Tax Alert – Changes to VAT Act 2016 (EN)



When the private use of goods and services is not subject to VAT?

The existing VAT Act provisions contain several exceptions from the general private use taxation rule which continue to apply:

  • the provision of special, work, uniform and representative clothing as well as personal protective gear by the employer to his employees and management staff for the purposes of the taxable person’s business;
  • the provision free of charge of transport from the place of residence to the place of work and back by an employer to his staff, including his managers, when it is carried out for the purposes of the taxable person’s business.

The 2016 changes introduce another exception concerning the supply of goods and services for private use or for purposes other than those of the taxable person’s business, where that use is provoked by an urgent need or force majeure. In those circumstances the free of charge use shall not be treated as a supply for consideration and will not be subject to VAT.

When does VAT on the private use of goods and services become chargeable?  

The VAT Act amendments provide that the taxable event for the deemed supply of services for private use would be the last day of the month when the service has been supplied.

As to the private use of goods, its chargeable event would continue to be determined according to the existing rules pursuant to which the tax shall become chargeable on the date of the application or supply of the goods for private use.

How is the taxable base of the supply of goods and services for private use calculated?   

According to the existing rules the taxable base of the supply of goods for private use and of the free of charge transfer of ownership over the goods to third parties shall equal the taxable base of the goods upon their acquisition or the cost of goods.

As far as the taxable base of the supply of services for private use is concerned, the existing rule stipulated that the taxable base consisted of all direct cost incurred when supplying the service. This rule has been further developed and it is currently specified that when determining the direct cost of the goods used, where those goods would be non-current assets within the meaning of the Bulgarian Corporate Income Tax Act if used for the taxable person’s business, a wear and tear expense is taken into consideration as part of the taxable base on which VAT has been wholly or partly deducted. That wear and tear expense is calculated for each tax period using the linear method for a 5-year period as of the tax period of the VAT deduction – for movable property, respectively for a 20-year period for the immovable property.

What if the goods and services are simultaneously used both for the business of the taxable person and for private use?

The rules described above apply in cases, where the goods and services are supplied entirely for private use or for purposes other than those of the taxable person’s business. The 2016 changes to the VAT Act aim at clarifying what should be the correct tax treatment when the goods and services are used both for private use and for the business of the taxable person, which is the most common situation in practice when it comes to company cars, computers, mobile phones, etc.

Pursuant to the new rules when goods and/or services are simultaneously used for the business of the taxable person as well as for private use, in order to determine the direct costs which form part of the taxable base of the services for private use, the taxable base should be distributed proportionally depending on the extent of the use of the respective goods and/or services for the private use of the taxable person, the owner or the staff, or generally for purposes other than those of the taxable person’s business.

Unfortunately, the statutory provisions do not contain clear rules or guidance on the proper distribution according to the extent of use of the goods or services for business and for private purposes which will probably lead to uncertainties when the taxable persons calculate the taxable base for taxation and during tax audits.

Changes to the sales ledgers and VAT return forms  

According to the draft Bill for amendment of the Regulations Implementing the VAT Act published on the Ministry of Finance website the forms of the VAT sales ledgers and VAT returns would change and separate cells and columns shall be added, where the supplies of goods and services for private use should be reported.

REVOCATION OF THE ALLEVIATED TAX ACCOUNTING REGIME FOR FUEL SALES BY PETROL BASES 

Art. 118, para. 7 of the VAT Act, which provided that under certain conditions petrol bases may be exempted from the obligation to account for the sales of fuels by issuing a cash receipt and from transmitting distantly to the National Revenue Agency data for the available quantities of fuels in the storage tanks, has been abolished. All petrol bases have been provided with a 6-month period (until 01.07.2016) to render their activities in compliance with the general system of the VAT Act for accounting of fuel sales using cash register systems and for transmitting data from the level measuring systems in the fuel tanks to the National Revenue Agency.