Establishing a company in Bulgaria is a great opportunity for business owners who want to increase their profits. The registration or transfer procedure takes only about two weeks. This allows the company to operate in a country with relatively low taxes, a transparent tax system and the possibility to apply a number of interesting reliefs. It is worth looking at how VAT in Bulgaria is settled?
VAT rates in Bulgaria
There are two VAT rates in Bulgaria. The standard rate is 20 percent and applies to the provision of all supplies of goods and services subject to VAT. A reduced VAT rate of 9 percent applies to, among other things, accommodation services, foodstuffs for children and babies, book publications, hygiene products, restaurant and catering services, and certain tourist services. Some transactions are exempt from VAT, such as the sale of financial services, educational, insurance and cultural services.
Registration for VAT
According to the regulations of the Bulgarian VAT Act, all entities that exceed the sales threshold of 50,000 Bulgarian Lev (BGN) in the next 12 months are required to submit a registration application for VAT purposes. The registration application should be submitted no later than the 14th day of the month following the month in which the indicated sales threshold is exceeded. If this deadline is not met, the Bulgarian legislation provides for a penalty of BGN 500 to BGN 5,000. However, for entities that do not exceed the sales threshold of BGN 50,000, the legislation provides for the possibility to make a voluntary registration application.
Filing of tax returns
Taxpayers in Bulgaria are required to submit their VAT returns for a given month by the 14th of the following month. This is also the deadline for payment of the tax due for the month. If the return is not filed on time, the taxpayer faces a penalty of BGN 500 to BGN 10,000. It is worth noting that the filing of a tax return is necessary even if there is no tax liability. In this case, it is necessary to send a so-called zero VAT return. In Bulgaria, the archiving period for the documentation that is the basis for tax settlements is 10 years. However, Bulgarian law allows for the electronic archiving of invoices also outside the territory of Bulgaria, i.e. in another European Union Member Country. In this case, it is necessary for the Bulgarian tax authorities to have online access to these documents if necessary.
Refund of overpaid VAT in Bulgaria
In the case of an excess of input tax over output tax in a given accounting period, the taxpayer has the possibility to apply for a refund of the overpaid tax. If, in a given accounting period, the value of transactions taxed at the rate of 0 percent exceeds by 30 percent the value of sales transactions carried out in the previous 12 months, the claimed amount of overpaid tax will be returned within 30 days after the filing of the VAT return. This time limit also applies to the refund of excess input tax in connection with the implementation of major investment projects approved by the Ministry of Finance.
Restrictions on tax refunds
In all other cases, the taxpayer shows the amount of the excess in the return, but is not entitled to apply for a direct refund. A taxpayer may only claim a refund if the excess has not been settled three months after it was indicated in the return. The amount of overpaid tax is then refunded within 45 days of the filing of the return for the third month. Consequently, most VAT refunds are settled on a three-month cycle. Under the provisions of the Bulgarian VAT Act, taxpayers are also obliged to submit a monthly recapitulate statement on intra-EU transactions.
Wide business opportunities
Registration for VAT in Bulgaria provides foreign companies with unlimited business opportunities. A company that is not established in Bulgaria, but will have its VAT identification number in Bulgaria, gains almost the same rights as a local company. Registration for VAT in Bulgaria is then called registration as a ‘non-resident’. Therefore, opening a branch of a company in Bulgaria can be the first step to steadily increasing a company’s revenue.
