In the modern world of rapidly developing trade relations, the sphere of transport services plays a key role in the economy. The importance of these services not only highlights the need for efficiency and reliability, but also imposes an understanding of the complex tax framework in which they operate. Among the various tax aspects, VAT in international and intra-Community transport of goods is an essential element that requires specialist attention.
With the changes in the Value Added Tax Act (VAT) and the continuous adaptation of national laws to European regulations, the topic of VAT in transport services is becoming more and more relevant. In particular, this applies to companies operating in the international sphere and providing transport of goods within the European Union or beyond its borders.
The main rule we draw attention to is that depending on the route and the nature of the transport service, and also the extent to which the transport service is carried out by a taxable person within the meaning of the VAT, the charging of VAT and the applicable tax rate may vary considerably. Here, the distinction between international and intra-Community transport comes to the fore, which is determined on the basis of the specific criteria established in the legislation.
International transport, which usually involves the transport of goods from one country to another located outside the European Union or vice versa, is characterized by the application of a zero rate of VAT. This means that although the service is taxable, the tax rate that applies is 0%. This measure was introduced in order to promote international trade and facilitate the tax treatment of cross-border transport services.
On the other hand, intra-Community transport, i.e. the transport of goods within the Member States of the European Union, also has its specificities in terms of VAT. In this context, the place of performance of the service and the tax treatment depend on a number of factors, including the start and end point of the transport, as well as the status of the recipient of the service.
The tax treatment of transport services in Bulgaria is regulated by the Law on Value Added Tax (VAT), and specific provisions on international and intra-Community transport of goods are set out in Art. 30 and Art. 22 of the ZVAT. Those provisions reflect the way in which VAT is applied to different types of transport services, taking into account both the place of performance of the service and the status of the recipient. The main objective of those provisions is to establish clear and consistent rules of tax treatment to facilitate the correct charging of VAT. This ensures that the transport services offered by Bulgarian companies comply with European and national standards and regulations. The status of the recipient on the supply plays an important role in determining the tax rate. In the context of VAT, we distinguish between services provided to persons registered for VAT purposes in another Member State and those who are not registered. This distinction is crucial for the correct application of tax rates.
Only for services with a place of performance in the territory of the country, it is extremely important to determine the applicable tax rate - 20% or 0%.
The subject of the tax treatment of transport services on international and intra-Community transport performed by a Bulgarian company is complex and covers various aspects of the Law on Value Added Tax (VAT) and the regulations for its implementation. Dividing the material into two main parts - intra-Community transport and international transport of goods, we will consider in detail each category, including the specific rules for forwarding, courier and postal services.
First of all, you should know that international transport of goods is a taxable supply at zero rate regardless of the status of the recipient — whether he is a taxable person or a non-taxable person, even with the place of performance in the territory of the Republic of Bulgaria. The transport of goods is considered international when it crosses the EU border. We note thatthe provision of Art. 30 of the VAT Act does not impose requirements on the recipient of the supply, but only conditions with regard to the direction of carriage. This means that when goods are transported from Bulgaria to a third country and vice versa or between two places in the country as part of such transport, a zero rate of tax will always apply, regardless of whether the recipient is a Bulgarian registered or unregistered person, a person from a Member State or a person outside the Community. The documents certifying the performance of services in the international transport of goods taxable at zero rate under Art. 30 of the ZVAT are regulated in Art. 23 of the PPZVAT.
In Art. 30 VAT sets out the main scenarios for zero VAT (that is, there is a taxable supply from a taxable person, but the VAT rate is 0%. It is very important to distinguish between a tax-free supply and a taxable supply with a 0% tax rate). These three main hypotheses are:
Important! According to Article 30 of the GDPR, the international transport of goods is a taxable supply with a zero rate of VAT. This includes the carriage of goods from Bulgaria to a third country, from a third country to Bulgaria, as well as transports that are part of such international transport.
