The accounting of a commercial representation of a foreign company in Bulgaria should take into account the clearly defined legal status and functions of the representative office, as well as the specific requirements for its registration. According to Art. 24, para. 1 of the Investment Promotion Act, the commercial representation is an organization that is compulsorily entered in the commercial register of the Bulgarian Chamber of Commerce and Industry (BCCI), and the entry has constitutional effect. This means that a commercial representation acquires legal legitimacy only after its official registration by the Court.
According to the legislation, the commercial representation of a foreign person does not have the status of a legal entity and does not have the right to business activity in Bulgaria. This places it in a specific role — the representative office can only carry out activities related to the promotion and presentation of the foreign company, without carrying out commercial transactions or other economic activities to generate income.
The registration procedure in the BCCI requires foreign persons to provide official documents that certify their current status, economic activity and tax status for the last two years before the application. These documents must be duly certified and legalized in order to have legal value in Bulgaria. The registration is accompanied by an annual fee for keeping the data up to date in the public register of BCCI, which is available online. This fee guarantees not only the updating of information, but also access to additional services offered by the Chamber of Registered Representations.
In the article we will consider in detail what the accounting services of a commercial agency in Bulgaria cover, which regulatory requirements apply, and what is the importance of accurate accounting for this type of organizations. Elan Consulting offers expert accounting services and legal support for commercial representations of foreign companies in Sofia, Burgas, Pomorie, Karnobat and other cities in Bulgaria, ensuring compliance with all applicable legal regulations and facilitating the smooth functioning of these representative offices in the country.
Is the commercial representation an “enterprise” within the meaning of the Bulgarian legislation?
According to the Accounting Act (HPA), the term “enterprise” covers various types of entities, including the commercial representations of foreign persons. According to Art. 2, item 6 of the Law on Business Law, commercial representative offices are defined as “enterprises” for the purposes of the law, which requires compliance with general accounting requirements, although these representative offices are not entitled to business activity in Bulgaria.
As enterprises within the meaning of the CPA, commercial agencies are required to keep accounts that reflect their expenses and financial operations in a manner consistent with the principles of accuracy and completeness of financial information. They are obliged to prepare annual financial statements, which must reflect the expenses incurred in connection with their activities, even in the absence of income from economic activity. The main obligations of enterprises under the ZSC include:
- Keeping of accounting records— undertakings are required to ensure a fair and fair presentation of their financial position through regular reporting of accounting operations.
- Preparation of annual financial report— the annual accounts are required to account for the expenses of the representation and must be drawn up in accordance with established national accounting standards or international standards, if applicable.
- Compliance with deadlines for the preparation and submission of reports— it is mandatory to comply with the deadlines provided by law for preparation and submission of the reports to the competent authorities.
Therefore, according to Art. 2, item 6 of the Law on Accounting, commercial representations are accounting entities to which the requirements of the Accounting Act apply, and these requirements include the maintenance of accounting and the preparation of financial statements, regardless of the absence of business activity.
What types of reports is the sales representative obliged to file and where?
The commercial representation of a foreign company in Bulgaria, as an enterprise within the meaning of Art. 2, item 6 of the Accounting Act, has specific obligations to submit annual reports to different institutions, the terms and scope of the reports differ depending on the applicable legislation and administrative requirements. Due to its legal status — a non-legal person with no right to business activity — the commercial representation does not report income and expenses from business activities, but is mainly accounted for its administrative and operational expenses.
Annual financial report at the Registry Agency (Trade Register)
According to Art. 38, para. 1 of the Accounting Act, the commercial representation is obliged to publish an annual financial report in the Commercial Register and the Register of Non-Profit Legal Entities. This requirement covers all undertakings which must ensure the publicity of their financial information. The annual financial report of the representation should be submitted by 30 September of the year following the reporting year, in accordance with the amendment in the law of 2021 (Art. 38, para. 1, item 3 of the Law on Civil Procedure). The publication shall include key elements of the statement, such as a balance sheet or statement of financial position and annexes, if applicable. The main purpose of this publicity is to ensure accessibility and transparency of reporting information for interested persons who monitor the activities of the commercial representation in the country.
Report on the activities of the Bulgarian Chamber of Commerce and Industry (BCCI)
In addition to the publication of an annual financial report in the Commercial Register, the commercial representation is obliged to submit an annual report on the activity in the BCCI, where it is registered. This requirement arises from the status of the commercial representation as a registered entity in the Unified Commercial Register of BCCI, and is intended to keep up-to-date information about its administrative and representative activities in Bulgaria. The deadline for submitting this report is March 31 of the year following the reporting year. In addition to the activity report, the sales representative must also pay the annual fee for updating the registration in the BCCI register, which ensures the maintenance of its status and includes the provision of additional services by the Court.
