In this issue of Tax News we summarize the amendments to the Corporate Income Tax Act (CITA), promulgated in the Bulgarian State Gazette issue 99 dated 13 December 2022. 

Regional State Aid

State aid in the form of tax relief, representing regional State aid under CITA would also be granted for the period 2022 – 2027, subject to compliance with the Guidelines of the European Commission on regional State aid (2021/C 153/01), effective 1 January 2022. 

The following changes are made however: 

  • Regional State aid in the form of retained corporate income tax would be granted only to initial investment project of tax liable persons, qualified as micro, small and medium-sized enterprises under the conditions laid down in Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003). 
  • Regional State aid under CITA would not be granted to tax liable persons, performing activities in the sectors transport, lignite and coal, steel, energy, broadband, fisheries and aquaculture, as well as primary production, processing and marketing of agricultural products as listed in Annex 1 to the Treaty on the Functioning of the European Union. 
  • The implementation of the activity related to the initial investment should continue in the respective municipality with high unemployment for a three-year period compared to the five-year period required with respect to the regional State aid for 2014 - 2021. The intangible assets, included in the initial investment, should be used solely for the activity of the tax liable person again for a shorter three-year period (instead of five years). 
  • Further, the term for implementation of the initial investment is shortened from four years to three years. 
  • Some of the requirements for granting the expired regional state aid under Article 189 of the CITA are no longer valid. 
  • There are also some changes in the additional conditions for an initial investment, part of a large investment project or of a single investment project. 

The tax relief can be applied only after the European Commission issues a positive decision on the compliance of the tax relief with the Guidelines of the European Commission on regional State aid. 

The corporate income tax for 2022 could be retained only if the application form is filed in the period 1 January 2023 – 31 May 2023, there is an approval of the Bulgarian Investment Agency issued until 30 June 2023 and all the requirements listed in the CITA for provision of tax relief in the form of regional State aid are met.

No retention of corporate income tax prepayments is allowed until the date of issuance of the decision of the European Commission.

The right of retention of corporate income tax would apply until 31 December 2027, including with regard to the corporate income tax for 2027.

State aid for farmers

Tax relief for corporate income tax under Article 189b of the CITA in the form of State aid for farmers could also be provided starting 1 January 2023 following the requirements for notification before the European Commission under the currently effective EU law. 

General requirements for corporate income tax retention

Clarification is provided of the requirements of Article 167 of the CITA regarding lack of enforceable public liabilities, liabilities for administrative penalties levied on the basis of penal decisions for breaches of local regulations governing liabilities towards the State or other State bodies acting as such, as well as the corresponding penalty interest for late payment.

Temporary solidarity contribution

The provisions of Chapter III of Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices are transposed to the local legislation with the introduction of an obligation for temporary solidarity contribution on the excess profits of companies with activities in the crude petroleum, natural gas, coal and refinery sectors. 

The temporary solidarity contribution of 33% will be calculated on the surplus taxable profits for 2022 and 2023, as determined under the CITA provisions. The surplus profits will be calculated as the taxable profits which are above a 20% increase of the average of the taxable profits for the tax periods 2018 to 2021, as determined under the CITA provisions.

The temporary solidarity contribution is to be declared with the annual CIT return under Article 92 of the CITA and would be recognized as current expense for tax purposes. The deadline for the payment of the temporary solidarity contribution will be 30 June of the following year (similar to the annual corporate tax payment). 

Where the temporary solidarity contribution is not paid within the statutory deadline, penаlty interest for its late payment would be due. The penalty interest due will be calculated following the provisions of the Interest on Taxes, Fees and Other State Receivables Act. Further, the temporary contribution represents public State receivable, which is subject to enforcement by a public bailiff under the provisions of the Tax and Social Securities Procedure Code. 

The tax liable persons are given the option to make advance installments for the temporary solidarity contribution. The provisions enter into force with retroactive effect since 8 October 2022.