In Bulgaria, companies are required to calculate their accounting profit or loss annually, following local financial reporting standards. However, for tax purposes, this accounting result is not final. The Corporate Income Tax Act (CITA) mandates a transformation of this figure through specific additions and deductions, ensuring the taxable base reflects only income and expenses recognised by tax legislation. Properly applying these adjustments is key to accurate tax reporting and avoiding penalties.
Understanding the Transformation Process
The transformation of the accounting result under CITA centres on two core mechanisms: additions that increase the taxable base and deductions that reduce it.
Additions typically include expenses recorded in the accounting books but disallowed for tax purposes. These might relate to annual accounting depreciation expenses, write-offs not aligned with tax schedules, non-deductible staff-related costs, or interest expenses that exceed thin capitalisation thresholds. Losses from inventory shortages, non-compliant lease expenses, and transfer pricing adjustments in related-party transactions also fall into this category.
On the other hand, deductions represent tax-allowed items that are not included in accounting profit. These can include tax depreciationrevaluation gains taxed independently, deductible interest expenses deferred from prior periods, and carried forward tax losses—provided they fall within the five-year limit. Companies may also deduct income recovered from previous inventory losses and certain forgiven liabilities.
Example in Practice
Consider a company that reports an accounting profit of BGN 5,600 while carrying BGN 10,000 in unutilised tax losses from previous years. By applying the loss carryforward mechanism, the company can reduce its entire taxable profit to zero, with BGN 4,400 of the loss remaining available for future use. In this case, no corporate income tax is due.
Eurofast's Take – Ensure Compliance with Confidence
Transforming the financial result under CITA is a technical yet essential aspect of corporate tax compliance in Bulgaria. Misapplying additions or overlooking eligible deductions can lead to tax misstatements, increased audit risk, or financial penalties.
At Eurofast Bulgaria, we support clients with detailed reviews of financial and tax reporting alignment. Our team ensures that accounting figures are accurately adjusted in line with CITA provisions and that tax returns reflect all eligible transformations. From tax depreciation tracking to loss utilisation strategy, our expertise helps companies navigate compliance confidently and efficiently.
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.
