At the end of 2016, the Bulgarian parliament adopted amendments to the Corporate Income Tax Act (CITA), the Personal Income Tax Act (PITA), the Value Added Tax Act (VATA), the Excise Duty and Tax Warehouses Act (EDTWA), Local Taxes and Fees Act (LTFA), with effect from January 1 2017, writes Petar Varbanov of Eurofast Global.
A possibility for correcting a filed corporate income tax return shall be available for taxpayers after March 31 of the following year. The correction shall be possible by September 30 of the following year. The scope of mistakes that may trigger a correction was increased to include adjusting events within the meaning of the applicable accounting standards.
As of January 1 2018, taxpayers shall be obliged to file the mandatory under CITA returns only electronically. The discount currently granted for electronic submission will be discontinued after January 1 2018.
Anyone acquiring long-term assets, for business or personal usage, will be allowed to use VAT credit on a pro-rata credit basis. The Bulgarian parliament voted that VAT credit can be claimed only for the part used for economic activities of the VAT registered person. For the pro-rata mechanism a special allocation key shall be developed. When the acquired goods or services are used both for taxable and exempt services a proportional deduction shall be applicable.
For the purposes of the VATA long-term assets shall include real estate, vehicles and other goods and services, which are or would have been long-term assets under the CITA with a value of BGN 5,000 (€2,550; $3,000) or greater. VAT-registered persons will be obliged to execute an adjustment of the claimed VAT credit on an annual basis, in cases when the usage of the long-term assets has been changed. The adjustment should be executed for a period of 20 years for real estate, and five years for all other assets.
The Bulgarian Council of Ministers has developed a new scheme for calculation of the waste fee along with the National Association of Municipalities. The legislation is expected to enter into force on January 1 2018.
Foreign legal entities located in EU/EEA member states shall be allowed to obtain some of the registrations needed in Bulgaria under the EDTWA only through a registered Bulgarian branch and also in some cases via a fiscal representative based on the VATA.
Bulgaria published new legislation on the regulations for application of the Value Added Tax Act (RAVATA) in the state gazette in March 2017.
Significant amendments were new rules regarding the proportional deduction of input VAT, a new approach for fixed assets for which no input VAT has been initially deducted and issuing and reporting of protocols in different cases.
Tax litigation related to VAT is a continuing trend. Partner Anna Rizova from Wolf Theiss said that in the past year "tens of millions of euros of client money" had been frozen by tax officials.
She attributed this partly to the change of the Bulgarian government, adding that a consequence of this was that authorities preferred to hold on to this money in periods of uncertainty and unclear legislation, and impose injunction measures. 'Frozen' funds cannot be used or moved, they also cannot gain interest.
"A company, after every quarter, files a request for a VAT refund, and the authorities have a period of about two months to refund. If there is no refund, there would be an interest due over this amount by the tax authorities. The day the authorities refund the money, they impose restrictions on the bank account. This means that clients can't receive the full amount and we have a job to challenge this," Rizova explained. "If these were small companies it would kill the company."
Bulgaria also signed the OECD's Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) in June 2017.
Also in June, the Bulgarian parliament reviewed a draft bill on country-by-country reporting (CbCR) that pulls forward the notification date for which entity will file the report with the National Revenue Agency (NRA) from September 2017 to December 31 2016. This will affect companies with revenue of €750 million ($884 million) or more.
"We are expecting major changes related to tax procedures related to country-by-country reporting. It is influencing how we work as clients are asking us when the deadlines are," said partner Viara Todorova from Djingov, Gouginski, Kyutchukov & Velichkog (DGKV).
"Aside from the decision to implement BEPS action points, there are not many developments on the side of the tax authorities. They have adopted OECD recommendations, but they [do] not visibly provide guidance and there are a lot of open questions as a result of that," said Rizova.
Guidelines from the NRA for the submission of CbCR are expected to be issued by the end of October 2017.
Delchev & Partners Law Firm
8 Tsar Kaloyan str., 2nd floor
Sofia 1000, Bulgaria
Phone: +359 2 933 09 81
Main areas of focus:
Corporate Tax, Mergers & Acquisitions, Indirect Tax, VAT compliance, Tax disputes, Transfer Pricing, Customs, Private Clients, Global Mobility
Ernst & Young Bulgaria EOOD
47A Tsarigradsko Shose Blvd.
Polygraphia Office Center, floor 4
Tel: +359 2 817 7100
Country Tax Leader
Tel: +359 2 817 7130
Business Tax Services
Tel: +359 2 817 7155
Global Compliance and Reporting
Tel: +359 2 817 7175
People Advisory Services
Tel: +359 2 8177146
Tel: +359 2 817 7155
International Tax Services
Tel: +359 2 817 7343
Tel: +359 2 817 7143
Tel: +359 2 817 7343
Tel: +359 2 8177155
|Corporate Income Tax||10%|
|Capital Gains Tax||10%|
|Net Operating Losses (years)|
|Royalties from, for example, patents, know-how||10%||B|
|Branch Remittance Tax||0%||N/A|
A) Dividends paid to companies and other entities that are residents of EEA country are exempt from withholding tax.
