Taxation of Associations and Foundations (NGOs) in Bulgaria

How is the tax registration and registration in the NOI of an association/foundation carried out — procedure and declaration of bank accounts?

Associations and foundations in Bulgaria are subject to a specific procedure for tax registration and registration with the National Insurance Institute (NOI), which is different from that for commercial enterprises. The main identification of the ULNC for the purposes of tax and insurance relations is carried out by means of a Unified Identification Code (UIC), which is registered in the Commercial Register and the Register of Non-Profit Legal Entities. This registration is automatic, as the JULNCs use their EIC in all official documents, including in their communication with the NRA.

In parallel with this, ULNCs register with the NOI as insurers, and the process is again automatic and based on the information collected from the Commercial Register and the NRA databases. This means that the NOI administers the insurance contributions and manages the State Social Security funds for the ULNC, including the disability, old age, death, illness and maternity programs.

As for ULNC bank accounts, the legislation does not require them to notify the NRA of open or closed bank accounts. Instead, banks have the obligation to inform the NRA of any opening or closing of a ULNC account within seven days. It is important to note that bank account information is protected and its use is restricted within the powers of the revenue authorities. From this point of view, the procedure for tax registration and registration in the NOI of the ULNC provides a basis for effective management of the financial and insurance obligations of organizations, while protecting their confidentiality and ensuring compliance with legal requirements.

In conclusion, the tax registration and registration in the NOI of the ULNC are critical aspects of their activities that must be managed carefully and accurately. These procedures ensure that ULNCs comply with legal requirements and can effectively participate in the tax and insurance systems of the state. This in turn helps to maintain transparency and accountability in the management of ULNCs finances, which is fundamental to their sustainability and reliability in the eyes of society and donors.

When are associations and foundations subject to corporate tax?

Associations, foundations and NGOs (NGOs) in general are subject to corporate tax in certain circumstances related to the conduct of business activities. Under the law, ULNCs can finance their main non-profit activity through business activities that are provided for in their statutes. When these organizations make a tax profit from this activity, they are subject to corporate tax.

Tax profit is defined as the accounting profit converted in accordance with legal requirements. The object of corporate taxation is the profits generated from commercial transactions specified in the Commercial Law, as well as from the rental of movable and immovable property.

According to the practice of the National Revenue Agency (NRA), an activity is considered commercial or economic if it is carried out for the purpose of generating a profit, even if this profit is not actually realized. Thus, transactions and activities that are carried out for profit and whose prices are formed on a market basis are subject to corporate taxation.

It is important to note that even in one-time transactions, if they are carried out for the purpose of profit and the terms of the transaction are determined on a market principle, corporate tax is also due. This highlights the need for ULNCs to keep accurate accounts and be aware of the potential tax implications of their activities, even if they are one-off or appear unrelated directly to their core business.

Thus, ULNCs must conduct their business within the legal requirements and be prepared for taxation if their activities generate profits that are subject to corporate taxation.

Is income from project financing, donations, sponsorship and advertising subject to corporate tax?

Corporate taxation of income from various sources such as project financing, donations, sponsorship and advertising is a complex process that depends on the specific characteristics of each transaction and its participants.

Project financing received by the ULNC is generally not subject to corporate tax, as these funds are usually used for the realization of non-profit projects. This means that the proceeds from such projects are not considered profit from business activities within the meaning of the Commercial Law. However, if JULCs carry out transactions that are profit-oriented and negotiated on a market basis, those revenues would be subject to corporate tax.

Donation and sponsorship income, on the other hand, are subject to different treatment. Donations are generally considered grants and are not subject to corporate tax, as they are not considered a business activity. Sponsorship, however, may take different forms and conditions, depending on the specific consideration agreed upon. If the consideration for the sponsorship is equivalent to the economic aid granted, then the income from such sponsorship could be subject to corporate tax as income from business activities. In cases where the consideration is non-equivalent, the sponsorship could be treated similarly to a donation and the proceeds from it would not be subject to corporation tax.

The advertising revenue provided by the JULNC is generally considered to be an economic activity and, therefore, the income from such activities would be subject to corporate tax. This includes situations in which the ULNC provides advertising services for a fixed fee or receives material benefits that are equivalent to the value of the advertising provided.

