Adjustment of the VAT charged on bad debts (debt remission)
The amendments to the Bulgarian VAT Act make it possible for a taxable supply to be deducted from the tax base if it is not paid in full or in part and the debt is irrecoverable. The new law determines the conditions and requirements under which an adjustment is possible, the criteria according to which a claim is defined as irrecoverable, the procedure for the adjustment and the situations in which no adjustment can be made. Special provisions have also been created for cases where the recipient’s or supplier’s VAT registration is terminated before the correction is made or where all or part of an invoice that has already been corrected is repaid. The service recipient must correct the input tax from the supplier’s services if the supplier has reduced the taxable amount under the new waiver rules.
Collection and reporting of data on cross-border payments and their beneficiaries (in force from 1 January 2024)
The provisions of Council Directive (EC) 2020/284 have been transposed into the VAT Act in Bulgaria. Therefore, payment service providers (PSPs) will have new obligations to collect and report data on cross-border payments and their recipients.
In addition, payment service providers must keep electronic records of cross-border payments and their recipients and report this information to the tax authorities for persons who have received more than 25 cross-border payments in three months.
This information must be reported electronically quarterly by the end of the month following the reporting quarter. The corresponding template for reporting will be included in the regulations for applying the VAT Act, and this obligation will apply from 1 January 2024.
Reduced VAT rate
The reduced VAT rate of 9% is now a permanent change in the law for certain goods and services. The reduced VAT rate of 9% applies to books, including textbooks and similar books, and periodical publications supplied in paper and/or electronic form.
The reduced rate does not apply to advertising publications and those containing mainly or exclusively video and/or audio music content.
In addition, the reduced VAT rate of 9% also applies to infant and young child food, baby nappies and other similar hygiene items. This means a lower VAT rate than the standard rate applies to these specific goods and services.
Securities for liquid fuel deliveries
The amendments to the Bulgarian VAT Act also affect the requirements for securities for liquid fuel supplies.
Under the new law, the amount of security to be provided can be reduced to 10% of the taxable amount of the transactions serving as the basis of calculation (instead of the usual 20%), provided that certain conditions are met. These conditions include that the person has provided security for three consecutive years, that no violations of the law have been found, and that the taxpayer has no outstanding public liabilities.
In addition, the deadline for providing the required securities has been reduced from seven days to three days.
Other amendments and clarifications introduced into the VAT Act include:
- If goods are shipped from a non-EU supplier to a place outside the EU and the 0% VAT rate is to be proven, a new special regulation for the declaration of goods to the customs authorities will be introduced.
- It is clarified that the possibility to correct wrongly issued tax documents affected by an administrative act of the tax authorities only exists if the tax debt established by the said administrative act has been settled.
- Explicit texts are included in the law to clarify the conditions under which the recipient of a supply may deduct input tax in the case of corrected, incorrectly issued tax documents, including those affected by an administrative act of the tax authorities that has entered into force.
- The scope of Art. 80 (2) No. 5 UStG is extended by not specifying the expiry period of the discarded goods in a legal standard. Possibly, the input tax deducted initially is still inappropriate if company standards exist for the shelf life of the goods in question and the disposal is within the usual ranges.
- The VAT exemption for financial services is extended to alternative investment funds that qualify as special funds under the criteria of EU law.
- The rules on the taxation of distance sales are clarified.