Tuesday, December 26, 2006

That daily game of toto might just become 10 per cent more expensive.
Organiser of chance events, toto, lotto and betting games will pay a 10 per
cent income tax on the outcome of sport competitions and chance events,
Bulgaria's Parliament resolved, giving final approval to the new Corporate
Income Tax Act. The National Assembly budget and finance committee proposed
that the rate of this tax be eight per cent, but the Cabinet, which moved
the bill, proposed a 10 per cent tax rate for all gambling activities,
Bulgarian news agency BTA reported on December 18. Deputy Finance Minister
Georgi Kadiev told Parliament that about 25 million leva were collected in
income tax from gambling organisers in 2005. A reduction of the tax rate to
eight per cent for all types of gambling activities would lead to a 2.5
million leva loss for the exchequer, while a 10 per cent rate for all such
activities would result in an extra budget revenue of 5.5 million leva, two
million of which would come from the Bulgarian sport totalisator, leaving a
net revenue of 3.5 million leva, Kadiev said. The rate of tax on income from
organised lotteries, raffles, bingo and keno games will be 12 per cent, the
MPs resolved. The same rate will apply to income from organised games of
chance where the value of the bet consists of an increased charge for a
telephone or other telecommunications link. Parliament also set taxes on
organised games of chance played on gambling devices. Meanwhile, an entirely
new Value Added Tax (VAT) Act and regulations for its application were voted
on in view of Bulgaria's European Union membership. The VAT rate remains 20
per cent and will apply to all realised goods and services on Bulgaria's
territory, excluding the tax-exempt ones. After Bulgaria's EU accession, the
mandatory threshold for VAT registration will stay unchanged at 50 000 leva.
Some of the existing provisions in the current VAT Act are also present in
the newly adopted law. New names have been introduced for many of the
concepts, such as: place of delivery, tax event, internal delivery in the
community and internal acquisition within the community.

Bulgarians are already talking about taxable deals and zero-rate taxable
deals. VAT shall be charged on almost all goods and services that are bought
and sold within the EU.

However, a number of countries have accepted, in addition to the standard
VAT rate, a reduced tax for more sensitive groups of commodities.

Therefore, Bulgarian firms trading with EU companies should be aware of the
procedures and rates followed by other EU members.

The VAT rate cannot be lower than 15 per cent, while reduced tax cannot be
lower than five per cent, according to EU legislation. On goods and services
exported from the EU, there will be no VAT charged.

VAT is calculated on the imported commodities and services to equalise their
value with that in the community.

VAT is levied on goods imported from third countries to any EU member state,
from which moment they become internal for the community and are VAT exempt
when moving within EU territory. The new VAT Act eliminates the customs
offices at Bulgaria's borders with EU countries. From January 1, they will
only function in case of export to or import from third countries.

Two new concepts will be introduced for the trade between EU firms
registered under VAT - internal delivery in the community that will
supersede the export, and internal acquisition within the community that
will supersede the import. In fact, that means that when a Bulgarian company
supplies commodities to another country and the recipient is also registered
under VAT, that delivery shall not be treated as export any more but as
internal delivery, taxable by a zero VAT rate. In this case the Bulgarian
supplier will have to issue an invoice without charging VAT. The tax will be
calculated by the recipient in compliance with the efficient rate in the
country for which the goods are intended.

The situation will be the same in the reverse example. The European supplier
will effect an internal delivery in the community without calculating VAT
and the Bulgarian company that will receive it will charge VAT in compliance
with the efficient VAT rate in this country.

But if a firm registered under VAT supplies commodities to another country
and the recipient is not registered under VAT, the regime of internal
deliveries in the community and acquisitions cannot be applied.

Distant sale will be then the case, i.e., the supplier sells the commodity
with VAT calculated according to the rate efficient in the country of its
registration.

When a firm from the EU effects supplies to Bulgarian companies, which are
not registered under VAT and for each one of the previous and the current
years the turnover of distant sales exceeds 70 000 leva, that company will
have to register under the VAT Act in Bulgaria.

The new VAT Act maintains the threshold for obligatory registration - annual
turnover of 50 000 leva, including in it already taxable by zero-rate
deliveries.

The possibility for voluntary registration, irrespective of the size of
turnover remains, i.e., non-registered persons engaged in economic
activities who did not have grounds for that by the end of 2006, will be
able to register under the VAT Act as of January 1 2007.

After Bulgaria's EU accession, all companies registered under VAT will be
given a new unique identification number that will replace the existing VAT
numbers. For Bulgarian companies it will be formed as BG + BULSTAT of each
company.