SIGNIFICANT DEVELOPMENTS
Amendments to the Corporate Income Tax Act and the Tax Procedural Act, together with some other legislation and regulations, have made some major changes and provided some important clarifications in a number of areas. The new Value-Added Tax Act became effective as of January 1,1999, as did amendments to the Excise Duties Act. The principal effects
are reflected in the following text.
TAX ON CORPORATE INCOME
In general, all companies are liable to corporate income tax. corporate income is taxed at the rate of 27%. This rate is reduced to 20% for enterprises with taxable profits of less than BGL50 million (about US$30,138 as at January 1, 1999). Companies undertaking certain types of activities prescribed by law (mostly restaurant and hotel services, hair- dressers, etc.) with a turnover for the current year below BGL75
million (about o. US$45,207) Pay a flat business tax, the amount depending on the type and size of the business, instead of corporate income tax.
In addition to the corporate tax there is a municipal tax at 10%.
Bulgarian resident entities are taxed on a worldwide basis. Other entities are taxed on their Bulgarian-source income. Nonbusiness organizations (including governmental) are taxed on their businesslike activities.
The Bulgarian Law on Commerce provides for the following types of entities.
1. Limited liability company.
2.Joint stock company, which may be private or public. *
3.General partnership.
4.Limited partnership.
5.Partnership limited by shares, which may be private or public.
6.Foreign business entities may register a branch in Bulgaria.
CORPORATE RESIDENCE
A corporation is resident in Bulgaria for tax purposes if it is
registered in Bulgaria. Foreign legal entities with headquarters abroad and registered correspondingly are nonresidents for tax purposes, but their Bulgarian branches are deemed Bulgarian resident companies.
OTHER TAXES
Tax -on insurance and reinsurance premiums/Insurance companies pay a special one-time (final) tax on insurance.premiums and on any other kind of income . They are not obliged to pay corporate income taxes separately for their activities other than insurance or reinsurance (as was the case in 1998). The tax base is the sum of all insurance premiums and other income (even if not related to insurance? In a given: month, reduced by the gross amount of reinsurance premiums and insurance premiums paid nut to clients. If the tax base is a negative
figure, it is deductible from the tax base in the subsequent months. The tax rate is 7%, except for life assurance companies. whose income will be taxed at 5%.
The same tax is levied on premiums received by a foreign insurance company through a permanent establishment iii Bulgaria. The tax on insurance and reinsurance premiums replaces the corporate income tax and municipal tax.
Taxation of company expenses/Entertainment and representation expenses, sponsorships and business gifts that do not bear the trademark of the donating company are subject to taxation at 25%. Social expenses and benefits in kind for the staff, as well as expenses for maintenance, repair and usage of cars, are taxed at 20% (but see under "Deductions,Other significant items" below) The taxes are final arid are deductible for the purposes of the corporate income tax.
Value-added tax/The new Value-Added Tax Act came into effect January 1, 1999. While' Bulgaria is not a member of the European Union, this legislation is in many respects in compliance with the Sixth EU (VAT)
Directive.
The tax base includes the agreed price, customs and excise duties, if any, and some other expenses (such as commission, packing, transport, and insurance costs charged by the supplier to the purchaser). The rate of tax, is currently 20%.
The export of goods and a limited number of services is subject to VAT at 0%. Within the meaning of the VAT Act, “export” is the exportation of goods abroad or to free zones, free warehouses and duty-free outlets. Supply to customs warehouses does not qualify for export.
There are three types of exempt supplies.
1.Supplies that, according to the statutory "place of supply"
rules, are provided outside the territory of Bulgaria.
2.Supplies of goods in customs warehouses within the scope of the relevant customs procedure.
3.Supplies exempt by their nature, such as financial services,
insurance, gambling. educational arid health services, transfer of ownership of land, etc.
Excise duties/Amendments to the Excise Duty Act became effective January 1, 1999. The system is harmonized with die VAT legislation.
Excise duties are not due on goods and services for export, and the new legislation exempts a number of other items includ-ing a variety of luxury goods and certain entertainment media and equipment.
Excise duty is levied on a limited group of goo
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