B) The rate on interest/royalties paid to an EU related party is 5% in certain cases. As from January 1 2015, Bulgaria must fully implement the EU interest and royalties directive and exempt interest and royalties paid to an associated company of another member state or to a PE of an associated company situated in another member state.
Svetla Marinova is director of tax and law at Baker Tilly Klitou in Bulgaria. Marinova joined in 2013. She has a Big 4 background and more than 20 years of experience.
The firm comprises 14 professionals, half of them specialise in compliance and accounting and the other half work in indirect, corporate and tax disputes. The team expanded in the past year with the addition of a senior tax associate, tax associate and legal associate.
CMS Reich-Rohrwig Hainz's office in Bulgaria is headed by managing partner Gentscho Pavlov. Pavlov joined CMS in 2003 and became local partner in 2007. He heads the banking and finance and M&A teams in the region and specialises in corporate, real estate and tax, and has a track-record of leading complex M&A deals in Bulgaria.
The Sofia-based tax team comprises five professionals who offer services in VAT, international taxation, transfer pricing, e-commerce, M&A and investment funds, tax planning and financing.
Client's benefit from CMS's international network that includes more than 350 tax lawyers worldwide.
A key contact at Delchev & Partners' tax team in Bulgaria is partner Veselina Petkova. Petkova specialises in taxation and EU law. She joined the firm in 2006 before she became a partner in 2015.
The tax team comprises two partners and four other professionals. Services include monthly VAT filing and compliance assistance, income tax advice, litigation assistance and defence in audits and court proceedings.
Associate Galina Slavova advised Romanian HABAU PPS Pipelines system, a subsidiary HABAU Group, based in Austria. The €23 million indirect tax case involved VAT assistance with a construction project for the main and back-up gas pipelines interconnectors between Romania and Bulgaria. The team provided compliance and filing services and supported the client on tax reviews and audits.
Pieter Wessel heads Deloitte's tax team in Bulgaria. Wessel joined Deloitte in 2009 and has more than 20 years of experience. He works with a team of 64 professionals.
Forty team members work in compliance and disputes, 10 specialise in corporate tax, nine are dedicated to indirect tax and five concentrate on disputes. Three professionals joined the team in the past year, including two from other Big 4 firms.
Deloitte employed the expertise of two teams to tackle a project led by Wessel and managers Evelina Evtimova and Vasil Lenkov. The trio advised a leading Turkish private multinational healthcare entity in June 2016. The $142 million corporate tax case concerned M&A and due diligence for two healthcare groups. The team spent more than three months participating in the buy-side of tax due diligence of the two groups, and the buyer was advised on tax structuring of the investment. The Turkish multinational became the leading private healthcare provider in Bulgaria as a result of the investment, managing four hospitals and four medical centres.
Partner Viara Todorova is head of the tax team at Djingov, Gouginski, Kyutchukov & Velichkog (DGKV). Todorova joined DGKV in 1999 and worked for a Big 4 firm beforehand. She works with three other tax experts to offer assistance in the areas of indirect, corporate, disputes, compliance and accounting.
Corporate and commercial tax services include advice on PE, tax structuring, M&A, corporate restructurings, asset-based financing, debt and equity capital markets and investments, advice and review of direct or indirect tax liabilities, customs duty liabilities and compliance procedures. The firm also assist with share option schemes, VAT registrations, individual taxation, investment optimisation, transfer of owned estates and transfer pricing-related issues.
Todorova, associate Martin Dimitrov and senior associate Ralitsa Gougleva are advising Nokia Corporation in a $16.6 billion global transaction. DGKV is assisting the client's comprehension of the potential tax implications of restructuring their global acquisition of former French-American rival Alcatel-Lucent.
A client said, "DGKV has proved best on tax structuring in an international context, the other firms are mostly advising on local issues", and that DGKV was "an integrated firm, with wide knowledge and easy to deal with".
"Viara Todorova has been a great support in all our dealings", the client added.
Filipov & Partners tax team in Bulgaria provides consulting, auditing and accounting services. Velin Filipov is the managing partner and founder of the firm. He previously worked in the tax accounting practice of the Bulgarian Ministry of Finance.
The firm gives accounting and legal advice, and provides assistance with audits, administration and judicial reviews.
Auditing services cover independent financial audits and services, restructuring, EU programme projects and due diligence projects. The firm also helps with preparing financial reports, payroll service, human resource management and management accounting.
The Bulgarian Grant Thornton practice was founded in 1995. Grant Thornton's international network spans more than 130 countries, granting clients global insight on tax policy. Mariy Apostolov has been the managing partner since 2001.
The team provides tax consultancy services such as VAT, corporate and income, share transfers, tax on share profits and double tax treaties, M&A assistance in tax inspections and transfer pricing-related services such as documentation preparation and analysis.
Managing partner Stefan Gugushev founded Gugushev & Partners in 2006.
The team of 50 professionals offers assistance in drafting legal advice, tax optimisation in policy structuring and design, inspections on corporate taxation, taxation of individuals and VAT.
