The VAT tax regime is one of the least known fields to the businesses in Bulgaria. Value added tax payments constitute the largest portion of all taxes in Bulgaria and the relevant tax codes should be applied correctly.
The Bulgarian “Law for the VAT” (aka ZDDS)
The Bulgarian law for the VAT is setting the rules for the VAT implications for all transactions in Bulgaria. It also applies to the transactions of all Bulgarian entities worldwide. There are many different scenarios for certain deal, that depend on the following criteria:
- The VAT registration of the parties. There are obviously 4 permutation scenarios, namely a deal can be concluded between:
- two VAT registered entities;
- VAT registered seller and not registered buyer;
- not registered seller and VAT registered buyer;
- no VAT registered seller and buyer.
- Whether the parties (buyer and seller) are commercially active entities (ie companies) or are private individuals;
- The country (Bulgaria, EU or elsewhere) where the sale takes place;
- The geographical location of the parties (in which country);
- What is the subject of the sale:
- is it delivery of goods or is it providing of services;
- what is the exact nature of the deal (ie consultancy services, delivery of investment gold, delivery of personal cars, construction services, etc.).
Today, we will dig into the hypothesis when a VAT registered Bulgarian company is providing consultancy services.
Invoicing (and paying VAT) by Bulgarian VAT registered company for consultancy and other similar services
So we have a case when a company, registered in Bulgaria for VAT purposes is providing consultancy services. What are the VAT implications?
There is no definition of the term consultancy services in the Bulgarian VAT law. However, consultancy services are falling in the same category with other intangible services, such as accountancy services and similar. Therefore they are often considered as being the same thing, in terms of VAT tax treatment.
We will discuss the following possible scenarios below, depending on who the client (the recipient of the consultancy services) is. So the client can be:
- Bulgarian company;
- Bulgarian private individual;
- EU company;
- EU private individual;
- Non-EU company;
- Non-EU private individual.
It is important to state that by “EU“, “non-EU” and “Bulgarian“, is meant where the entity (or individual) is having its place of usual residence or operations. For example, a German citizen living in Bulgaria will be considered as Bulgarian private individual. If a Bulgarian citizen is living in the USA, then he will be considered as a non-EU private individual.
1. The client is Bulgarian company
In this case, irrespective from the fact whether the client is VAT registered or not – the invoicing has to be inclusive of 20% VAT. If the company of the client is VAT registered, it can use the invoiced VAT as tax credit (if a number of conditions are met) for its business operations.
2. The client is Bulgarian private individual
The same as p.1 above applies – VAT is due and has to be invoiced. It doesn’t matter whether the private individual is or is not VAT registered (private individuals can be VAT registered too!). If the Bulgarian person is VAT registered, he can eventually use the invoiced VAT as tax credit as explained in p.1 above.
It is worth mentioning that very few private individuals have VAT registration.
3. The client is EU based company
In this case, the invoicing may be (should be) without VAT. If the client (the EU company) is VAT registered, it has to declare the transaction and pay the VAT in its country of operation/registration. If the company is not VAT registered, it has to register and pay the VAT in its home country.
In many cases, this scenario may cause confusion and problems. In the event that the EU company (the client) fails to declare or pay the VAT in its home country, then the Bulgarian company is co-responsible for the settlement of the VAT. This is one of the reasons why more and more Bulgarian companies refuse to issue invoices without VAT even in this, otherwise legally acceptable, scenario.
4. The client is EU based private individual
If this is the case, the invoicing is always inclusive of 20% Bulgarian VAT. The VAT is invoiced to the client and is then paid to the Bulgarian authorities. It is important to state that in case the Bulgarian company issues legal invoice (obviously with included VAT), but the EU person fails to pay, then the Bulgarian company is still obliged to pay the 20% VAT to the tax authorities. This is the main reason why many companies in Bulgaria will issue a pro-forma invoice to any EU private individual first. Only when the payment is dully received, the company will issue the official invoice, as then the VAT becomes immediately due.
5. The client is non-EU company
The invoicing should include 20% VAT. It is of no importance for the Bulgarian tax authorities whether the non-EU company is or is not VAT registered. The non-EU company may or may not be able to use the invoiced VAT as tax credit. This depends entirely on the tax laws in the foreign jurisdiction and the “double tax avoidance agreement” the jurisdiction may have with Bulgaria.
6. The client is non-EU private individual
This is what we call, a special case. If that is the case and provided number of special conditions are met (please contact us for more details on these), then it is possible for the Bulgarian company (the seller) to invoice VAT-free.
For further questions
We hope we have cleared some of the most frequently asked questions on the topic. If you have any comments or remarks, please don’t hesitate to comment below or to contact us accordingly.