Transports of goods are defined as intra-Community when they are carried out within the territory of the EU, between Member States, crossing the border between the two countries, if they are adjacent, or through other Member States if they are not adjacent. In the case of intra-Community transport, everything depends on the place of delivery. In this mode of transport, it is relevant whether the recipient is a local taxable person or a non-taxable person, a foreign taxable person or a non-taxable person.
It is important to note that in the case of intra-Community transport of goods, VAT is charged only for local taxpayers.For the other types - i.e. non-taxable persons within the meaning of the VAT (local), as well as for foreign taxable persons and non-taxable persons taxable turnover is accrued in the other country.The VAT rate for local taxpayers is 20%.
Thus, our legislation on intra-Community transport of goods outlines three main options for the place of performance:
If you are interested in the necessary documents to prove the international carriage of goods within the meaning of Art. 30 VAT, it is important, first of all, to consider each case separately, since the law provides for two different sets of documents, depending on the type of transport carried out.According to the provision of Art. 23 PPZDDDS, for proof of international transport of goods under Art. 30, para. 1, items 1 and 2 of the ZDDS (or in short - in case of transportation by R. Bulgaria to a third country or vice versa) the service provider should have the following documents:
When the transport is carried out between two destinations within the territory of the Republic of Bulgaria, but is part of transport along the upper chain - i.e. when transported by R. Bulgaria to a third country or vice versa, the service provider should have these more specific documents:
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When considering the issue of taxation of the forwarding service under VAT, the main thing is to determine the place of performance of the service. According to the provision of Article 22 (1) of the VAT Act, the general rule for determining the place of performance of a transport service is the place where it is performed in terms of the mileage performed. It should be noted that according to Article 22 (4) of the Law, forwarding services in connection with the transport of goods between Member States are equated with services for the transport of goods between Member States. Similarly, in Article 30, paragraph 2, for the purposes of the Act, forwarding services rendered in connection with international transport of goods are equated with services in international transport of goods.
When freight forwarding services provided in connection with transport between Bulgaria and Member States are considered, then the place of performance of the service is determined according to the rules of Art. 22 of the Law. The basic rule laid down in Article 22 (1) and (3) of the VAT Act is that the place of performance in the case of delivery of a forwarding service between EU Member States is the country in which the transport of the goods begins. Paragraphs 2 and 4 of that article provide for an exception to that rule, namely: where the recipient of the supply is a person registered for VAT purposes in a Member State other than that in which the transport begins, the place of supply of the forwarding service is carried out by the Member State which issued the VAT identification number to the consignee.
Let us consider the following situation: Goods were transported in the direction Bulgaria — Poland. To carry out the transport, using the forwarding service, there are two options:
First option: The Bulgarian company, as a supplier of the goods, has concluded a contract with a Bulgarian forwarding company for organizing and carrying out the transport of the goods. In this case, the recipient of the forwarding service is the Bulgarian company supplying the goods. The place of performance of the delivery of the forwarding service will be Bulgaria (Art. 22, para. 1) and the forwarding company in the invoice that will issue to the recipient of its service will charge tax at the rate that operates in the country, i.e. 20%.
Second option:The Polish company, as a customer and recipient of the goods, concludes a contract with a Bulgarian forwarding company for organizing and carrying out the transport of the goods. In this case, there is a delivery with a place of performance outside the territory of the country, since the recipient of the forwarding service is the Polish company. The place of performance of the delivery of the forwarding service will be the territory of Poland. Such a supply is neither exempt nor taxable at zero rate. For her, the forwarding company will issue to its Polish counterparty an invoice under Art. 114 of the ZVAT without charging tax. In the invoice, it will indicate the identification number of the Polish company, the reason for not counting the tax (in this case Article 22, paragraph 2) and that it is due by the recipient of its service. This supply of service must be declared by the shipper in VIES in accordance with the requirements laid down in Article 117 (2) (4) (b) of the VAT Code, since the recipient of the service is a person registered for VAT purposes in another Member State. Tax on the supply of the forwarding service will be charged by the Polish recipient, who is obliged to do so by virtue of the reverse tax obligation. Notwithstanding the fact that the delivery takes place outside the territory of the country, the supplier of the forwarding service is entitled to deduct the tax credit for the goods and services which he used in the performance of the service.