In conclusion, the question of corporate taxation of various types of income received by the JULNC requires a thorough examination of the nature and terms of each transaction. It is important for LLNCs to distinguish between commercial and non-profit activities and to be aware of the legal requirements and consequences of their activities for tax purposes.

How is the income from copyright and from rights transferred for the distribution of books and films taxed?

Revenues generated from copyright and transfer rights for distribution of books and films are subject to corporate tax within the framework of Bulgarian legislation. Commercial transactions related to intellectual property such as copyright are expressly included in the scope of the Commercial Law (TC), which means that these types of income are subject to corporate taxation.

Suppose an NGO has created a book and owns the copyright to it. If this NGO enters into a contract with a publishing house, granting it the rights to republish and distribute the book, then any income received from this activity is subject to corporate tax. The percentage of profit obtained from the sales of the book is treated as income from business activities and is subject to corporate taxation.

The same applies to income from film distribution rights. If an NGO owns the copyright in a film and transfers those rights to another organization, the proceeds of that transfer are also subject to corporate tax.

The total tax rate for these types of income is 10%, which is the standard amount of corporate tax in Bulgaria. This means that any income derived from intellectual property such as copyright or distribution rights will be taxed at 10% on the taxable base.

It is important to note that organizations must keep accurate accounting of all transactions and correctly declare their income to ensure compliance with legal requirements and avoid possible tax irregularities.

What is the taxation of membership contributions in an NGO (association) and how are the initial property contributions from the founders and the founding donations for founding a foundation treated with tax?

Income and expenses related to membership fees, initial property contributions from the founders and founding donations for founding a foundation are treated in a certain way according to Bulgarian legislation:

1. Initial and subsequent property contributions: These contributions made by the founders of the ULNC (non-profit legal entities) are accounted for as the organization's own capital. This means that they are not taxable income under the Corporate Income Tax Act (CPA). In order to avoid possible disputes as to whether subsequent contributions are not donations that may be subject to local tax, it is advisable to specify in the statute of the JULNC that the members make both initial and subsequent property contributions.
2. Membership Fees and Donations: Membership dues and donations that are not tied to specific conditions are considered current income for the period in which they are received. This income is reported in the non-profit's income statement and is not subject to corporate tax. Contributions subject to specific conditions are accounted for in accordance with IAS 20 and are reflected as current income for the period during which expenses related to the fulfillment of the conditions of the donation are incurred.
3. Incorporation donations for the foundation: These donations are accounted for as the foundation's equity and do not constitute taxable income under the CPA.
4. Membership of a commercial company in ULNC: When a commercial company is a member of the ULNC, for example an employers' organization or a chamber of commerce, the membership fee is treated as an expense related to the business activity of the company. This expense can be recognised for corporate taxation purposes. The ULNC must issue an appropriate primary accounting document to certify the cost of membership fees.

In processing these financial transactions, NULCs must follow accounting standards and ensure accuracy and regularity in the reporting and taxation of relevant income and expenses.

How is the membership fee treated in the ULNC for tax purposes - does it make a difference whether it is a simple membership fee or a service is provided against it?

When a ULNC collects fees for services rendered to its members in the form of a membership fee, care must be taken to interpret that import. Although, in principle, membership fees are not income from an economic activity, but are part of the membership relationship, situations may arise in which the way in which the fees are collected may change this classification.

If, for example, a member of a fencing club that is a ULNC pays a higher membership fee depending on the frequency of visits to the club, this can be interpreted as payment for a specific service rather than simply as a membership fee. In such a case, the income from these “membership fees” can be considered as income from business activities, because the service provided (use of the gym) is paid directly.

According to the Law on Non-Profit Legal Entities, property contributions or membership contributions are part of the membership relationship and are used to finance the objectives of the ULNC. In the event that these contributions in fact constitute payment for specific services or goods provided by the JULNC for profit, then the organization carries on a business activity, and the profits from that activity are subject to corporation tax.

