Tax Alert Changes to VAT Act effective 1.01.2006




Changes and amendments to the Value Added Tax Act were published in State Gazette # 100/13.12.2005 entering into force from 1.01.2006.

Some of the important changes are summarized below.

I. Lessee shall be entitled to VAT credit for the repairs of leased assets provided the term of the lease agreement is at least 3 years

The repairs and/or improvement of a leased asset or asset granted for lease shall not be deemed a supply if the assets is leased or granted for usage for an uninterrupted period of 3 years. (Article 6”b” – new).  At the same time the lessee shall be entitled to a VAT credit for the goods and services used for the repairs. (Article 64, paragraph 6 – new).

The aim of the change is to resolve a long contradictory and in our views improper practice of denial of a tax credit in case of repairs of leased assets.

The cases in place upon entering into force of this change are regulated under § 16 of the Law.

II. The transfer of the right to construct is a VAT-exempt supply if made before construction of the roof and surrounding walls

The addition aims to clarify the moment until which the transfer of a construction right is considered a VAT exempt supply. (Article 34, paragraph 1 third sentence).

It is also clarified that the construction right does not include the construction works that have been carried out.

III. The state and local taxes and stamp duties shall not be offset from the amount of accrued VAT upon transfer of the title over a building or a part of a building 

Article 56, paragraph 1 allowing offsetting of state and local taxes and stamp duties from the amount of VAT due upon transfer of a title over a building or a part of a building is repealed.

The repealed provision used to create problems rather than alleviate the tax burden upon transfer of buildings.

IV. Voluntary registration under the VAT Act requires a turnover of BGN 25,000 (in force from 1 April 2006)

Effective from 1 April 2006 the voluntary registration under the VAT Act shall be possible provided a turnover of BGN 25,000 is achieved. (Presently, the voluntary registration is possible upon achievement of a turnover of BGN 50,000).

The turnover upon which the VAT registration is mandatory remains BGN 50,000.


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.