KPMG Tax News presents the most important changes in the legislation in the field of personal income tax and mandatory social security contributions.
The amendments enter into force on 1 January 2024 with the exception of the ones for which a different date of entering into force is explicitly mentioned below.
Determining capital gains from transactions with virtual currencies as taxable income and the introduction of 10% statutory expenses in taxable transactions with financial assets and foreign currency
With the changes made to art. 33, para. 3 of the Personal Income Tax Act (PITA), capital gains realized from the disposal of virtual currencies are explicitly deemed, as per the provisions of the law, as part of the taxable income of individuals, while until now they were treated as transactions with financial assets only in the practice and instructions of the NRA.
In addition, the legislator introduces a reduction of 10% of the taxable income from the disposal of financial assets and foreign currencies. So far, the expenses (fees, commissions, etc.) incurred in such transactions have not been taken into account when determining the tax base for this type of income. The introduction of 10% statutory expenses for transactions with financial assets and foreign currency aims to compensate the taxable person for the inabilitity to use as deductibles the actual costs incurred in such transactions.
Additional income to be declared and new rules regarding the reporting under art. 73, para. 1 of the PITA
With the changes made to art. 73, para. 1 of the PITA, the report in which each payor declares the income paid to individuals under non-employment relations during the year will now also include:
- Per diems for business trips when their annual amount exceeds BGN 1,000
- Income related to distributed profits in the form of new shares and increase in the nominal value of existing shares
- Scholarships received by individuals for their studies in the country and abroad, but excluding those paid to students from schools.
Apart from the above new items of income to be reported, the amendments in the law specify new circumstances which concern items of income already subject to reporting in recent years, namely:
- Declaring the income for rented / leased usage of agricultural land, but now only if the amount is over BGN 3,000 per year. It is important to note that this change enters into force retrospectively from 01.01.2023.
- Declaring dividends paid by cooperatives established under the Cooperatives Act, but only if they are paid to local tax residents.
- Declaring the part of the gross amount of taxable income from additional voluntary insurance, from voluntary health insurance and from life insurance, for which no tax relief has been used.
New aspects concerning the reporting under art. 73, para. 6 of the PITA, submitted by employers and reporting employment income paid out during the year
For year 2024 the report in which employers declare the income paid to individuals under employment relations will need to also cover the reporting of some additional non-taxable items of income, namely:
- Per diems for business trips paid to employees when their annual value exceeds BGN 1,000
- Social expenses up to BGN 60 per month for additional voluntary insurance (pension, health, "Life") paid by employers for each employee
- Specific compensation amounts paid to employees of the Ministry of Defense, the Ministry of Interior and the State Agency for National Security
- Travel allowances (for travel and stay) paid by the EU, an international organisation or host country to staff seconded to budgetary entities.
The same non-taxable income items that should now be reported under art. 73, para. 6 of PITA, should also be included by the employer in the annual Income Statement for Non-Taxable Income (form 1a) from employment relations in case the issuance of such is requested by the employee.
The amount of the deduction for children under the age of 18 (according to the provisions of the State Budget Act) is preserved, i.e. a reduction of the annual tax base by BGN 6,000 for 1 (one) child, by BGN 12,000 – for 2 (two) children, and by BGN 18,000 – in case of 3 (three) or more children. The amount of the tax deduction for children with disabilities (BGN 12,000 reduction of the annual tax base) also remains unchanged.
A new tax deduction has been introduced for farmers who have received subsidies from the European Agricultural Guarantee Fund and the European Rural Development Fund. Registered farmers have the right to reduce their annual tax base within the meaning of the Personal Income Tax Act by the amount of the subsidy or other support received from the European Agricultural Guarantee Fund and the European Rural Development Fund. The allowed tax deduction is limited to the amount of the annual tax base, but may not exceed BGN 100,000.
Other changes in the PITA
A new section is introduced in the Personal Income Tax Act on the taxation of income generated from the collection of wild mushrooms and fruits (excluding medicinal herbs). Following the changes made in the taxation of this type of income, an alternative tax is levied (which will be withheld before the start of the activity by state-owned entities that issue permits for the activity) to replace this income’s taxation with PIT as income from other business activities with the application of a statutory deduction of 40%.
Changes are introduced in order to equalize the approach to taxation of real estate income of individuals who are deemed foreign tax residents in Bulgaria. The taxation no longer depends on the tax status of the payor of the income but is determined on the basis of the location of the property.
As of 01.01.2024, income generated by the provision of movable property to the relevant persons and authorities entitled to collect, transport, recover or dispose of waste is no longer classified as non-taxable income under Art. 13 of the PITA.
Changes in insurance income and applicable social security contributions for 2024
As of 01.01.2024, the maximum monthly insurable income has been increased from BGN 3,400 to BGN 3,750. With the increase of the minimum wage, the minimum insurable income of self-insured persons is increased to BGN 933, and the minimum monthly insurable income by main economic activity of the employer is also updated.
There is no change in the rates and in the distribution of the social security burden of the mandatory social security contributions for the Social Security, Additional Mandatory Pension and Health insurance funds. As every year, for some groups of economic activities, a risk reassessment has been made and the amount of the contribution to the Labor Accidents Fund has been updated.
The burden on the employer in case of temporary inability to work due to illness is reduced
The changes lead to a reduction in the period of temporary inability to work, which is borne and paid by the employer. Namely, in 2024, the employer will be obliged to pay their employees' compensation only for the first 2 (two) working days of the absence. The amount of the compensation and its method of calculation shall remain unchanged.
Other changes in social security legislation
As of 01.01.2024 the scope of the Social Security Code is expanded to include not only banking, but also any payment accounts that individuals have with payment service providers. In this regard, payment accounts are used on an equal basis with bank accounts in cases of distraints or refunds by the insurance authorities.
As of 01.07.2024, the pension supplement for a deceased spouse that a retiree can receive is increased from 26.5% to 30%.
Persons carrying out the activity of collecting wild mushrooms and fruits fall within the scope of the mandatory insurance legislation as insured persons under certain specific conditions (e.g. payment in advance, through state entities under the Forestry Act, of the mandatory social security contributions for Pensions and General Illness and Maternity on monthly insurable income amounting to half of the minimum wage; the period in insurance in connection with the activity is recognized as length of service, etc.).
As of 01.04.2024 the mandatory insurance contributions due on remuneration paid to students under the dual education form would be entirely covered by the state budget.