KPMG Bulgaria Tax News presents a summary of recently promulgated amendments to the VAT legislation effective from 1 January 2023.
In the first issue of Tax News for 2023 we summarize the most significant changes in the Value Added Tax Act (hereinafter “the VAT Act”), promulgated in State Gazette Issue No 102 dated 23 December 2022.
The changes enter into force from 1 January 2023, except for the provisions relating to the new obligations for collecting and reporting data regarding cross-border payments and their beneficiaries which will be enforced as of 1 January 2024.
Correction of VAT charged in case of bad debts (bad debt relief)
The latest changes in the VAT Act introduce a possibility for reduction of the taxable amount in the event of total or partial non-payment of a taxable supply, the claim on which is uncollectible. The new chapter 13a of the law provides for (i) the conditions under which an adjustment is possible, (ii) the circumstances which define a claim as "uncollectible", (iii) the mechanism for performing the correction, as well as (iv) the situations where no correction can be made.
Some special provisions are provided for the cases where the VAT registration of the recipient or the supplier is terminated before the correction is made, as well as the case of full or partial repayment of the obligation on an already corrected invoice.
As part of the new bad debt relief rules, the VAT Act also specifies the obligation of the recipient of the supply to make a correction of the input VAT deducted for the supply, the taxable amount of which was reduced by the supplier under the new regime.
Collection and reporting of data regarding cross-border payments and their beneficiaries (in force from 1 January 2024)
The provisions of Council Directive (EC) 2020/284 are transposed in the VAT Act. Thus, some obligations are introduced for Payment Services Providers (PSP) to collect and report data regarding cross-border payments and their beneficiaries. In particular:
- PSP should keep electronic registers of cross-border payments and their beneficiaries and report to the revenue authorities data about the persons who have received more than 25 cross-border payments for a period of 3 months.
- The data is to be reported electronically on a quarterly basis by the end of the month following the reporting quarter. The relevant template of the report will be provided in the Rules for the application of the VAT Act.
Reduced VAT rate
The reduced rate of 9% VAT is no longer a temporary crisis measure but a permanent change in the law for the following groups of supplies:
- Books, including textbooks and similar, and periodic publications supplied in hardcopy and/ or electronically. Outside the scope of the reduced VAT rate remain advertising publications and such comprising mainly or exclusively video and/ or audio music content.
- Foods suitable for babies or little children as well as baby diapers and other similar hygiene items, explicitly listed in Appendix 4 of the law.
Collateral for supplies of liquid fuels
The amount of the collateral can be reduced to 10% of the taxable amount of the transactions which serve as a basis for the calculation (instead the standard 20%), when (i) the person has provided a collateral in three consecutive years, (ii) no infringements of the law are found out for the same period and (iii) the taxable person has no outstanding public liabilities.
Also, the term for providing the required collateral is shortened from 7 days to 3 days.
Other changes and clarifications are also introduced in the VAT Act whereas the most important among them may be summarized as follows:
- A new special order for declaring goods before the customs authorities is introduced for situations where goods are dispatched to a place outside the EU by a non-EU supplier and the 0% VAT rate under Art. 28 of the VAT Act is to be substantiated.
- It is clarified that the possibility to correct wrongly issued tax documents covered by an entered-into-force administrative act, issued by the revenue authorities, is available only where the liability assessed with the above administrative act is settled.
- Explicit texts are introduced in the law to clarify the terms and conditions within which the recipient of a supply can deduct input VAT in the case of corrected wrongly issued tax documents including such covered by an entered-into-force administrative act, issued by the revenue authorities.
- The scope of Art. 80(2)(5) of the VAT Act is extended to cover also the case where the expiry term of the discarded goods is not determined in a legal norm. In such cases a correction of the input VAT initially deducted may still be undue if there are company standards for the expiry term of the respective goods and the discarding is in the customary ranges for the activity.
- The VAT exemption provided for finance services is extended to cover the management of alternative investment funds qualified as special investment funds as per the criteria of the EU law.
- Some clarifications are also introduced in the provisions governing the taxation of distance sales of goods and services, the application of the 0% VAT rate for supplies exempt by virtue of international agreements and other.