In Bulgaria, the tax system is often too complicated for businesses to understand, especially for foreigners who want to open a company and start their own business. Recently, we receive a lot of inquiries from our clients related to the refund of VAT - when importing from a third country, in a three-way operation, when buying goods from a company registered for VAT in Bulgaria, intended for export to a member state of the European Union. We at Elan Consulting, an accounting firm with extensive experience and professionalism, offer our clients in Sofiaand all the cities and towns in Burgas region-Burgas, Sunny Beach, Pomorie, Nessebar, Karnobat, Sozopol, Aytos and Tsarevo, high-quality services focused on the use of tax creditand VAT refund. We, of course, work remotely and with clients from all 27 regional cities in Bulgaria, having invented a unique accounting system that allows online accounting of any type of business, regardless of where it is located. The following topics will be key highlights in our discussion, which aims to provide valuable information and guidance for effective tax management:
At Elan Consulting we have dedicated our mission to supporting businesses in Bulgaria by providing up-to-date, accurate and useful information that can help to better understand and manage tax processes. Count on our team of experts who are ready to assist you every step of the way to tax optimization.
The concept 'tax credit'in Bulgaria, according to Art. 68, para. 1, item 1from Value Added Tax (VAT) Act, represents the amount of VAT that a natural or legal person registered under the VAT Act in Bulgaria may deduct from the taxable supply of goods or services received by him, except by those legal entities registered on the basis of Art. 97a, Art. 99, para. 1 - 6 and Art. 100, para. 2 VAT and persons established on the territory of the Republic of Bulgaria, registered only under Art. 156 of the Vat Act. The term “VAT refund in Bulgaria”includes the concept 'tax credit', but it is more general in that it covers the other three scenarios - the amount of tax that a VAT registered person is entitled to deduct from his tax obligations for:
This allows businesses to optimize their tax liabilities by deducting the VAT paid on business-related purchases from the VAT due on their sales.
We are looking at a company that buys computer equipment for its office in the amount of 3600 BGN, of which 600 BGN is the VAT charged. During the same reporting period, the company provided IT services worth BGN 4680, including BGN 780 VAT. In this situation, the company has the right to deduct the 600 BGN VAT paid for the purchases from the 780 BGN sales VAT due. Thus, as a final VAT result, the company owes BGN 180 to the state (BGN 780 VAT on sales — BGN 600 VAT on purchases).
Let us consider the following example, in which we have a company, for example, “Importer” Ltd., a sole proprietorship limited liability company whose main activity is the manufacture of clothing. (The example, of course, is purely illustrative and has no relation to actually existing companies). The materials needed for the production are supplied from Turkey, with the purchase being made by the related German company “Intermediary” Ltd., which then supplies the materials to “Importer” EOOD in Bulgaria. It is important to note that “Importer” EOOD is registered as the consignee in the customs declarations and is responsible for the payment of the VAT charged by the Customs Bureau - “Free Borders”.
Importer within the meaning of § 1, item 38 of the GDPRis the person who is liable for payment of import duties and holds a customs declaration stating that he is the importer. In the case of “Importer” EOOD, the company meets these conditions and is therefore an importer according to the definition given in the law.
Does “Vnositel” EOOD have a legal basis for a refund of the VAT paidwhen importing materials from Turkey? Pursuant to Article 69 (1) (2) of the VAT Act, a person registered under the VAT Act has the right to deduct a tax credit for imports made by him if the goods are used for the purposes of his taxable supplies. In the present case, the fabrics imported from “Vnositel” Ltd are used for the manufacture of clothing, which is the main activity of the company and is considered a taxable supply. This means that “Vnositel” Ltd has reason to refund the VAT paid on imported materials from Turkey, using the tax charged as a tax credit.
The tax credit in this context is an opportunity “Vnositel” Ltd to reduce its tax obligations to the state by deducting the VAT paid on imported goods that were used in the process of manufacturing clothing intended for sale. This mechanism highlights the efficiency of the tax credit as a tool for managing capital expenditures in businesses and its ability to support the financial stability of enterprises.
The process of charging and refunding VAT on importation into Bulgaria is strictly regulated and is carried out in accordance with a number of legal requirements set out in Value Added Tax (VAT) Act. The basic steps and conditions for exercising the right to deduct a tax credit on importation are set out in detail in Articles 69, 71 and 90 of the VAT Code.
According to Art. 69, para. 1, item. 2from the VAT, a person registered under the VAT Act has the right to deduct the tax charged on importation of goods if the goods are used for the purposes of the taxable supplies carried out by the registered person and do not fall within the limits for the right to deduct the tax credit provided for in Art. 70of the same law.
