KPMG's Tax News outline and highlight legislative changes and trends in the area of tax.
The ninth issue discusses the draft amendments to the Bulgarian VAT legislation regarding the mixed business and private use of company vehicles and immovable property, the challenges businesses will face as a result of the changes and the possible steps to prepare for them.
On 13 October 2015, a draft bill to amend several tax acts, including the VAT Act (VATA) was introduced for discussion in the National Assembly. Some of the changes regarding the mixed (business and private) use of company vehicles and immovable property have sparked great public interest and it is expected that the amendments will have significant effect on various businesses.
The discussed changes require companies to choose and disclose the method they will use to charge VAT according to the extent of the private use of given assets. An obligation to charge VAT on goods and services acquired by a company for private use of employees, managers and owners exists even now, but it is broadly defined without specifying a particular methodology and any disclosure requirements. Similar rules are introduced in most of the European Union Member States, and now such rules are being implemented in Bulgaria as well in relation to vehicles and immovable property. It could be expected that, in the future, these rules may also apply to other goods and services with mixed use.
What do the new rules provide for?
The new rules to be introduced in the VATA from the beginning of the next year refer mainly to the purchases of vehicles and immovable property. The amendments proposed by the Ministry of Finance in relation to the mixed use of the said company assets envisage:
What challenges will businesses face?
The proposed amendments set many challenges before businesses and we expect that the changes will trigger additional costs for taxes and for administrating the process. To deal effectively with these challenges, companies will need to analyze certain critical issues which will finally lead to establishing a company’s policy for the mixed use of assets for business and private purposes and a strategy for disclosure before the revenue authorities. The issues to be analyzed include:
How to prepare for the changes?
The above changes in VATA are not final yet. They are to be discussed and voted for in the National Assembly. However, we believe that it is recommendable for companies to start preparing for these changes because the alignment of the company strategy requires an analysis of the current situation and reconsidering of the practices and internal procedures applied. This process may include for example:
How can KPMG help?
we would be glad to schedule a meeting and discuss the effects of the changes on your company as well as the relevant steps to be taken in your specific situation. You can also contact us via the following email: BG-DL-TaxLawChanges2016@kpmg.com.
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