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Private enforcement in Bulgaria:

• Private enforcement in Bulgaria has been possible ever since Bulgaria acceded to the European Union back in 2007. However, it has not been quite popular through the years and it is only recently that there has been any real development in that area.

• The most important developments concern:

• the relation between private and public enforcement; and

• the nullity under Article 101(2) of TFEU and its corresponding national provision of Article 15(2) of the Bulgarian Protection of Competition Act (PCA);

• Older case prior to the Private Damages Directive maintained that the finding of an infringement by the Bulgarian Commission on Protection of Competition (CPC) and administrative courts in public enforcement was a condition for the admissibility of a civil claim for damages. Inadmissibility means that it is legally impermissible to have private enforcement proceedings prior to the establishment of an infringement in public enforcement proceedings.

Recent case law of the Bulgarian Supreme Court of Cassation (SCC) seems to have turned the page, especially in light of the Private Damages Directive, stating that the fact that the binding effect of the CPC’s final decision is attributed only to those decisions which establish an infringement of the PCA means that the provision is relevant only to the proof of the facts specified therein and does not constitute a condition for the admissibility of the private enforcement proceedings. SCC also noted that the legislator has taken into account that it is often difficult for the claimant to prove the fact of the infringement, and that this usually requires a complex factual and economic analysis. Therefore, it facilitates this by attaching irrefutable evidentiary value to the positive decision of CPC, in view of its wide range of powers and instruments for establishing the infringement and the infringer, while at the same time relieving the court and the parties to the proceedings of the burden of proving these facts and prohibiting their review.

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National vertical block exemption in Bulgaria:

• The provision of Article 101 of TFEU in Bulgaria is reproduced in several different articles of the Protection of Competition of Act (PCA), eg;

• Article 15 of PCA provides for a general prohibition and the voidness as a consequence;

• Article 17 of PCA provides for the possibility of (individual) exemption, explicitly stipulating that proving the circumstances for this is the obligation of the undertaking that benefits from them.

• In addition to the above, Article 18 of PCA provides for the possibility of block exemption, and Article 16 of PCA provides for the national de minimis rule.

• Pursuant to Article 18 of PCA, certain categories of agreements, decisions and concerted practices that meet the requirements of Article 17 of PCA may be block exempted from the prohibition under Article 15 by a decision of the Bulgarian Commission on Protection of Competition (CPC), which is not subject to appeal. Provided that CPC’s decision on block exemption is published in the State Gazette, it should meet the requirements for a by-law under Bulgarian law.

• As at today CPC has adopted Decision 24/11.01.2024 on block exemption from the prohibition under Article 15(1) of PCA of certain categories of agreements, decisions and concerted practices, published in the State Gazette, issue 9 of 30.01.2024. The motives to Decision 24/11.01.2024 explicitly confirm that the requirements for exemption from the prohibition under Article 101(1), provided in Article 101(3) of TFEU, are completely identical to the requirements for exemption from the prohibition under Article 15(1), provided in Article 17(1) of PCA. The legal technique adopted in Decision 24/11.01.2024 is to make a general reference to the relevant block exemption regulations at EU level, and where necessary, certain criteria from these regulations are adjusted in Decision 24/11.01.2024 to the specificities of the national market:

• Article 4 concerns vertical agreements in general;

• Article 5 concerns agreements relating to the aftermarket motor vehicle services ;

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 Agency v distribution agreements in civil law. In Bulgarian civil case law there is a strict differentiation between commercial agency agreements and distribution agreements. While commercial agency is expressly provided for in the law (ie there are statutory rules on this type of agreement), distribution agreements are only based on the general freedom to contract. Bulgarian case law is unambiguous that civil law rules on commercial agency (eg indemnity upon termination, etc) may not apply by analogy to distribution agreements as may be the case in some other member states.

 Broader national scope of commercial agency. Bulgarian law on commercial agency is broader than the scope of the Commercial Agency Directive. Under Bulgarian law commercial agency may be both for goods and services and commercial agents may act either in the name and on behalf (direct agency under a power of attorney) of the principal or in the agent’s own name but on the principal’s behalf (indirect agency without a power of attorney). Direct agency implies the legal consequences arise directly for the principal. Indirect agency means that the legal consequence arise for the agent and require a separate transaction to be passed onto the principal.

