Virtually all taxes that your Bulgarian LTD owes to the National Revenue Agency may be now passed on to you, as shareholder or director. We use the term “may” as this possibility was enacted in the law during the second part of 2017. From 2020 however, we would rather use the term “will be now passed on to you…”, as the tax authorities are applying the norm quite aggressively, though still in full compliance with the law.


Safety and protection throughout the history

For ages, businesses around the world were operating with the clear understanding that there is no personal financial responsibility for their shareholders. In other words, business owners could rest assured that if things go wrong, they and the managers of the company will be protected from any sort of responsibility for the unpaid company debts.

This has been the core idea behind the invention of the Limited Responsibility Company. By eliminating the personal responsibility of the shareholders (and other officers), the businesses have greatly benefited from the peace of mind that eventual failure doesn’t need to have catastrophic consequences. And this has greatly boosted the business activities.

The game changer

In 2017 however, the Bulgarian Parliament passed unprecedented legal amendments that have effectively put an end on the Limited Liability Company. Or at least the idea behind it. The legal texts have now introduced a new norm that is passing the fiscal responsibility of the company to a wide group of people (or entities in general).

Responsibility for a third party – the controversy of the new Tax Code in Bulgaria

From the second half of 2017, the Bulgarian law effectively dismantled the limited responsibility institute of the Bulgarian LTD. Now, the shareholders, the managers and even other officers of a Bulgarian company, bear virtually UNLIMITED responsibility for the tax obligations of the company. In this material, we will discuss only the first two instances (there are also other cases, which we will discuss in another article on our website) when the tax responsibilities of a company are passed on to its shareholders, directors and other officers.

Third party liability – the infamous Art.19 from the Bulgarian Tax Procedural Code

Liability for not providing relevant information to the tax authorities

Art. 19. (Amended, SG No. 94/2015, effective 01.01.2016, amended, SG No. 63/2017, effective 04.08.2017) (1) Who in his capacity of manager, member of a management body, procurator, commercial representative, commercial proxy of an obligated legal entity under Art. 14, items 1 and 2 conceals facts and circumstances, which by law he was obliged to declare before the revenue authority or the public executor and as a result no liabilities for taxes and / or obligatory social security contributions can be collected, shall be liable for the outstanding obligation.

Without going too much into the details, any information that has not been provided to the authorities and has resulted in uncollected tax liabilities will result in these liabilities to be passed on to the shareholders, managers and other officers of the company. For instance, failure to submit annual tax declaration will trigger personal responsibility for the director of the company. During tax audit by the revenue agency, any information that is concealed will also result into personal responsibility for the manager of the company.

“Draining” the company off its assets

Art. 19. (2) (Supplemented, SG No. 92/2017, effective 21.11.2017) Manager, member of a management body, procurator, commercial representative, commercial proxy of an obligated legal entity under Art. 14, items 1 and 2 shall be liable for the outstanding obligations of an obligated legal entity under Art. 14, items 1 and 2, when he / she performs in bad faith one of the following actions, as a result of which the property of the obligated person has decreased and for this reason obligations for taxes and / or compulsory social security contributions have not been repaid:

  1. make payments in (incl. in kind) from the property of the obligated person, representing a hidden distribution of the profit or dividend, or alienate property, including the enterprise, to the obligated person free of charge or at prices significantly lower than the market ones;
  2. perform actions related to encumbrance with encumbrances of the property of the obligated legal entity for securing another’s debt and it shall be liquidated in favor of the third person.

(3) (suppl. – SG 92/17, in force from 21.11.2017) Liability under para. 2 shall also be borne by majority partners or shareholders, when the actions have been performed by their decision, with the exception of those who did not vote and voted against.

It is important to comprehend that the term “hidden distribution of the profit” covers virtually everything that the tax authorities may deem is not related to the activities of the company. Any payments for good or services that the revenue agency doesn’t accept as company cost, related to the company’s activities, will be deemed to be “hidden distribution”. Even personal travel costs are now very often being branded as “hidden distribution”. Any payments to entities or persons who the tax authorities can not identify positively as having provided services or sold goods to the company, will be considered as “hidden distribution”.

In general, especially from 2020 onwards, the tax authorities can successfully prove their point to the Bulgarian courts that any assets that have leaked from the company fit under the term “hidden distribution”. And in such cases, should the company happen to have tax liabilities, these are directly passed on to the shareholders and managers.

Further reading

We will be publishing soon more materials on the other cases, under art.19, when personal liability of the shareholders/managers is applied. These are mainly the cases when the shareholders have sold their holdings to a third party.

We will be also covering the even harsher consequences of non-paying of tax, namely the implied criminal responsibility. Under art. 255 of the Bulgarian Penal Code, criminal responsibility is engaged for any unpaid amount in excess of 3000 BGN (1534 EUR) and the foreseen sentences are up-to 8 years in prison and confiscation of part or the whole estate of the convicted.

And if that is not enough, we will be soon covering the consequences and the imperative actions by the Commission for anti – corruption and for confiscation of illegally acquired property.

In the meantime, if you need any assistance on the topic, please contact us at your earliest convenience.

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