03 ян.



The Law on Amendment and Supplementation of the Value Added Tax Act (VATA) was promulgated in State Gazette (SG) issue 94 of 30 November 2012. This law amends other tax acts as well as the Tax and Social Security Proceedings Code (TSSPC), as well. Only the amendments in the VATA are subject of the present material. The amendments in the other tax acts and the TSSPC shall be covered in other separate materials.

A large part of the amendments in VATA are related to Council Directive 2010/45/EU of 13 July 2010 which amends Directive 2006/112/EC on the common system of Value Added Tax as regards the rules on invoicing.

Some of the more essential amendments and supplementations to the currently effective VAT Act could be summarized as follows:

1. Repairs and improvements of hired assets

a) The repairs of the hired assets shall not be viewed as a free of charge taxable supply

Before 1 January 2013 the repairs of hired assets (or assets provided for use on other grounds) made free of charge by the lessee were deemed to be a taxable supply effected for consideration in case the asset has been used by the lessee/user for a period shorter than 3 years.

As of 1 January 2013 the above rule shall be abolished, i.e. the repair of a hired or granted for use asset shall not be considered a taxable supply regardless of the period of use of the hired asset by the lessee/user.

b) Improvements

Under the provisions of VATA in force until 31 December 2012 the improvements effected free of charge by a tenant/user of a hired (or used on other grounds) asset represent a deemed taxable supply. The chargeable event is the date of returning the asset together with the improvements.

After 1 January 2013 the improvements effected free of charge by a lessee/user of a hired (or used on other grounds) asset shall still be considered a deemed taxable supply but the date of the chargeable event shall depend on whether the improvement has been included as a condition and/or obligation in the lease/use contract.

In case the improvement has not been included in the lease (or other) contract, the date of the chargeable event shall be the moment of returning of the asset together with the improvements.

The general provisions of VATA shall be applied for the improvements expressly included in the lease (or other use) contract. Thus the chargeable event shall be the moment of competition of the improvement. In our opinion, barter (improvement against rent) would arise on this date. Therefore the relations between parties shall be arranged by cross issuance of invoices under Art. 130 of VATA.

There is no transitional regime for improvements accomplished before the amendments come into force. In this respect, the tax treatment of the improvements shall be determined by the provisions in force as at moment of the respective chargeable event.

2. Intra-community supplies with continuous performance

A new rule for determination of the chargeable event of intra-community supplies with continuous performance, where the performance takes longer than one calendar month, has been introduced. In such cases, the chargeable event shall be the end of each calendar month. For the last calendar month the chargeable event shall be the date of supplies termination.

3. Foreign currency exchange rate for determination of the taxable base:

Two options will be possible for transactions in foreign currency:

a) application of the currency exchange rate of the Bulgarian National Bank as at the date of the chargeable event, or

b) application of the currency exchange rate of the European Central Bank as at the date of the chargeable event.

In case of transactions in currency other than euro, the taxable base shall be calculated via the exchange rate of the respective currency towards the euro. Our understanding is that the use of such a cross rate shall be applied only under point b) above. However, due the unclear text of this provision, one could make a conclusion that the cross rate shall be applied under p. a) above, as well.

4. Submission of list of assets available as at the VAT registration date

The deadline for submission of a list of assets acquired before VAT registration has been extended from 7 days to 45 days.

5. Right for deduction of input VAT for purchases for which input VAT was not deducted at the acquisition of the goods/services

A registered person that has acquired goods or services for which input VAT deduction was not allowed (for example goods and services intended for VAT exempt supplies) has been given the opportunity to make the deduction if a change its intentions to use the goods/services occurs.

Detailed rules on how to use the above opportunity would be included in the Regulations for application of VATA. In result, registered persons can deduct input VAT for goods or services that have been used for VAT exempt supplies in the past, where these goods and services will be used for taxable supplies in the future.

6. Passenger cars

The amendments in the VAT Act bring back into force the rules for input VAT for passenger cars and motorcycles that were in force until 31 December 2006. The reason for these amendments is a letter from the European Commission to Bulgaria for non-compliance with the EU law.

After the amendments, the input VAT deduction on purchase of passenger cars and motorcycles will not be allowed (the same as it is now). The same restriction applies for the expenses related to the maintenance, repair and use of the purchased passenger cars and motorcycles.

Formally, the restriction on the input VAT deduction for hired passenger cars and motorcycles has been abolished. Given that for many years the input VAT right for hired passenger cars and motorcycles has been restricted by the law, the risk of disputes with the revenue authorities cannot be eliminated (for example reclassifying long-term operating lease contracts into finance lease, etc.). It should be noted that there is some practice of the Supreme Administrative Court regarding the above mentioned provision (regarding VATA in force until 31 December 2006) that allows the use input VAT deduction for hired passenger cars and motorcycles.

Despite the above restrictions, the opportunity for input VAT deduction remains for the cases where the purchased/imported passenger cars and motorcycles (as well as the related expenses) if the taxable person has one of the following main activities: taxi transport, courier services, transport and security activities, sale of automobiles and other activities explicitly listed in the law. In this case “main activity” shall be understood as an activity that forms more than 50% of the revenue of the owner of the passenger car/motorcycle for the last 12 months.

Before the amendment the right for deduction of input VAT was allowed only for the passenger cars/motorcycles used directly for the activities listed in the previous paragraph. After the amendment the right for deduction of input VAT shall be allowed for automobiles that are indirectly used in the above activities (for instance they are used for administrative and other auxiliary activities) as long as the main activity of the owner is one of the listed above.

7. Documentation (invoicing)

Explicit rules have been introduced for issuance of invoices by persons established in several countries. The common rule is that the invoices shall be issued by the fixed establishment from which the supply was performed.

The issuance of a summary invoice shall be allowed for supplies of goods and services for which the tax becomes chargeable in one and the same tax period (month). The invoice shall be issued on the last day of the month.

The rules for self-invoicing were simplified – only a preliminary agreement and a procedure for acceptance of each invoice/note by the supplier are required.

In case the tax in the invoice is due by the recipient, the phrase “reverse charge” shall be mentioned on the invoice, as well as the legal provision requiring that. Before the amendment, the invoice had to contain only the legal provision requiring the chargeability of the tax by the recipient.

Transactions can be documented with e-invoices as long as the customer confirms the acceptance of such invoices in writing or silently.

The authenticity of origin, integrity of contents and the legibility of e-invoices/notes shall be ensured via all kinds of control of the business activity that create reliable audit trial between the invoice/note and the supply of goods and services.

In case the invoices are stored via electronic means, the taxable person shall provide online access to the competent authorities of the country in which the tax is due.

Definitions of the terms “authenticity of origin” and “integrity of content” in the invoices are included in the supplementary provisions.

The material herein is only of general informative matter and does not represent a specific advice and consultation. Should any additional questions arise please do not hesitate to contact us!

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