the importance of Tax Optimization in Bulgaria
We advise companies and high net worth individuals on the different aspects of the Bulgarian tax and social security legislation – corporate and personal taxation, VAT, health and social security contributions, as well as the applying of EU tax directives. We also assist with appealing against tax judgments.
Corporate Taxation, Value Added Tax (VAT) and GDPR
Corporate tax law is a complicated legal subject, especially when it comes to companies engaged in international business. In the recent years, a clear trend of intensifying tax control over businesses has been observed. Tax authorities are not only exchanging enormous amount of information between different jurisdictions with a click of the button, but are also hiring highly skilled staff to check and penalize even the slightest non conformity with the legal regulations. In this respect, it is of utmost importance for companies across the globe to bring their books in order and keep sustainable high standards as far as their tax matters is concerned. Bulgaria doesn’t make an exception from this international trend. As a result, the amount of non-approved transactions for tax credit by the authorities, such as requests for VAT (Value Added Tax) refund, has risen dramatically. This has led to a sharp increase in the number of administrative and court disputes in order to establish the exact amount of tax liabilities.
The VAT legal framework is extremely dynamic and complicated. The harmonization processes within the European Union combined with the different approaches by each individual member state are transforming the VAT regulations into a constant legal battlefield between companies and authorities. Many of these disputes end only with the intervention of the European Court of Justice and in some cases, even when the European Court of Human Rights has been appealed.
In order to be able to comprehensively assist corporate customers with their tax issues, we have hired highly qualified advisors with profound knowledge and extensive expertise in tax matters. From simple filling of annual tax declarations and statistical forms to highly sophisticated tax disputes, either in court or administratively, our team is prepared to meet even the highest expectations. We are of course assisting on a regular basis companies by providing them with tax advice for maximum compliance and legal tax optimization.
With the enforcement of the General Data Protection Regulation (GDPR) in 2018, compliance conscious companies realized the need of professional assistance in order to eliminate all risks that arise from the GDPR implementation. Customer data protection is now vital asset and failure to protect it may result in huge fines.
For more information on company accountancy and administration, GDPR compliance and legal support to companies, please refer to our Accountancy & GDPR Compliance section.
Personal Income Taxation and Social Security
Personal taxation is the final part for the individual into his dealings with the tax authorities. Whether the person receives a salary, dividends, commissions, interest on bank deposits, profit from sale of securities or real estate, just to name a few, a tax is usually due to the state. The unleashed business opportunities in Bulgaria after the change of political system in the early 90’s, combined with the extremely favorable flat tax rate of only 10% (both personal and corporate) resulted into many expatriates relocating to Bulgaria. With the accession to the EU in 2007, Bulgaria harmonized its tax legislation and applied gradually the EU tax directives covering exchange of tax information between the EU tax authorities. At the same time, similar to most EU tax bodies, the Bulgarian National Revenue Agency (NAP) tightened its grip on the tax collection processes. By means of many legislative amendments, approved by the parliament, the scope of tax liabilities in Bulgaria was greatly enhanced and tax avoidance was criminalized. In 2015 the Bulgarian parliament went even further and approved additional measures by making the non payment of social contributions a punishable offense. Logically, during the last few years, court hearings about determining the amounts due for personal taxes, have skyrocketed.
Our team has great experience in the field of personal tax and social security laws and is helping customers in Bulgaria to cope with the dynamically changing legal circumstances. With the tax laws changing multiple times during the year(s), it appears sometimes, that without professional legal assistance, it is virtually impossible to comply 100% and stay on the safe side. Especially when it comes to high net worth individual taxpayers, it is absolutely essential to calculate the tax due and submit the relevant returns with professional legal assistance only.
Legal tax optimization is another aspect of the tax compliance. One needs to aim at great balance in order to keep its tax returns perfectly in order and 100% legally compliant and at the same time achieve optimal tax burden.
Appealing Against Tax Judgments
When it comes to dealings with the tax authorities in Bulgaria, the general rule is, that the National Revenue Agency (NAP) has the first say – all tax acts (including penalties and compulsory recommendations), issued by the Bulgarian tax authorities, have to be either fulfilled or disputed. Although with the employment in recent years of highly qualified specialists by the National Revenue Agency, issuance of ungrounded tax acts has declined somewhat, it is unfortunate to conclude that many of the decisions by the tax offices are still not properly backed legally. Logically, the amount of tax disputes has increased significantly. Tax laws are indeed very subjective. Determining “simple” things like “place of main business” or “predominant business activities” can be a real legal challenge. It is not to blame on the tax authorities, that as far as their initial act is the one that is being enforced most of the time, they reasonably tend to decide in favor of the state budget. When tax paying companies and individuals believe that their rights have been violated, they have the option to appeal, either administratively or in court. And here is where the complexity of the legal system in Bulgaria doesn’t help a lot. To file and engage in a proper dispute, it is essential to have profound and in depth knowledge not only of the different tax laws, but also to be able to apply correctly the administrative codes (the legal codes that are regulating how disputes are being handled, what is the legal time period for reaction, just to name a few examples). A simple initial mistake by a non professional would completely devaluate all further efforts by the concerned party.
Our team is fully qualified to appeal against tax judgments in Bulgaria, either administratively or in court. It is important to determine from the very beginning, together with the client, which option should be chosen as both have their advantages and disadvantages. In many cases, our experience in tax matters will be sufficient so we can safely advise the customer of the option of choice. We will also safeguard our client’s interests and will apply strictly the applicable legal codes in order to ensure that all deadlines and prerequisites are being met and the foundation for a positive legal outcome have been set.
Avoidance of Double Taxation in Bulgaria, European Directives, CRS and FATCA
Bulgaria has signed a large number of double taxation avoidance agreements, which, if used correctly, can save the taxpayer the unnecessary hassle of paying taxes in more than one jurisdiction. Applying correctly these norms however, requires solid legal background and careful judgment in each individual case as to whether the regulations of the double taxation avoidance agreements can be safely utilized. We are legally advising foreign nationals living in Bulgaria about their options and possibilities as to the applying the norms of double taxation treaties and optimizing their tax liabilities. It is sometimes a very favorable option for high net worth individuals to have their tax residence in Bulgaria.
The European Union Savings Directive (EUSD) and its enhancement and transition into the Common Reporting Standard (CRS) by the Organization for Economic Co-operation and Development (OECD), as well as the USA Foreign Account Tax Compliance Act (FATCA) are the legislative measures taken by the Governments to combat tax avoidance and increase budget revenues. These acts are undoubtedly providing a breath of fresh air for the economies, but are also a cause for concern among the international business community. Our specialists are regularly taking part in organized events where the above acts are being discussed and legally interpreted. We are able to provide professional legal advice for both institutions who have to comply with the reporting directives and seek assistance as well as to companies and individuals who are directly affected by the exchange of information.