The right to deduct a tax credit arises and is exercised under the general provisions of the law and is based on Art. 69 para. 2. In the event that the transport of goods on the Bulgaria-Poland route is connected with the transport of goods between two places on the territory of the country, the forwarder must have documents certifying that the transport of the goods on the territory of the country is directly related to the transport of the goods in the above direction. According to the same logic, a forwarding service will be treated in which a Bulgarian forwarding company organizes and carries out the transport of goods between two Member States, for example on the Greece-Romania route. Then the forwarder will issue an invoice under Art. 114 of the ZVAT without charging tax, since the service he provided is with a place of performance outside the territory of the country. The invoice will indicate the identification number of the Greek or Romanian company, depending on which of the two was concluded with which the contract for the implementation of the forwarding was concluded, the reason for not counting the tax (Art. 22, para. 4) and whether it is due by the recipient of the service.
The situation is similar when the forwarder is a person who is not registered under the VAT and is established in the territory of another Member State (as in the above example), and the recipient of the service is a legally registered person. It then falls within the hypothesis of Article 82 (2) (3), according to which, where the supplier is not a legally registered person and is established in the territory of another Member State, the tax is payable by the recipient on the supply. The freight forwarder will issue an invoice under Art. 114 for the value of the service he performed without specifying tax (according to Art. 113, para. 9), and the recipient will charge the tax himself. The accrual of this tax will be carried out by protocol, in accordance with Article 117, paragraph 2 of the ZVAT. The protocol by which the recipient self-calculates the tax shall be entered in the sales log for the period during which it was issued, in accordance with the provisions of Article 124, paragraph 2 of the Act.
For the tax charged, a right to deduct a tax credit arises, which right is exercised by including the protocol with which the tax was charged in the logbook for the same period. From everything said so far and from the examples considered, we can make the following summary.
When a Bulgarian forwarding company, whether or not it is registered under the VAT,sells its service to a counterparty from another Member State (registered by law) the obligation to charge tax arises for the recipient of the service. In the event that the Bulgarian freight forwarder is registered under the VAT and the counterparty from the Member State — recipient of the service is not registered, the tax should be charged by the forwarder.If the forwarding company (registered under VAT) sells its service to a Bulgarian company, then the obligation to charge VAT arises for the freight forwarderand he will charge 20% VAT on the invoice issued by him.
In short, the answer is yes, in certain cases! When it comes to a forwarding service carried out in connection with international transport, it falls under the hypothesis of Article 30 of the GDPR. This Article does not impose requirements on the recipient of the supply, but only on the direction of carriage. In other words, when a forwarding service related to international transport is provided, a zero rate is always applied. In this case, it does not matter whether the recipient of the forwarding service is a Bulgarian registered or unregistered person or a person outside the European Union. For the purposes of our tax legislation in Bulgaria, forwarding, courier and postal services,provided in connection with international transport of goods shall be treated as services of international transport of goods and shall be performed in accordance with the three options for the direction of carriage specified in Article 30, para. 1 ZDDS. The only exceptions to this rule are services for the supply of postage stamps by nominal or equivalent sign of a postage stamp, as well as the provision of a universal postal service under the terms and procedure of the Postal Services Act.
It is important to keep in mind that our tax law recognizes 'forwarding service' means a service for organising, carrying out or servicing international transport of goods in the above three options and the transport handling, customs clearance, warehousing and insurance activities included in international transport. When a forwarder acts under the terms of a forwarding contract and provides a forwarding service in connection with the provision of services on international transport of goods in any of the three options listed by us above, the provision of art. 127 ZDDS.