In the context of a fitness club, if the established practice is such that members pay a higher membership fee depending on the number of visits, this can be seen as a direct payment for the fitness service, which converts the contributions into income from economic activity. Accordingly, the tax authorities would have a right to tax that income.

Does an association/foundation have to have a cash register if it receives payment for services rendered in cash?

Yes, associations and foundations in Bulgaria must have a cash register and issue cash receipts if they receive payment for services rendered in cash and carry out business activities. According to the Value Added Tax Act (VAT) and the Corporate Income Tax Act (CCPA), taxable persons who carry out a business or independent economic activity are obliged to issue a cash receipt when selling goods and services for payment in cash.

According to Ordinance H-18 of the Minister of Finance, which regulates the use of cash registers, the issuance of fiscal cash receipts is mandatory when selling goods and services in commercial outlets, which also includes offices of the ULNC or other premises used for commercial activity. This means that if an association or foundation accepts cash payments for services or goods it provides as part of its business, it must issue receipts for those transactions.

It is important to note that ULNCs that have income from business activities are not excluded from the requirement to issue fiscal cash receipts, as established in Art. 4 and Art. 5 of the Ordinance No N-18/2006 of the Ministry of Finance. That is, they are obliged to issue fiscal receipts for all sales made, regardless of how the price is formed.

Thus, if an association or foundation in Bulgaria carries out business activities and accepts cash payments for its services or products, it is necessary to use a cash register and comply with all related regulatory requirements.

Donation tax to association/foundation — who owes it, when and how is it declared and paid?

The donation tax is due by the person acquiring the property. In case of replacement, the responsibility for the tax falls on the person who receives property of greater value, unless otherwise agreed. If it is agreed that the tax is due by both parties, they are jointly and severally liable. If it is agreed that the tax is due by the transferor, the other party acts as guarantor. When the acquirer of the property is abroad, the responsibility for the tax falls on the transferor.

When the donation is made to a JULNC with a public benefit activity, no tax is due on the donation. In the event that the JULNC is privately beneficial and receives a donation in the form of property, it is obliged to file a declaration and pay tax within two months of receiving the property. Prior to the transfer of real estate, private benefit LLNCs must file a declaration describing the property or motor vehicle. The tax is paid before the transfer of the property to the municipality where the property is located, and for the remaining cases - at the registered office of the JULNC for private benefit.

According to the ZDDFL, the amount of the donation in non-monetary form is determined at the acquisition price, as reflected in the documents for the acquisition of the object of the donation from the donor, if the acquisition took place up to three months before the date of the donation. In other cases, the amount of the donation is determined according to the market price at the date of provision of the object of the donation.

The date of making the donation is considered to be the date of acquisition of the donation by the donee. This determines the time frame for declaring and paying the tax.

I have formed an association and because of me, it wins participation in various projects of a different nature. Can I get a salary?

In Bulgaria, associations under the Law on Non-Profit Legal Entities (ZULNC) are non-governmental organizations that are set up for non-profit purposes and do not compete in the market with commercial enterprises. They may carry out a business activity, but for the purpose of carrying out their non-profit objectives and activities.

According to ZULNC, associations cannot distribute profits or income to founders, members or other individuals. This means that the members of the association, including the founder, cannot receive salaries or distribution of the association's income.

However, associations may pay remuneration to their employees or mercenaries for their work or services if those services are related to the activities and purposes of the association. However, such remuneration shall not be regarded as a distribution of profit, but shall be commensurate with the work duties or services performed.

If you are the founder of an association that participates in projects and provides labor or professional services for the implementation of these projects, you can receive a salary or remuneration for your services, as long as the following conditions are met:

1. Remuneration is for work or services related to the activities of the association.
2. Remuneration shall be in line with market conditions and shall not be disproportionately high in relation to ordinary wages or market conditions.
3. Remuneration is documented and reflected in the accounting of the association.

This means that the remuneration must be reasonable and in line with the usual market prices for such services. It must not constitute an unfair advantage to the founder or members of the association.

However, it is important to consult a professional accountant or lawyer to clarify the specific conditions and restrictions that apply to your association and the business you carry out. We can provide you with appropriate advice in accordance with the laws and regulations that apply to your case.