses under IAS to lessees in connection with such contracts are not recognized for tax purposes. Instead, income, expenses, profits and losses determined under the rules of SS 17 Leases in respect of leaseback sales contracts classified as operating leases are recognized.

Changes relating to the transposition into national law of rules against European Union tax avoidance practices

Two of the changes relate to the transposition of and remedying a discrepancy in CITA to Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices in tax legislation (ATAD II).

• The first change, which enters into force from 1 January 2022, concerns the alignment to legal entities for the purposes of CITA of certain hybrid entities incorporated or established in the country that have so far fallen outside the scope of the taxable persons.
• The conditions for such alignment are: (a) one or more related foreign entities generally hold, directly or indirectly, 50 % or more of the voting rights, the share capital or the right to share the share of the hybrid entity’s profits and (b) the jurisdictions in which those foreign entities are located to treat the hybrid entity as a taxable person in the Republic of Bulgaria.
• The above rule does not apply to a collective investment scheme which is an investment fund or scheme eligible to have multiple owners at the same time, to own a diversified portfolio of securities and to be subject to investor protection regulations.
• The second amendment repeals the provision of CITA, which exempts from the regime of controlled foreign companies as resident taxable persons, which are taxed with alternative taxes under Part-Fifth of CITA and controlled foreign companies, which are subject to alternative forms of taxation to corporation tax in their jurisdiction of establishment/establishment.

Tax rate of tax on expenditure

Effective from 1 January 2022, the tax rate on expenditure in kind relating to the personal use of mixed-use assets shall be reduced from 10 % to 3 %.

Changes related to the tax treatment of food vouchers

In view of the adoption of the Law on the State Budget of the Republic of Bulgaria for 2022 in March this year, with a transitional rule in force from 1 January 2022, the possibility of food vouchers under Art. 209, para. 1 of CITA to be able to provide each employee with a taxable amount in the following month from 2022.

Subject to no tax on expenses, where the total amount of food vouchers provided during the month concerned is up to the statutory non-taxable amount for each of the months to which the vouchers provided relate to each employee. – The transitional and final provisions of the State Budget Act 2022 introduce the following additional changes in force from 1 J.

• the application of food vouchers under Art. 209, para. 1 of CITA, including those issued by 4 March 2022, and they will also be able to be used for the payment of domestic electricity and January 2022: heat, natural gas and water, as well as activities carried out by cultural organizations under the Protection and Development of Culture Act and on display of films under the Film Industry Act.
• the tax-free amount of food vouchers of BGN 80 is increased with a one-time tax on social costs in kind. on 200 BGN monthly to an employee for 2022, when provided under the terms of CITA.
• the method of determining the tax base of the tax on food vouchers in kind for 2022 is fine-reduced, which is the sum of (a) the excess cost of food vouchers above BGN 200, of which: the amount of food vouchers already provided, for each of the months to which they relate to each employee and (b) the full amount of the accrued expenses for the calendar month, where the conditions for exemption under Art. 209 of CITA.

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