 (In)direct v (un)disclosed commercial agency. Direct and indirect agency under Bulgarian law is analogous but not entirely identical to disclosed and undisclosed agency.

 Risks for the agent. By law indirect agents in Bulgaria bear certain risks which for competition purposes may qualify as commercial and financial risks. For instance, indirect agents may (temporarily) become owners of the goods they purchase on behalf of the principal and this is also reflected for their tax and accountancy purposes. Also, there may be certain complications related to the obligations an indirect agent may acquire by law in its own name vis-à-vis third parties even where the third party is informed that the agent acts on the principal’s behalf.

 National law v the Commercial Agency Directive. National rules on commercial agency seem to have certain omissions and unclarities in relation to the Commercial Agency Directive and the case law is not very well developed.

 Vertical block exemption. The vertical block exemption in Bulgaria is provided for in a decision of the national competition authority (NCA) which is a by-law normative act (adopted by an executive authority and is of lower rank to the laws enacted by a legislative authority, eg the parliament).

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In-Depth: Patent Litigation (formerly The Patent Litigation Law Review) provides a perceptive overview of patent litigation procedures in major jurisdictions worldwide, while also examining the practical implications of the most important recent court decisions. In addition, it offers useful insights into the current controversies that affect patent law generally.

Generated: October 16, 2024. The information contained in this report is indicative only. Law Business Research is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this report and in no event shall be liable for any damages resulting from reliance on or use of this information.

Copyright 2006 – 2024 Law Business Research

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Introduction

Bulgaria’s patent system is bifurcated. Civil courts hear infringement disputes and invalidity proceedings are administrative. Pending invalidity proceedings constitute legal grounds for a stay of infringement proceedings.

Bulgarian patent case law is not very rich nor as well-developed compared to other European jurisdictions. There are no specialised patent courts and high-profile cases are scarce. More recently however a number of very interesting patent cases between original and generic pharmaceutical companies have been initiated in the pharmaceutical sector. They will certainly touch upon a number of issues that lac1 established national case law. More importantly, they are all related to analogous multi-jurisdictional disputes across and outside Europe that will contribute to building a better comparative picture.

Year in review

The past 18 months in Bulgarian patent litigation as noted above are characterised by patent cases in the pharmaceutical sector concerning invalidity actions by generic companies against the national counterparts of classic European patents of original medicinal products respective infringement cases and related preliminary injunction measures underta1en by the original medicinal products’ pharmaceutical companies. None of these cases have come to a definitive end.

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The Act for Amendment and Supplement of the Commerce Act which was promulgated in State Gazette No. 66/01.08.2023 introduces a new type of company to the Bulgarian commercial legislation – Variable Capital Company (VCC). The Registry Agency shall start the registration of VCCs not later than 30.06.2024.

I. Overview

The VCC aims to provide start-up companies with accessible form to develop their new business and attract external investors. This is accomplished by combining elements typical for the Limited Liability Company (LLC) and the Joint-Stock Company (JSK) as well as by introducing optional provisions that have already been established and widely used in the corporate world (e.g. right of first refusal, drag along, option pools and other).

II. Capital and Shares

As the name suggests the capital of the VCC is not fixed and is not subject to registration with the Commercial register. Instead, the amount of the capital shall be established annually with the resolution of the general meeting of the shareholders approving the annual financial statements. The capital is divided into shares with minimum nominal value of BGN 0.01.

The transfer of shares and the names of the shareholders are only reported in the shareholders record administered by the managing body of the company and shall not be announced with the Commercial register.

In addition, the absence of minimum capital requirements makes the registration process of a VCC significantly less burdensome compared to the registration of a LLC or JSC, as it does not require opening of a capital raising bank account prior to the registration of the company.

III. Limitations and Obligation for Transformation

Considering that VCC is intended for small and growing business, the VCC should be transformed into LLC or JSC once it reaches one of the following thresholds:

• average number of employees exceeding 50;

• annual turnover exceeding BGN 4 000 000;

• value of assets exceeding BGN 4 000 000.

IV. Comparison of the VCC with the LLC and JSC

Below you can find a table revealing the similarities and differences between the VCC and the other most widely used types of companies in Bulgaria.

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Delchev & Partners

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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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