Bulgaria: New Year, New Rules. What Are The Most Important Changes In The Main Tax Laws For 2023

We are already used to making substantial changes and additions to the main tax laws every year. With this year being no exception, we will describe below the most important changes coming into force at the beginning of 2023.

I. Corporate Income Tax Act /CIT Act/

– Amendments to Article 167 of the Act came into force on 1 January 2023 adding new general requirement for the assignment of corporate income tax. There will be no liability where, as of 31 December of the relevant year, the same has not been reflected in the tax and social security account or has not been reflected as claimed for enforcement with the NRA.

– The tax relief for taxable persons active in the transport, lignite, coal, steel, energy, broadband, fisheries and aquaculture, primary production, processing, and marketing of agricultural products listed in Annex I of the Treaty on the Functioning of the European Union for the relevant activity is abolished.

With effect from 1 January 2023, the intangible assets included in the initial investment must be used exclusively in the production site for which the aid is received, be included in the assets of the taxable person, and remain linked to the initial investment project for a period of at least three years. The tax credit can only be used if the adjusted regional aid amount for large investment projects as defined in point 19(3) of the Regional State Aid Guidelines (2021/C 153/01) is respected.

– There is a possibility of a corporate tax rebate for 2022 if an application form is submitted between 1 January 2023 and 31 May 2023, there is approval from the Bulgarian Investment Agency by 30 June 2023, and all conditions of the law for the application of the tax relief are met. No assignment of advance corporation tax contributions is allowed until the date of the European Commission's decision. After a positive decision by the European Commission, the Minister of Finance should not issue individual notifications for taxable persons, except for those carrying out major investment projects.

– The tax relief, which constitutes State aid for farmers, may also be used from 1 January 2023, subject to notification to the European Commission under current European legislation.

II. Value Added Tax Act /VAT Act/

– The tax rate of 9% introduced in July 2022 for the following categories of goods and services listed in Article 66 of the VAT Act, which was imposed as a temporary anti-crisis measure, becomes permanent in 2023:

– Supplies of books and periodicals in physical or online form. Publications wholly or mainly intended for advertising or wholly or mainly consisting of video or audio-musical content remain outside the scope of the reduced rate;

– Supplies of food suitable for babies or young children, baby nappies, and similar baby hygiene articles listed in Schedule 4 of the VAT Act.

– The VAT registration threshold, which was increased from 50,000 BGN to 100,000 BGN with effect from July 2022, remains the same in 2023. The Act provides that a taxable person with a taxable turnover of BGN 100,000, or more, for a period of not more than the last 12 consecutive months preceding the current month is required to apply for registration under the Act within 7 days of the expiry of the tax period in which that turnover was reached.

The special measure will apply until 31 December 2024, the date by which EU Member States must transpose Council Directive (EC) 2020/285. It provides that from 1 January 2025, the threshold will be EUR 8, 000 or the equivalent in national currency.

A new change makes it possible to reduce the tax base in the event of total or partial non-payment on a taxable supply for which the receivable is irrecoverable.

– The provisions of Directive (EU) 2020/284 are transposed, introducing obligations for payment service providers to collect and report to the NRA data on certain cross-border payments they have processed and on their beneficiaries. Payment service providers should keep an electronic register of cross-border payments and their payees and report to the NRA data on persons who have received 25 or more cross-border payments over a three-month period. Cross-border payment data will be reported on a quarterly basis and the information will be submitted electronically in the month following the quarter to which it relates.

– A new procedure is also introduced for declaring the supply of goods dispatched or transported outside the EU by a supplier not established in the Union to the customs authorities of the country in order to prove the requirements for the application of the zero rates of tax under Article 28 of the VAT Act.

– The scope of exempt supplies of financial services is extended by adding the management of alternative funds, defined as special investment funds, according to the criteria laid down in European law.

III. Law on personal income taxes

– Regarding tax exemptions for children and disabled children. The tax relief for 2022 under Article 22c of the Income Tax Act may also be enjoyed by deduction from the amount of the annual tax bases under Article 17. For the months of October to December 2022, tax relief is available when calculating the annual taxable amount under the Income Tax Act. The employee also elects to apply for advance tax relief on a -one-off- basis by providing a written declaration to the employer. In cases of advance taxation under the Income Tax Act, the tax relief may be applied by reducing the amount of advance tax payable, provided that the other parent, or the other foster parent, or relative, as the case may be, does not benefit from the advance reduction for the tax year concerned.

– The scope of the income to be declared by the employer in the Official Statement of Income Paid during the Year referred to in Article 45(1) and in the statement referred to in Article 73(6) is amended by excluding income that is provided in kind to the employee.

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.