Kinkin & Partners' tax team is led by founder and partner Vladimir Kinkin. He works with another partner and 12 experts offering services in indirect tax, corporate tax, disputes and compliance. Two associates joined the team in 2016.
Kinkin and senior associate Siyana Veleva are advising an investment company in a €1.1 million case. The team is assisting the client with restructuring different entities in the business.
A client said: "I would like to say that not only would I recommend the firm [now], but I do it all the time. I do it because of the way they treat their clients and the clients' tasks and problems. I know that if I need any legal service, I should not be worried, because they've got my back. Thanks to that feeling, I do not use the services of any other law firms."
Tax and legal partner Kalin Hadjidimov leads KPMG's practice in Bulgaria. Hadjidimov joined the practice in 1996 and was promoted to partner in 2006.
He is experienced in tax advisory and compliance services for businesses operating in the energy, oil and gas, real estate, telecommunications, and banking and finance sectors.
The firm benefits from links with KPMG's international network adding value to its work with a global perspective on transfer pricing.
PwC has been present in Bulgaria since 1992. The Sofia-based office has close to 200 professionals and six of these are partners. A key contact is Bojidar Neytchev, the managing partner of the practice.
The firm is often in contact with official and financial organisations, giving the clients key insights into tax issues that may arise and advising them on BEPS-compliance rules.
The firm's client base consists of major Bulgarian companies and multinationals in Bulgaria who require assistance and defence in tax audits conducted by Bulgarian Tax officials.
Savov & Partners is a boutique firm led by partner Valentin Savov. Savov has a solid reputation and is acknowledged by his peers as a leader in tax. He has more than 10 years of legal experience, including a Big 4 background and working as a leading lawyer at CMS Reich-Rohrwig Hainz, before leaving in 2016.
Savov and his team provide services in domestic and international taxation, VAT, tax treaty application, transactions and reorganisations.
Savov advised a Bulgarian telecommunications company in a tax dispute exceeding €10 million in April 2017. In other cases, Savov was appointed by the court to provide an expert opinion on TP issues in intra-group services and on commercial enterprise.
A client said: "I have been working with Valentin Savov for three years now and never look back. I am not a multinational corporation but an ex investment banker who worked 25 years for JPMorgan, Merril Lynch, Citibank etc and have taken residency and run a small business in Sofia. The service has always been beyond my expectations. In all regards concerning myself in regard to double taxation, setting up a company, discussing opportunities and navigating the Bulgarian way of doing things. I would call his practice 'boutique and bespoken' because he listens and solves issues efficiently and in a very timely manner."
Spasov & Bratanov was established in 1999, partners Boyko Bratanov and Georgi Spasov co-founded the firm. The firm is known for representing foreign investors in their investment dealdings in Bulgaria.
Services include: legal structuring of business organisations, M&A and demerger transactions, liquidation and insolvency procedures, commercial contracts, privatisation, foreign investment, concessions, competition law, taxation and tax relief, banking and financial contracts, commercial paper and securities.
Partner Anna Rizova leads the tax department of Wolf Theiss in Bulgaria. Rizova joined the team in 2011 and has a Big 4 background. The team of two partners and three other professionals work in the tax areas of indirect, corporate and disputes.
Rizova, partner Richard Clegg and senior associate Atanas Mihaylov advised insurance company Ironshore International and Pembroke Managing Agency in 2016. The case, valued at $120 million, concerned a buy-side warranty and indemnity insurance policy, related to the acquisition of water bottling company Devin AD. The team created a warranty and indemnity report on the transaction, which included the implications of limitations of tax liability, and helped the clients to consider the risks of the insurance policy and structure policy terms accordingly.
Rizova and Mihaylov are advising ERG Renew's Bulgarian subsidiary KS Energy in a €800,000 ($943,000) tax dispute with the Bulgarian tax authority over transfer pricing regulations. Wolf Theiss devised litigation strategies, identified errors in the authority's position, and assisted with collecting expert evidence and defence in legal proceedings.
Independent firm Yordanova, Rizova & Partners is based in Sofia, it was established in 2004 by partners Svetlana Yordanova and Milena Rizova. Both founders have backgrounds in management positions in a Big 4 firm.
The team consists of three partners, one senior associate and two junior associates. The practice offers a multidisciplinary approach to tax and legal services. It is known for its expertise in the areas of IT audit, corporate finance, projects and transactions structuring and implementation.
Clients are multinational corporations and local entities operating in sectors such as mining and natural resources, energy, telecommunications, finance, private equity, entertainment, technology, manufacturing, agriculture and real estate property.
|Tier 1 - Bulgaria|
|Tier 2 - Bulgaria|
|Djingov, Gouginski, Kyutchukov & Velichkog|
|Yordanova, Rizova & Partners|
|Tier 3 - Bulgaria|
|Baker Tilly Klitou|
|CMS Reich-Rohrwig Hainz|
|Delchev & Partners|
|Filipov & Partners|
|Gugushev & Partners|
|Kinkin & Partners|
|Spasov & Bratanov|
|Firms to watch - Bulgaria|
|Savov & Partners|