Change in VAT registration turnover 

One of the most important elements of the VAT changes in Bulgaria for 2023 is the change in VAT registration turnover. As of 1 January 2023, taxable persons established in Bulgaria will be subject to a mandatory VAT registration when they reach a taxable turnover of BGN 100,000 for a period encompassing the current month and 12 consecutive months prior to the current month.

The VAT registration turnover doubles compared to the previous BGN 50,000 threshold. The significant increase in the turnover requiring a VAT registration is designed as a tax relief measure for small and medium-sized enterprises which now incur significant compliance costs and which are less competitive due to the additional VAT on their goods and services.

The VAT registration turnover is meant to be further increased as of 2025 after EU Directive 2020/285 is transposed in the Bulgarian VAT Act. The new measure will, however, not affect not-established taxable persons who are subject to a VAT registration before they make any supplies taxable in Bulgaria.

New permanently reduced VAT rates

At the end of 2022 the Bulgarian Parliament transformed some of the temporarily reduced and last year already extended VAT rates into a permanent measure. The amendments to the Value Added Tax Act were published in the Bulgarian State Gazette No. 102 on 23 December 2021 and came into force on 1 January 2023.

The permanent VAT rate reduction applies to the following supplies:

• Books: 9% reduced VAT rate applies to books on a physical medium or by electronic means or both, including textbooks, learning books and learning sets, children’s picture, drawing or colouring books and music printed or in manuscript form with the exception of publications wholly or predominantly devoted to advertising and publications wholly or predominantly consisting of video content or audible music.

• Newspapers and magazines: Newspapers and magazines were initially left outside the scope of the reduced VAT rate and were subject to the standard rate of 20%. However, as of 1 January 2023 the supply of newspapers and periodicals will be taxable at the rate of 9% on a permanent basis.

• Baby food and diapers: The baby foodstuffs falling within the scope of the permanent 9% reduced VAT rate include adapted milk formula, baby porridges and cereals, vegetable, fruit and/or meat purees in jars not exceeding 250g. Baby diapers are also subject to a reduced 9% VAT rate.

Extended reduced VAT rates

The extended period of application of the reduced 9% VAT rate on the supplies listed below started on of 1 January 2023 and shall be in force until 31 December 2023:

• Restaurant and catering services: Restaurant and catering services consist of the supply of prepared or unprepared food, including take-away and delivery of food. The reduced rate does not apply to services consisting of the supply of wine, beer and alcoholic spirits. Take-away food from supermarkets and the like are excluded from the reduced rate. 

• Supplies under the special travel-agent VAT scheme: The reduced VAT rate also applies to supplies falling within the scope of the special travel-agent VAT scheme, as well as to the excursions organised by tour operators and travel agents with occasional passenger transport by bus. However, the overall application of the reduced VAT rate to these services may be called into question by the European Commission in the framework of an infringement procedure, as they already fall within the scope of a special margin scheme. 

• Supply of services for the use of sports facilities: The use of various sports facilities is also taxable under the reduced 9% VAT rate.

The super-reduced VAT rate of 0% which was introduced in the middle of 2022 and was initially designed to apply until 1 July 2023 shall now be in force for further six months until 31 December 2023. The 0% VAT rate applies to the following:

• Bread: “Bread” shall be understood as the product which is produced from the baking of dough as a mixture of wheat flour or another cereal, alone or in combination, and water, with or without adding salt, which rises using bread yeast or leaven, and technological additives (if necessary). 

• Flour: “Flour” shall be understood as the product which is a result of grinding bread wheat and which may be used for making bread and bread products.

If you would like to know more about the VAT changes in Bulgaria for 2023 or other tax rules in the country, please visit the homepage of Delchev & Partners Law Firm, the exclusive representative of WTS Global in Bulgaria.

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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.

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The tax relief was originally introduced in July 2020 as a temporary measure to help the most affected businesses from the Covid pandemic situation recover and was initially meant to apply until 31 December 2021.

Extended period of application of the reduced VAT rate

The extended period of application of the reduced 9% VAT rate on the supplies listed below starts on 1 January 2022 and shall be in force until 31 December 2022.

Supplies subject to the reduced 9% VAT rate

The reduced 9% VAT rate shall continue to apply to the following supplies:

• Restaurants and catering services
  Restaurants and catering services consist of the supply of prepared or unprepared food, including take-away and delivery of food. The reduced rate does not apply to services consisting of the supply of alcoholic spirits. Takeaway food from supermarkets and the like are excluded from the reduced rate.

• Books
  The reduced VAT rate applies to books on a physical medium or by electronic means or both, including textbooks, learning books and learning sets, children’s picture, drawing or colouring books and music printed or in manuscript form.Outside the scope of the tax relief remain:
  – newspapers and periodicals;
  – publications wholly or predominantly devoted to advertising;
  – publications wholly or predominantly consisting of video content or audible music.

• Baby food and diapers
  The baby foodstuffs falling within the scope of the reduced VAT rate include adapted milk formula, baby porridges and cereals, vegetable, fruit and/or meat purees in jars not exceeding 250g. Baby diapers are also subject to the reduced 9% VAT rate.

• Supplies under the special travel-agent VAT scheme
  The reduced VAT rate also applies to supplies falling within the scope of the special travel-agent VAT scheme, as well as to the excursions organised by tour operators and travel agents with occasional passenger transport by bus.

• Supply of services for the use of sports facilities
  The use of various sports facilities is also taxable under the reduced 9% VAT rate.

If you would like to know more about the latest tax regulations in Bulgaria, please visit the homepage of Delchev & Partners Law Firm, the exclusive representative of WTS Global in Bulgaria.

A Extension of the reduced VAT rate on certain supplies in Bulgaria bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.