Worldwide Tax Summaries--BULGARIA（1999-2000）(part1)
Worldwide Tax Summaries--BULGARIA（1999-2000）(part1)
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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. *
5.Partnership limited by shares, which may be private or public.
6.Foreign business entities may register a branch in Bulgaria.
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.
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)
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 goods and services, mainly coffee and tea; cars; gasoline and diesel fuel; beer, wine and hard drinks; tobacco products; and gambling.
The duties are now calculated as either a percentage of the producer's sales price/customs value or as a flat amount per unit. The latter method applies mostly to beer, wine arid other alcoholic drinks, tobacco products. and fuels.
Property tax/Taxpayers are natural and legal persons that are owners of immovable property, i.e., land and buildings. For individuals, the property tax rate is 0.15% on the taxable value of the property,determined by the relevant method. If the owner of the real estate is a company, the tax base is book value of the property. An addtional tax is levied on immovable property whose value exceeds BULl million at January 1. It amounts to three per mil (0.3%) on the excess.
A garbage collection fee is payable for immovable property at a rate determined annu-ally by the local municipal council but generally similar to the rate of the property tax.
Although branch offices are not deemed legal persons, branches of nonresident compa-nies have separate balance sheets and therefore are subject to corporate income tax at the standard rate and to other general taxes (municipal tax, VAT, property tax).
Trade representative offices are not allowed to carry out business activities and are not subject to corporate income taxation. A representative office registered under the Law on Foreign Investments may perform only those activities that are not regarded as “economic activities,” i.e., activities normally carried out by a representative office and auxiliary to the activities of its head office.
Representative offices do not constitute permanent establishments of the nonresident entities unless they engage in business activities in breach of the law.
Inventory valuation/Any of the following methods is acceptable for inventory valuation FIFO, LIFO, weighted-average cost, or specific identification of items of inventory.
Inventories at the end of the year are to be valued at the lower of their fair or book value at the balance sheet date. The difference is to be recorded as “other expenses” and is regulated for tax purposes.
Capital gains/Only realized capital gains are included in corporate income and taxed at the full corporate tax rate. Exchange rate gains and losses are to be reported in the profit and loss account and reflected in the assessment of taxable profit.
Intercompany dividends/Intercompany dividend payments between Bulgarian companies are deductible in full from the tax base of the recipient company (participation exemption), regardless of the size of the shareholding. Dividends distributed by Bulgarian companies to foreign shareholders are subject to 15% withholding tax (see below for exceptions under double, taxation treaties).
Foreign income/income derived outside Bulgaria by resident legal entities and branches of nonresidents is included in the taxable base for the purpose of corporate income tax, regardless of whether such income is subject to taxation abroad. In instances where the provisions of a double taxation treaty are applicable, a tax credit or exemption for the foreign tax paid may be allowed. There is also a unilateral tax
credit which cannot exceed the amount of tax that would be payable in Bulgaria for the same type of income. undistributed income of foreign subsidiaries of a Bulgarian resident company is not taxed.
Stock dividends/Stock dividends are not subject to withholding tax (c.f. cash dividends paid to individuals and foreign entities).
Depreciation and depletion/DepreCIAtion is calculated in accordance with the straight line, the progressive or the declining method.
Accounting regulations permit Bulgarian companies to establish a depreCIAtion schedule for each tangible and intangible fixed asset on the basis of the method chosen by the company. However, for tax purposes the straight-line method or, for certain assets, the declining-balance method applies.
Depletion is not specifically regulated for tax: purposes.
Net operating losses/The taxpayer has the right to carry forward losses incurred in an accounting period over the following five years.
Carryforward of foreign-source losses can be offset only against income from the same source. Loss carryback is not permitted.
Payments to foreign affiliates/Payments to foreign affiliates may be subjected by the tax authorities to recalculation in accordance with the arm's-length Principle. Market prices would apply, and deviations from such prices will be tolerated if within a range of plus or minus 25%. With regard to interest payable by local companies to either local or foreign persons, thin-capitalization rules also apply. (They also apply to nonaffiliated companies.) The tax deductibility of interest is
restricted to the amount of interest income of the company, increased by 50% of its positive finanCIAl result, exclusive of interest income and expense; The thin-capitalization rule will nut apply where the debt/equity ratio is 1 or less than 1.
Taxes/Taxes that are part of expenses are deductible in full. Municipal tax is deductible from the taxable base for corporate tax.
Other significant items/Companies may also deduct the following costs for tax purposes.
1.The difference between tax-deductible depreCIAtion limits and
actually booked depreciation costs if the former exceed the latter, but only where depreCIAtion tax differences reverse.
2.Grants extended to Bulgarian educational and cultural institutions,within certain limits.
3.Other specific items.
There is no specific legislation on group taxation. All companies are assessed on indi-vidual assessable profits and losses. However, tax antiavoidance rules cover transfer pricing and related persons.
MAJOR TAX INCENTIVES
Agricultural producers/Companies and cooperatives performing
agricultural activities enjoy full corporate income tax relief for income related to nonprocessed agriculture production, provided they reinvest the forgiven tax amount in the same activities. They are liable, however, for municipal tax.
SpeCIAl tax incentive for investments in depressed regions/Entities investing in regions with a high unemployment rate (i.e., more than one and a half times the average rate for the country) enjoy a reduction of the corporate income tax (but not the municipal tax) under the following conditions.
1 .The investment is in the form of acquisition, modernization or reconstruction of fixed tangible assets such as buildings, equipment.transmitters, electricity transmitters, and telecommunication lines (assets depreCIAble at 4% per annum).
2.The funds for the investment are generated from contributions by shareholders for acquisition of new shares (including contributions upon incorporation) in the company making the investment.
If these requirements are met , the corporate tax is reduced by an amount representing 10% of the amount of these share contributions.
The incentive is enjoyed in the year of making the investment.
The sum usable for the reduction is accounted for as a reserve, and if greater than the corporate tax in that year it can be used to reduce corporate tax in the following five years.
Bulgarian companies are required to withhold tax on payments of
dividends and liquidation proceeds; interest (including that incurred under finance lease agreements); royalties; fees for technical services; rental payments made under operating leasing franchising and factoring agreements ; and capital-gains payments to nonresidents.
Dividends and liquidation proceeds are also taxed where payments are made to resident individuals and nonprofit organizations. (For details on dividend payments between domestic companies see “Intercompany dividends” above.) Dividends capitalized into shares are not subject to withholding tax. The general rate is 15%. Double taxation treatiesmay reduce the rate.
When a dividend is paid to a nonresident company, it is s