Repeal of the zero excise on LPG, natural gas and electricity

As of August 1, 2023 the zero excise rate on the following products was repealed:

• LPG and natural gas used as motor fuels;
• Heat energy;
• Energy products used for the combined production of heat energy and electricity;
• Electricity under code CN 2716 produced from the following renewable sources:
– Solar, wind, wave, tidal or geothermal power;
– Hydroelectric power;
– Biomass or biomass-based products;
– Methane emitted from abandoned coal mines;
– Fuel cells.

The zero excise rate was introduced back in July 2022 as a temporary measure in the wake of the energy crisis and was initially planned to apply until June 30, 2025. However, it was abolished much earlier and the excise rates are currently back to their regular amounts.

Abolishment of payment of certain salaries and dividends in cash

In an attempt to battle the grey economy the MPs voted for the mandatory payment by bank transfer and the abolishment of cash payment of the following:

• salaries paid by employers whose personnel exceed 100 employees (with the exception of seasonal agricultural workers);
• dividends over BGN 1000 (app. EUR 500) within the meaning of the Bulgarian Corporate Income Tax Act.

The new provision comes into force as of September 1, 2023.

Declaration of cash on hand and receivables from shareholders

Another measure to battle tax evasion requires the declaration of the ready available cash on hand, receivables from individual shareholders, employees and directors when their total amount at the end of the calendar quarter exceeds BGN 50 000 (app. EUR 25 5000). The required information is included in the quarterly withholding tax declaration which is filed by the end of the month following the respective calendar quarter.

The first reporting period would be Q3 of 2023 and the first report must be filed by November 14, 2023.

Electronic food vouchers

As of the beginning of 2024 food vouchers may be provided in an electronic form. Paper-based food vouchers may be used until June 30, 2024 and as of July 2024 only electronic vouchers will be provided. The non-taxable threshold of BGN 200 per employee per month continues to apply.

Advance declaration of high fiscal risk goods transportation

The advance declaration of high fiscal risk goods carriage, which is currently voluntary, will become mandatory when the transport is carried out with a means of transport with a load capacity of more than 3.5 tons. Cross-border carriage of high fiscal risk goods is subject to advance declaration as of October 1, 2023, while domestic carriage will be in the scope of mandatory advance declaration as of January 1, 2024.

High-fiscal risk goods comprise various foodstuffs such as meat, fish, dairy products, fruit, vegetables, coffee, nuts, flour, sugar, canned and prepared food, as well as mineral oils used as motor fuels.

There are certain exceptions to the advance declaration obligation, especially with regard to mineral oils whose carriage is already subject to reporting under other statutory acts.

Increase of minimum social security income for certain jobs

In order to catch up with the minimum wage which was increased in January 2023 to BGN 780, the lowest minimum social security income was increased as of August 1, 2023 to BGN 780 as well.

The personal tax relief for parents remains unchanged and in 2023 parents will be entitled to a tax relief from their annual personal tax in the amount of BGN 600 for one child, BGN 1200 for two children and BGN 1800 for three or more children.

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DELCHEV & PARTNERS

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By the end of 2022, the EU had introduced several temporary measures such as a “solidarity contribution” levied on the “surplus taxable profits” of companies in the oil, gas, coal, and refinery sectors; as well as a revenue cap on companies generating low-cost electricity from wind, solar, and nuclear sources. In the sections below, we delve deeper into some Member States’ national implementation of the EU measures, other national tax mechanisms, and also the measures adopted in the UK.

Bulgaria

1. Windfall tax and revenue cap on inframarginal electricity and gas producers

» A cap on the market revenues of electricity producers

Electricity producers and electricity traders must pay a targeted contribution on their market revenues that exceed certain mandatory caps that are determined depending on the sources of electricity generation. The targeted contribution will be paid for supplies made between 1 December 2022 and 30 June 2023. The contributions are paid into a dedicated “Electric Energy System Security” Fund and are treated as deductible expenses for tax purposes.

» Temporary solidarity contribution

EU companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors must pay a temporary solidarity contribution on their surplus profits. The rate of the solidarity contribution is 33% and it is calculated on the taxable profits in FY 2022 and FY 2023 that exceed a 20% increase of the average of the taxable profits in the fiscal years 2018, 2019, 2020 and 2021.

2. Energy taxation measures and other measures to compensate end-consumers for high energy prices

» A cap on the market revenues of electricity producers

The funds from the targeted contributions by electricity producers and electricity traders are used to compensate non-household final electricity consumers for the high electricity prices through their electricity suppliers.

» Zero excise on LPG, natural gas and electricity

From 9 July 2022 to 30 June 2025, excise tax has been abolished for the following products:
› LPG and natural gas used as motor fuels;
› Heat energy;
› Energy products used for the combined production of heat energy and electricity;
› Electricity under code CN 2716 produced from the following renewable sources:
» Solar, wind, wave, tidal or geothermal power;
» Hydroelectric power;
» Biomass or biomass-based products;
» Methane emitted from abandoned coal mines;
» Fuel cells.

3. VAT measures

A reduced VAT rate of 9% applies from 9 July 2022 to 1 July 2023 to the supplies of central heating and natural gas.

