A few weeks ago, we reported on some recent tax changes in Bulgaria, such as the extension of the reduced VAT rate on certain supplies until the end of 2022. Since then, several other amendments came into effect, e.g. a reduced corporate tax rate on employee benefits expenses, reduced VAT rate on specialised milk formula and baby food, or the repeal of personal income tax on bank deposits interest. Below, we describe those recent tax changes in Bulgaria.
Tax changes in Bulgaria on private use expenses
After discussing various alternatives for changing or even abolishing the tax on expenses related to the private use of company assets by employees, often referred to as “weekend tax”, the Bulgarian Parliament has finally settled on reducing the tax pursuant to an amendment published in State Gazette No. 17 on 1 March 2022.
The reduced tax rate concerns only in-kind expenses related to the private use of owned or rented company assets by its employees, directors and shareholders who work in the company. The in-kind expenses subject to tax are the accounting expenses corresponding to the private use of mixed-use assets that are exploited both in the business activities of the employer and for the private use of the employees against no consideration. Such assets normally comprise company cars, immovable property mobile phones, laptops, etc.
The taxable base for the final tax on expenses remains unchanged and continues to refer to the portion of the expenses related to the mixed-use assets that can be allocated to the private use by the personnel. The method of calculating the taxable portion in proportion to e.g. the hours of personal use, the mileage for personal use, or as a fixed percentage also remains the same. The tax on expenses is levied as a final tax on an annual basis.
The new tax rate on private use expenses is 3% which is a significant reduction from the previous rate of 10%. It applies as of 1 January 2022.
Changes related to distribution of food vouchers
The amendments published on 1 March 2022 also concern the distribution of food vouchers to employees which was hampered by the shortage of vouchers after the tax-exempt maximum monthly value of vouchers was increased to BGN 80 (EUR 41) per employee. In order to ensure that employees will receive the entire amount of food vouchers that they are entitled to, the law has been changed so that in 2022 vouchers for previous periods may be distributed to the employees during any of the following months provided that the maximum non-taxable value for any given month is not exceeded.
Repeal of personal income tax on bank deposits interest
Recent tax changes in Bulgaria affect also the personal income tax (PIT), as the final PIT on bank deposits interest has been repealed pursuant to an amendment published in State Gazette No. 17 on 1 March 2022.
Bank deposits interest income received by natural persons was subject to a final tax on the gross interest income at the rate of 8%. The repeal of the interest tax was part of the tax policy plan of the new coalition government and by virtue of the latest statutory amendments the final tax was indeed abolished.
Following the repeal of the final tax, the income from deposits held in banks or bank branches established in Member States of the European Union (EU) and the European Economic Area (EEA) is included among the tax-exempt items of income under the Personal Income Tax Act. The term “deposit” should be interpreted within the meaning of the statutory definition of the Bank Deposits Protection Act. Judging from the wording of the tax exemption, it seems that interest from deposit accounts held in banks established outside the EU or EEA may be taxable under the general rules which in effect should lead to a 10% tax on non-exempt interest income.
The repeal of the final PIT on bank deposits interest applies as of 1 April 2022.
Reduced VAT rate on specialised milk formula and baby food
As part of the latest tax changes in Bulgaria, the scope of the reduced VAT rate which currently applies to certain baby foodstuffs was further extended pursuant to an amendment to the VAT Act published in State Gazette No. 14 on 18 February 2022.
The reduced VAT rate of 9% shall apply to specialised milk formulas (with partially hydrolysed protein and those for children with allergies) and diet foods for special medical purposes intended for infants falling within CN codes 2106 90 92 and 2106 90 98 pursuant to the EU Combined Nomenclature.
The reduced 9% VAT rate on specialised baby food applies as of 18 February 2022 and shall be in force until 31 December 2022.
If you would like to know more about the latest tax changes in Bulgaria, please visit the homepage of Delchev & Partners Law Firm, the exclusive representative of WTS Global in Bulgaria.