Types and content of reports
Given that the commercial representation does not have the right to conduct business, its accounts are limited to the presentation of expenses related to the maintenance of the activity in Bulgaria, such as expenses for rents, utilities, employee remuneration and other current administrative expenses. Since representative offices do not generate income, the financial statement mainly includes balance sheet items reflecting these expenses, and not a statement of income and expenses in the ordinary sense of business. In preparing these reports, the sales representative follows the provisions of the National Accounting Standards (NSA) or the International Accounting Standards (IFRS), if it chooses to adhere to them.
How are TP's income and expenses accounted for in accordance with national accounting standards? What income can a sales representative have?
The accounting of income and expenses of a commercial representation of a foreign company in Bulgaria is governed by the National Accounting Standards (NSS), taking into account the specific legal status of the representative office. According to Art. 24, para. 1 of the Investment Promotion Act, the commercial representation does not have the status of a legal person and cannot carry out business activities in Bulgaria. This means that the representation cannot generate income from sales or other economic activities, since its functions are limited to representative and marketing activities for the foreign company.
Revenues of the sales representative
Due to the ban on conducting business activities, the commercial representation cannot have income from sales of goods or services on the territory of Bulgaria. The only possible “income” can be transfers from the foreign parent company, which cover the operational and administrative expenses of the representative office in the country. These transfers are not seen as income in the traditional accounting sense, but rather as internal estimates aimed at financing the activity and ensuring the coverage of expenses. In accounting, such transfers are usually accounted for as financing or internal company subsidization and are not classified as income from activities.
Expenses of the sales representative
The main part of the accounting of a sales representative office is focused on the costs necessary to maintain its activities. These costs include:
- Administrative expenses: Expenses for rent of office premises, utilities, office supplies and other expenses related to the activity that do not generate profit, but are necessary for the operation of the representation.
- Remuneration costs: If the representative office has employees or representatives, their remuneration, together with the corresponding social security contributions and other related obligations, are recorded in the accounting of the representation.
- Expenses for business trips and marketing: In the event that the representation carries out marketing activities, business trips or other activities related to the performance of the parent company, these expenses are recorded as current expenses in the accounting registers.
Accounting according to NSS
According to the National Accounting Standards, representation expenses should be accounted for in accordance with the principles of accuracy, completeness and conformity of documentary costs. They are classified according to the applicable accounting categories, such as external service costs, personnel costs and other administrative expenses. Each expense must be properly documented and described so that it reflects its real purpose within the scope of the agency's activities.
What are the specifics in the accounting of a branch of a foreign legal entity?
The branch of a foreign legal entity in Bulgaria is a different type of entity from the commercial representation, with specific accounting and tax features. In contrast to the commercial representation, the branch has the right to carry out business activities and generate income on the territory of Bulgaria. According to the Law on Accounting and the Commercial Law, the branch is considered as part of the structure of the foreign legal entity, but is subject to registration and accounting in Bulgaria as an independent entity.
1. Accounting treatment of branches
The branch, although part of the foreign company, is considered a separate unit that is subject to separate accounting. According to Art. 2 of the Accounting Act, branches of foreign traders fall into the category of “enterprises” that have obligations for accounting, filing annual financial statements and compliance with National Accounting Standards (NSS) or International Financial Reporting Standards (IFRS), if they choose to stick with them. The accounting of the branch includes both income and expenses related to its activities in Bulgaria, applying all rules for documentary justification and accuracy of accounting records.
2. Tax liability and taxation of income
The branch of a foreign person is subject to taxation in Bulgaria on the income earned in the country. This means that he is obliged to keep a record of his income and expenses, and is accordingly subject to corporate tax under the Corporate Income Tax Act (Corporate Income Tax Act). In addition to corporate tax, the branch must also reflect other tax obligations, such as VAT, if it meets the conditions for registration under the Value Added Tax Act. This aspect makes the accounting of the branch more complex compared to that of the commercial representation, which is exempt from taxation due to the lack of business activity.
3. Submission of annual financial statements and tax returns
The branch is obliged to file an annual financial report with the Commercial Register and to draw up an annual tax return for its taxable income. The financial statements and the tax return are submitted in the relevant deadlines, and for the annual report the deadline is until September 30 of the year following the reporting year, in accordance with the Accounting Act. The corporate tax return is filed by March 31 of the year following the reporting year, applying all applicable rules of tax legislation.
4. Financial transfers and internal estimates
In the case of branches of foreign legal entities, transfers are often made between the branch and the head office of the company abroad. However, these transfers are subject to tax and accounting reporting in Bulgaria. Any transfer aimed at covering expenses or financing the activity must be clearly documented and meet the requirements of financial statements, being reflected in the accounting of the branch.
5. Audit and publicity requirements for financial statements
Branches of foreign entities may also be subject to mandatory audit depending on the volume of their activity and the requirements of the law. Once the financial statement has been prepared and certified, it must be published in the Commercial Register in accordance with the requirements for transparency of financial information.
In other words, the accounting of a branch of a foreign legal entity is significantly more complicated than that of a commercial representation, since it involves both accounting for income and expenses, as well as compliance with all tax and accounting obligations related to conducting business activities.
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