Bulgarian Parliament adopted some legislation changes introducing a new one-off tax on personal use, effective as from 1 October 2016. In the following newsletter TMF Group provides you with a brief summary of the most important aspects of the updated legislation.
SUMMARY OF MOST IMPORTANT ASPECTS OF THE UPDATES
· Introduction of new one-off tax (10%) on personal use
The parliament has introduced a new one-off tax over the personal use of company’s assets and services by the employees. The rate of this one-off tax is 10%.
Through the new updates the parliament still allows companies to choose between the following options:
· to pay 10% one-off tax over the costs related to personal benefit under CITA and do not consider them as part of the income of the respective physical person (under PITA), or
· to consider the use of goods and services for personal purposes as part of the income of the employees/managers (and respectively include this income in the payroll for tax and social security purposes under PITA).
As part of the changes, the previously existing tax on the costs related to the usage of cars for management purposes is now removed and such costs will be taxed by the general rules introducing the one-off tax on the costs related to the personal use of company’s assets and services.
The enterprises will be supposed to choose one of the above options with the submission of their annual tax return.
· Due payments
The payment of the taxes also depends on the choice as stated above.
· the one-off tax on personal use should be declared and paid on annual basis by 31 March of the year following the reporting year, or
· the personal income tax payable by employees/managers under PITA will be due on a monthly basis as part of the standard payroll calculations.
Only for the years 2016 and 2017 the companies should declare their choice with the Corporate Income Tax Return for 2016 because of the retroactive force of the new rules. Furthermore, in view of the specific character of this retroactive change, only for the year 2016 the companies will be allowed to apply a different treatment of these costs in the different parts of the calendar year. Thus, if they have treated these costs as income of the employees before the new legislation is promulgated, they may change this approach as of 01.10.2016 based on the new rules and start paying 10% one-off tax on personal use until the end of 2016.
· Taxable base of the one-off tax
When defining the taxable base, the parliament has introduced three main groups of assets subject of personal use by the employees/managers: (i) vehicles, (ii) immovable properties and (iii) other assets, and respectively adopted different calculation methods for each of them:
In case a vehicle is used both for company and personal purposes the enterprise has the choice between:
· 50:50 split between company usage and personal usage as a general rule – this seems to be the more simple approach and avoiding additional administration for additional monitoring. In case a company introduces this approach it will not be required to proof what is the exact time or what are the exact kilometers in which the employee/the manager used the respective vehicle for company and private purposes (i.e. the necessity to maintain travel sheets will be avoided), or
· To consider the exact kilometers or the number of hours in which the employee/manager has used the respective vehicle for personal purposes when calculating the one-off tax.
(ii) Immovable property
For properties used both for company and personal purposes the company has the choice to consider either the size of the property area or the hours in which the employee/manager has used the real estate for personal purposes when calculating the one-off tax.
(iii) Other assets (such as mobile phones and laptops)
The third group of assets covers all assets which are out of the scope of the previous two groups and the general rule would be to consider 20% of the costs related to such assets to be related with personal use. The company is allowed to apply a different taxable base in case it is in a position to support such different split (without such being proposed in the legislation). When the assets are subject to depreciation/amortization for tax purposes (e.g. vehicles) the tax depreciation/amortization costs will be taken into consideration instead of the accounting depreciation/amortization.
EXPECTED VAT UPDATES RELATED WITH PERSONAL USAGE
· VAT Treatment
In view of the new rules that are now in force, the companies should consider a similar split for VAT purposes as well. The VAT treatment is expected to be similar, but at this stage the criteria in the VAT Act are not identical. There are proposed changes of the VAT Act but these are still under discussions in the parliament and there is no final decision yet. Companies should still consider the general rule that VAT is allowed only on purchases which are used for taxable supplies.
We trust that this newsletter will be of use to you and your teams and will help you understand the main aspects of the new Accounting Act. The newsletter represents a general overview of the recent developments in Bulgarian legislation and is not intended to provide tax or legal advice. Neither TMF Services EOOD and TMF Bulgaria EOOD, nor any of the other members of TMF Group has any liability for each other’s acts or omissions and do not accept any liability following this publication.