Art. 71, item 3The VAT Directive specifies that, in order to exercise his right to deduct a tax credit on importation, the person must cumulatively meet the following conditions:
According to Art. 90, para. 1and and. 2from the VAT, the importer of goods enters the tax effectively charged by the customs authorities into the republican budget. The import of goods is settled and the tax is charged to the account of the relevant customs office that arranges the import.
The Law on Value Added Tax (VAT) in Art. 71sets out the conditions under which a person may exercise his right to deduct a tax credit. These conditions cover various situations that may arise in the course of an economic activity, including importation. The main conditions include:
The right to deduct a tax credit arises only for a tax that has been paid effectively in the Republican budget.It is important to underline that import VAT obligations cannot be offset against the person's claims to the budget of any nature. If the tax is repaid by offsetting by a competent administrative authority, the person does not have the right to deduct a tax credit for that tax, since it was not “paid in accordance with Article 90 (1) of the VAT Act”.
Once the tax has been paid, and the importer has the necessary documents that certify the import and payment of VAT, the person can exercise his right to deduct the tax credit. This right is exercised when the tax is entered in the purchase book for the relevant tax period in which the right to deduct arose or in one of the following three tax periods.
It is important to note that the right to deduct a tax credit arises only for tax that has been paid effectively and cannot be offset by other obligations to the budget.
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The VAT refund calculator provides an easy and intuitive way to calculate the potential refund or deduction of value added tax related to purchases and sales of goods and services. By entering gross amounts and VAT rates for specific purchases and sales, consumers can quickly find out the amount of VAT that can be deducted or refunded. However, VAT refund is a process characterized by numerous nuances, exceptions and specific regimes that require a detailed understanding of the current legislation and applicable rules.
In view of the complexity of the VAT refund process, it is advisable for clients to contact a qualified specialist from Elan Consulting, who can provide professional support and ensure that all aspects of the VAT refund are taken into account. Elan Consulting has experts who have in-depth knowledge of local and international tax law and are trained to identify opportunities to optimize tax benefits for their clients. Turning to a specialist, you will not only increase your chances of a successful VAT refund, but also minimize the risk of errors and possible adverse tax consequences.
The Law on Value Added Tax (VAT) sets certain restrictions on the right to deduct a tax credit, which are important for any entity engaged in economic activity. IN Art. 70the conditions under which the right to deduct a tax credit are listed not available, whether the conditions of Article 69 or 74 are met:
In addition, a tax credit is not recognised for VAT that has been wrongfully charged.
The VAT refund for foreign individuals who are not established in the European Union is regulated by Ordinance No N-12 of 24 August 2006. This possibility allows such persons to receive back VAT on goods purchased in Bulgaria and exported for personal use unchanged. To take advantage of this option, foreign individuals must meet certain criteria. It is important that the goods are exported outside the European Union by the end of the third month following the month of purchase and that the value of VAT on each invoice exceeds BGN 50. In addition, the person must request the refund no later than six months after the invoice is issued.
The recovery process can be carried out through an agentor directly from the supplier of the goods. The foreign person must submit the necessary documents, including a certified refund request and the original invoice, to the agent or supplier. It is important to note that VAT is not refundable for alcohol, tobacco products and liquid fuels.
Refund of VAT It is an important opportunity for foreign individuals, allowing them to recover part of the funds spent on the purchase of goods in Bulgaria, which they then export outside the EU for personal use. The procedure requires careful adherence to the established rules and submission of all necessary documents on time.
With the introduction of special regime for distance sales of goods imported from third countries or territories, Bulgarian legislation offers a simplified approach to the processing of customs declarations and deferred payment of import tax. This regime, regulated in art. 57aof the Value Added Tax Act (VAT), allows importers to declare in the customs import declaration that they apply the special regime by indicating their individual identification number under that regime.
To benefit from the special regime, the importer must meet certain conditions, such as that the goods do not exceed the value of 150 euros and that they are not excise goods. Also, the goods must be intended for non-taxable persons. Based on these criteria, the customs authorities authorise the lifting of the goods without the tax actually paidin the budget at the time of lifting.
Other special arrangements for declaration and deferred payment of import tax, presented in art. 57b, offers taxable persons who meet certain conditions the possibility of deferred payment of VAT. This includes the importation of goods in the form of consignments with a value of less than EUR 150, which are not excise goods and are intended for non-taxable persons. Importers meeting these criteria may keep an electronic register and file a monthly declaration with the Customs Agency.
Importers applying the special procedure shall indicate on the customs declaration that they apply the procedure and identify the consignee of the consignment. The monthly return, in which the total amount of VAT for the relevant period is reported, must be submitted by the 16th of the month following the reporting period.
The recipient of the shipment, the non-taxable person, is obliged to pay VAT upon receipt of the shipment. The importer, in turn, collects the tax and is obliged to pay it by the 16th of the month following the month of acceptance of the shipment.
Where the conditions for the special regime are not available, the general rules of the VAT apply. It is important to note that for the tax paid under the special regime there is no entitlement to a tax credit.