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At the end of 2022 the Bulgarian Parliament extended the period of the reduced VAT rates on certain supplies of goods and services and transformed some of the temporarily reduced 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 come into force on 1 January 2023.

Supplies subject to reduced 9% VAT rate

What was initially adopted as a temporary tax measure in the midst of the COVID-19 pandemic now becomes a permanent VAT rate reduction which will apply 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 period of application of the reduced 9% VAT rate

The extended period of application of the reduced 9% VAT rate on the supplies listed below starts 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.

Extended period of application of the reduced 0% 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 6 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.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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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 (EUR 51 130) for a period encompassing the current month and 12 consecutive month prior to the current month.

The VAT registration turnover doubles compared to the BGN 50 000 (EUR 25 565) threshold which applied before the amendment. The significant increase in the turnover requiring a VAT registration is designed as a tax relief measure for SMEs 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.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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A concise guide to doing business in Bulgaria and to the Bulgarian tax system. Have all tax and investment facts at a glance.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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Tax Measures for Tackling the Increasing Energy Prices in
Bulgaria

In the wake of the energy crisis which caused the skyrocketing of fuel prices in Bulgaria the Bulgarian Parliament in its final hours before its probable adjournment and impending new elections adopted a number of tax measures aiming at reduction of consumer energy products prices.

The measures are all intended to apply for limited periods of time.

Reduced 9% VAT rate on central heating and natural gas

A reduced VAT rate of 9% shall apply from July 9, 2022 until July 1, 2023 to the following supplies:

• Central heating;
• Natural gas.

Zero excise on LPG, natural gas and electricity

As of July 9, 2022 excise tax has been abolished for the following products:

• LPG and natural gas used as motor fuels;
• Heat energy;
• Energy products used for the combined production of heat energy and electricity;
• Electricity under code CN 2716 produced from the following renewable sources:

– Solar, wind, wave, tidal or geothermal power;
– Hydroelectric power;
– Biomass or biomass-based products;
– Methane emitted from abandoned coal mines;
– Fuel cells.

The excise exemption is planned to apply until June 30, 2025 provided that the European Commission does not consider the measure incompatible with state aid rules.

Compensation to consumers for high motor fuel prices

In order to be compensated for the surge in motor fuel retail prices, consumers are provided with a discount from the retail prices of certain motor fuels.

The compensation is valid for the following motor fuels:

– Gasoline;
– Gasoil;
– LPG;
– Natural gas.

The compensation is provided in the form of a fixed discount of EUR 0.13 per liter/kilogram and is granted by retailers at the petrol stations from the retail price of the fuels. There is no limit on the quantity that may be purchased or in the number of purchases eligible for a discount. However, the grant of the discount by retailers
is voluntary.

Only natural persons owning or using passenger motor vehicles, motorcycles and mopeds are entitled to the discount after they prove their eligibility by presenting the vehicle registration certificate at the petrol station.

Retailers must account for VAT on the full price of the sold fuel and they are refunded the amount of the granted compensations on a monthly basis, within 10 days after the deadline for filing the VAT return for the respective monthly period.

The fuel compensation applies from July 9, 2022.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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Following the temporary reduction of the VAT rate on certain supplies of goods and services due to the Covid-19 pandemic, the scope of the reduced rates was further expanded to encompass certain basic goods in an effort to overcome the effects of increased consumer prices and inflation.

The measure is intended to apply for a limited one-year period.

Supplies subject to reduced 9% VAT rate

A reduced VAT rate of 9% shall apply to the following supplies:

• Central heating;

• Natural gas.

Supplies subject to reduced 0% VAT rate

A supe-reduced VAT rate of 0% shall apply to the domestic supply, importation and intra-Community acquisition of 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 east 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.

Narrowing the scope of restaurant and catering services subject to 9% VAT

The supply of beer, wine and alcoholic spirits shall be explicitly excluded from the scope of the 9% reduced VAT rate on restaurant and catering services and consequently should be taxable at the standard 20% rate.

Entry into force and period of application of the reduced VAT rates

The reduced VAT rates on the supplies listed above applies as of 9 July 2022 and shall be in force until 1 July 2023.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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The final personal income tax on bank deposits interest has been repealed pursuant to an amendment published in State Gazette No. 17/01.03.2022.

Repeal of final tax on bank deposits interest

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.

Tax exemption for bank deposits interest

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.

Entry into force

The repeal of the final personal income tax on bank deposits interest applies as of 1 April 2022.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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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. 17/01.03.2022.

Expenses related to the private use of company assets

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.

Taxable base

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.

New tax rate of 3%

The new tax rate on private use expenses is 3% which is a significant reduction from the previous rate of 10%.

Entry into force of the reduced tax rate

The reduced 3% tax rate on in-kind expenses related to the private use of company assets applies as of 1 January 2022.

Changes related to distribution of food vouchers

The amendments published on 01.03.2022 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 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.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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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. 14/18.02.2022.

Supplies subject to the reduced 9% VAT rate

The reduced VAT rate of 9% shall apply to specialized milk formulas (with partially hydrolyzed 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.

Entry into force and period of application of the reduced VAT rate

The reduced 9% VAT rate on specialized baby food applies as of 18 February 2022 and shall be in force until 31 December 2022.

This Tax Alert has been prepared by DELCHEV & PARTNERS for information purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.

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