Bulgaria: Тhe Misconception Of A Bulgarian Company's Inactivity

It is common practice that after registering a new company, the company does not start trading activities immediately. Another mass case is existing companies, due to subjective or objective reasons, cease their activities without being liquidated. Usually, the owners and managers of companies are mistaken to think that they have no commitment to the state. Usually, in these cases, the contract with the accountant or accounting firm is terminated and there is no one to warn or remind them of the company's annual obligations.

This practice, dictated by the corporate intention to cut costs, is often hasty and does not always lead to the desired result.

Below, we will indicate the main commitments of a company even when inactive for a financial year.

As of 2018, some reliefs were introduced for companies that did not operate during the reporting year:

– The requirement for inactive companies (dormant companies) to submit to the National Revenue Agency an Annual Tax Declaration under Art. 92 of the Corporate Taxation Code is repealed. Before the change, such a declaration was submitted until March 31^st.

– The requirement to publish an annual financial report in the Commercial Register is no longer required. However, to benefit from the relief, companies must submit a declaration of lack of activity in the Commercial Register (declaration under Article 38, Paragraph 9 of the Commercial Code) – (for 2022, the deadline was June 30^th). Missing this deadline leads to their obligation to publish the annual financial statements in the Commercial under the general rules.

The obligations for companies that did not carry out economic activity during the reporting year, in the sense of the Accounting Law, are the following:

1. Preparation and submission of a Declaration for enterprises without activity (Declaration of inactivity – Appendix No. 11).

Submitted to the National Statistical Institute (NSI). In addition to the basic data of the company, the current economic activity is also filled in, according to the Classification of economic activities, as well as the predominant form of ownership.

Such a declaration is also submitted by companies that carried out activity during the reporting year, but the income and expenses for the activity are below BGN 500 and they cannot draw up an annual report on the activity.

2. Submission of a declaration of lack of activity in the commercial register (declaration under Art. 38, para. 9 of the TR).

All companies that did not perform activities during the accounting year can publish such a declaration in the Commercial Register, which exempts them from the obligation to publish an annual financial report. The publication of this declaration exempts the companies from the state tax due.

If the deadline for submitting such a declaration is missed, the obligation remains for the company to publish an Annual Financial Report in the Commercial Register. Therefore, it is in the interest of every manager to comply with the deadline for submitting such a declaration, which would save him time and costs.

The publication of the reports in the Commercial Register can be done in 2 ways: on site in any territorial division of the Registration Agency or electronically. It is important to know that to publish the annual statements electronically, the signature holder must be the trader, the tax preparer -the accountant who prepared and signed the annual financial statement- or a legally competent person expressly authorized to do so. The deadline for publishing the reports is September 30^th, with fines for non-compliance starting at BGN 500.

3. Submission of References-declarations on VAT.

Registered for VAT, even if it does not carry out any activity, it is obliged to report monthly for VAT. This means that by the 14th of the following month he must prepare and submit a VAT return, purchase journal and sales journal (albeit with zero values).

The complexity of tax systems presents significant challenges to business owners and managers. Having a competent accountant is paramount to tax planning and avoiding unnecessary fines and penalties costs caused by ignorance and mishandling of the law. Therefore, terminating the contract with the accountant or accounting firm in order to reduce costs due to lack of activity is not the best strategy one can implement. Regardless of the reason why you have not been active, do not delude yourself that you have no obligations to the state. Contacting your accountant will protect you from the danger of accumulating significant fines and penalties even before the start of real activity or during difficult periods when the company has suspended activity.

Remember the words of Schindler – “in life one needs three things – a good doctor, a forgiving priest, and a smart accountant.”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.