This approach aims to facilitate importers and optimise the VAT refund process for imports from third countries, while ensuring efficient tax collection.
In the context of Value Added Tax (VAT) Act, the rules around car tax credit, including for cars with 6+1 seats (seven seats), are subject to specific restrictions and conditions. These rules determine in what circumstances a business can claim a tax credit related to the purchase, maintenance and operation of motor vehicles.
The basic ruleaffects the limitationswith regard to the deduction of a VAT tax credit in the case of cars. According to Art. 70 of the ZDDS, the right to deduct a tax credit is not available for cars, unless they are used exclusively for business purposes. This means that for motorcycles and passenger cars, including those with 6+1 seats, the tax credit can be deducted only if the vehicle is used entirely for the needs of the economic activity of the person.
Exist Exceptionswhich allow the deduction of a tax credit for such cars:
Specific for 6+1 cars, the conditions and restrictions for deducting a tax credit are the same as for all other passenger cars. It is important to emphasize that the right to a tax credit arises only if the car is used entirely for economic activity and is not intended for personal use or other purposes outside the person's activity.
The Law on Value Added Tax (VAT) in Art. 58provides for exemption from import duty for certain categories of goods. These exceptions are explicitly stated and are intended to relieve certain sectors, promote international cooperation, support educational, scientific and cultural activities, or respond to emergencies such as the COVID-19 pandemic. Imports of the following types of goods shall not be subject to VAT:
And additional categories of goods that are specified in the law, such as goods under customs control which are destroyed or irretrievably lost, or goods that have been temporarily exported for repair or repair. These exceptions are designed to reflect different practical situations and to support international trade and cultural exchange without imposing an unnecessary financial burden on certain types of imports.
The right to deduct a tax credit, or VAT refund, arises in a number of special cases, which are regulated in detail in Chapter Nine of the Regulations for the Application of the Value Added Tax Act (VAT).
The first particular case in which the right to a tax credit arises is when goods are imported. The right to deduct a tax credit for the VAT paid on importation shall be exercised by indicating in the purchase log for the relevant tax period the customs document or other import document issued or certified by the customs administration. This document must identify the taxable person as the recipient or importer and indicate the amount of value added tax due or enable the calculation of this amount pursuant to Article 56 (1) of the VAT Act.
The right to deduct a tax credit also arises for the tax paid in the case of importation of goods under the “inward processing” regime and under the regime of “temporary importation with partial relief from import duties”, as specified in Article 56 (2) of the VAT Code. In addition, in the event of a change in the tax base on importation, where the customs authorities charge an additional VAT liability, the importer may exercise his right to a tax credit for the additional tax charged and paid by including the administrative act issued by the customs authority in the purchase log, in accordance with Article 56a, paragraph 1, of the VAT.
The next special case concerns goods and services of negligible value which are used for advertising purposes. The taxable person has the right to deduct a tax credit for such goods and services when they are used to advertise taxable supplies, in accordance with Article 57 (1) of the GDPR. If those goods and services are used both for taxable supplies and for exempt supplies or for which the person is not entitled to a tax credit, then the right to deduct the tax credit is partial.
A special case also arises when a tax document is canceled, lost, destroyed or stolen. In these cases, the registered person may exercise his right to deduct a tax credit on the basis of the newly issued tax document, provided that he has a protocol under Article 116, paragraph 4 of the VAT Act. The right to a tax credit arises during the tax period during which the new document was issued, in accordance with Article 58, paragraph 1 of the PPZVAT.
Another important particular case is the right to a tax credit in the event of incorrect tax treatment of a supply. In this case, the right to a tax credit may be exercised when the new document is issued and included in the recipient's purchase log within the period referred to in Article 72 of the VAT Act, as provided for in Article 58a of the PPZVAT.
The right to deduct a tax credit also arises in cases of public sale under the Tax Insurance Procedure Code and the Civil Procedure Code, as well as in the case of sales under the Special Pledges Act and the Credit Institutions Act, subject to the general requirements for exercising this right, pursuant to Article 59 of the PPZVAT.
Another special case is the right to a tax credit in the event of succession under Art. 10 of the GDPR. The legal successor is entitled to a tax credit deduction for the goods and services received if certain conditions are met, including that the right was not exercised by the predecessor and that the goods or services will be used for the purposes of the taxable activity of the legal successor, in accordance with Article 60 of the GDPR.
Finally, the right to a tax credit also arises for assets and services available before the date of registration or re-registration under the VAT. This right is exercised only for assets available at the date of registration or services received before the date of registration, pursuant to Art. 61 of the GDPR.
Those provisions cover a wide range of cases in which the right to deduct a tax credit arises and are designed to enable taxable persons to exercise their right in a transparent and regulated manner, depending on the particular circumstances.
