Accounting of a sports club in Bulgaria

Accounting of a sports club or sports federation represents a unique and multifaceted process that requires a thorough understanding of not only general accounting principles and norms, but also the specific features associated with their activities and organizational structure. This is because sports clubs and federations can register in different forms, from non-profit legal entities to commercial companies, which significantly affects their accounting and taxation.

On the one hand, as non-profit legal entities, sports clubs and federations focus primarily on the development of sports and their social goals, with profit not being the main goal. This requires a specific approach to accounting for income and expenses, where donations, memberships and subsidies occupy an important place. On the other hand, when they are registered as commercial companies, they follow the standard accounting and taxation approach, seeking to generate profits and optimize their tax obligations.

In addition, the accounting of sports clubs and federations must take into account specific aspects such as the financing of sporting events, the management of sponsorship contracts and television rights, as well as investments in sports infrastructure and talent. These features dictate the need for precise and detailed accounting to ensure clarity and transparency for all stakeholders.

Accounting and taxation of sports club/sports federation - ULNC

Accounting and taxation of a sports club registered as a non-profit legal entity (ULNC) form an important part of the management of such organizations. Although the main objective of these clubs is not profit, they can engage in economic activity, as long as this contributes to the achievement of their main objectives set out in the statutes or the instrument of incorporation.

Is membership import in sports federations and clubs an economic activity?

It all depends on this whether the membership fee gives only the right to membership or specific services are provided in exchange for the payment of the membership fee!

According to the legislation in Bulgaria, non-profit legal entities (ULNCs), including sports clubs and sports federations, have the right to carry out both non-profit and commercial activities, as long as the latter is in support of their main objectives defined in the statutes or the constituent act.

According to Art. 3, para. 1 of the Law on Non-Profit Legal Entities (ZULNC), ULNCs freely determine the means to achieve their objectives, being able to carry out additional business activities related to the subject of their main activity, using the revenues from it to achieve the objectives defined in the statutes.

The membership fee paid by members of a sports club can be considered as an economic activity if it is related to the provision of specific services. These can be

• Access to an unlimited number of workouts in various sports — yoga, fitness, dance, martial arts and more
• Obtainingany services, benefits, information materials, etc., to which non-members of the sports club do not have free access
• Discounts(incl. from activities, seminars, courses, etc. of the organization)to which non-members of the sports club do not have access

In such a case, the membership fee is not just an amount for membership, but also a payment for obtaining specific services, which qualifies it as income from economic activity!

It is important to emphasize that even when a specific business activity is not specified in the Commercial Law explicitly, this does not mean that it is not such and does not exempt the organization from the tax obligations arising from that activity. According to Art. 1, item 2 of the Corporate Income Tax Act (CPA), profits from business activities of legal entities that are not traders, including from the rental of movable and immovable property, are taxable.

Thus, in general terms, when assessing whether a membership contribution constitutes income from an economic activity, it is important to analyse whether services or other benefits are provided to members against it. If the services provided against the membership fee are the main reason for payment and are formed on a market basis, then such imports can be considered as income from economic activities and, as such, are subject to taxation under the terms of the CPA.

How is accounting sponsorship of a sports club accounted for?

Accounting for sponsorship in the context of sports clubs registered as non-profit legal entities (ULNCs) depends on the terms and characteristics of sponsorship contracts, as well as on whether the consideration is equivalent or not.

Where the value of the material support received by the ULNC significantly exceeds the value of the organisation's commitments to the sponsor, such contracts are treated as donationsand refer to the non-profit activity of ULNC. In these cases, sponsorship is counted as a donation with the condition that it is provided for a specific occasion, for example, for the organization of an event at which the sponsor will be presented. Upon receipt of funds from the sponsor, the amount is reported as financing.

If the sponsorship is provided without a specific occasion and is related to various current events of the organization, it is counted as an unconditional donation and is recognized as current income in the period of its receipt!

For Corporate Income Taxation (Corporate Income Tax) purposes, sponsorship contracts with non-equivalent consideration (i.e. sponsorship in which what the sports club has received is not equivalent to what it has given) NOT included in the scope of business activity of ULNC and do not form corporate tax liabilities. In the case of the sponsor, the costs under the sponsorship contract are recognized as expenses for donations in accordance with Article 31 of the CPA.

When sponsorship implies Equivalent considerationIt is treated as a contract for advertising and is a business activity for ULNC. In these cases, the reporting follows the general principles of accounting for advertising services, the income from such contracts being subject to corporate tax in the general order.

When and how are sports clubs and sports federations subject to VAT?

Sports clubs and sports federations registered as non-profit legal entities (NULCs) in Bulgaria may be subject to VAT in certain situations, which depend on the type of activity carried out and the way in which the income is generated. VAT issues are often complicated by the specific nature of the activities of sports clubs, which can carry out both taxable and exempt activities.

When is sport exempt from VAT?

According to the VAT Act (VAT), services directly related to sport or physical education provided by organisations registered under the Non-Profit Legal Entities Act (ZULNC) as organisations designated for the performance of public utility activities may be exempt from VAT. This includes sports clubs that are registered with the respective sports federation and offer services directly related to their sporting activity. The main condition is that the service is directly related to sports or physical education, and that this activity is carried out by a non-profit organization registered to carry out a public service activity.

Scope of the VAT

In order to determine whether an activity is taxable or exempt from VAT, it is important to look at the specific services that the sports club provides. Revenues from the rental of sports facilities, such as tennis courts, for use for consideration may be considered taxable supplies, unless they fall explicitly within the category of exempt supplies, as specified in Article 41, item 4 of the ZVAT, where the services are directly related to sport or physical education and are provided by organizations designated to carry out activities of public benefit.

Exempt supplies

Services which are directly related to the sporting activity of the club and provided by the JULNCs designated for the performance of a public service activity are generally treated as exempt supplies. This includes activities such as training, competitions and other sporting events that are part of the club's mission to promote and develop the sport.