Delchev & Partners

CHANGES TO THE VAT ACT  

(IN FORCE AS OF 1 JANUARY 2016)  

Certain amendments to the Value Added Tax Act (the “VAT Act”), which enter into force on 01.01.2016, were promulgated in State Gazette No. 95/08.12.2015.

The main changes concern the application and use of goods and services forming part of the business assets of a taxable person for the private use of the person or his staff, the revocation of the alleviated tax accounting regime for the fuel sales made from petrol bases as well as the reduction in the administrative sanctions for delays in charging VAT.

SUPPLY OF GOODS AND SERVICES FOR PRIVATE USE 

After the extensive discussions of various options to tax the private use of business assets by the taxable persons or their staff, which became popular with the public as “weekend tax”, it turned out that only a small part of the initially discussed changes were finally adopted. In the end, the enforced amendments to the VAT Act step on the already existing provisions treating the private use of business assets by the taxable person or his staff as taxable supplies for consideration and specify when the VAT concerning that private use becomes chargeable and how the taxable base of those deemed taxable supplies should be correctly calculated.

Following the amendments, the taxation of the private use of taxable persons’ business assets could be summarized as follows:

When is the private use of goods and services taxable with VAT? 

The following transactions should be treated as a taxable supply of goods for consideration:

• the application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or for purposes other than those of his business, provided that the VAT on those goods was wholly or partly deducted upon their manufacturing, importation or acquisition;
• the free of charge transfer of ownership or other rights in rem over the goods to third parties, where the VAT on those goods was wholly or partly deducted upon their manufacturing, importation or acquisition.

The following transactions should be treated as a taxable supply of services for consideration:

• the use of goods forming part of the assets of a business for supplying services for the private use of a taxable person, his owner or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deducted upon their manufacturing, importation or acquisition;
• the supply of services carried out free of charge by a taxable person for his private use or for that of his owner or staff or, more generally, for purposes other than those of his business.

The VAT treatment of the private use of goods and services as taxable supplies for consideration does not depend on the type of the goods or services used or supplied, neither on their value. Therefore, any private use of various business assets such as cars, mobile phones, computers, etc. may be subject to VAT. It is important to reiterate that the private use taxation is not something new and that it has been in force since the adoption of the VAT Act. Whether and how those provisions have been applied in practice by the taxable persons and the Bulgarian tax administration is another story.