Amendments to the tax legislation effective in 2015

Amendments to the tax legislation effective in 2015

KPMG's Tax News outline and highlight legislative changes and trends in the area of tax.

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The first issue in 2015 summarises the amendments to the tax legislation in Bulgaria in effect from 1 January.

In two issues of the State Gazette dated 19 December 2014 and 24 December 2014 respectively, amendments to several tax acts were promulgated, including Value Added Tax Act, Corporate Income Tax Act, Excise Duties and Tax Warehouses Act, Personal Income Tax Act, Local Taxes and Fees Act, Tax and Social Security Procedure Code and Insurance Premium Tax Act.

Corporate Income Tax Act (CITA) 

The main changes in the CITA are related to the taxation of interest income and royalties of foreign tax residents from the European Union (EU) countries as well as changes in provision of de minimis aid and state aid. 

Interest income and royalties to foreigners from the EU countries 

The law introduces new rules based on which interest income and royalties accrued to foreign tax residents of the EU countries will not be subject to withholding tax (WHT) in Bulgaria. The WHT exemption is dependent on certain conditions, the main ones being: (i) the beneficiary of the income has to be a foreign legal entity from an EU Member State or a permanent establishment in the EU, (ii) the local legal entity (payer of the income) has to be a related party to the foreign beneficial owner of the income, (iii) at the time of the income accrual, the possession of the required minimum capital has to be uninterrupted. The aim of this provision is to harmonize the Bulgarian tax legislation with the EU Directive 2003/49/EC. 

Providing a de minimis or state aid

Other amendments in the CITA relate to the rules on the provision of de minimis aid or state aid in the form of a tax relief. 

With respect to the de minimis aid, new and essential conditions are introduced for its granting. The main amendments are in the following aspects: 

  • The de minimis aid is accumulated with other types of de minimis aid granted through other eligible methods determined by the EU.
  • The range of the beneficiaries of this aid is determined in a greater detail. The law introduces the concept of a "single undertaking", which in practical terms limits the amount of the de minimis aid in the case of a group of entities with certain relations among each other. The scope of the enterprises in difficulty is narrowed. The provision of the de minimis aid to entities subject to legal transformation is explicitly regulated. 
  • More detailed requirements on the calculation of the de minimis aid are introduced. 
  • A requirement for declaring additional circumstances of importance for the calculation of the de minimis aid is introduced. 
  • There are transitional rules provided for legal entities which do not meet the new requirements. 

In the area of the state aid for regional development, there are also new rules mainly in the following aspects: 

  • The territory of Bulgaria is diversified in terms of the maximum allowed intensity of state aid for regional development. A lower threshold is determined for Southwest Bulgaria.
  • A new definition of "enterprise in difficulty" is introduced. 
  • The definition of "manufacturing activity" is amended. Activities in the energy and aviation sectors are excluded. The scope of persons who are eligible for the aid includes entities operating in the shipbuilding industry.
  • There are additional requirements related to the assets forming part of an initial investment and their values. 
  • A new requirement for submission of an application form for state aid is introduced. 

A separate group of changes in the CITA relates to the state aid for agricultural producers. 

Other changes

The changes in the CITA also introduce taxation of the additional costs of the Members of Parliament. The scope of these costs is determined in accordance with the Rules of Organization and Activities of the National Assembly in Bulgaria. The tax rate is 10 percent. 

The changes in the CITA promulgated in the State Gazette dated 24 December 2014 broaden the scope of the interest income exempt from withholding tax in Bulgaria. Under the new rules, the interest on bonds or other debt instruments issued by the state and the municipalities and admitted to trading on a regulated market in the EU or in the European Economic Area as well as interest arising under loan facilities granted to the state or the municipalities and not backed-up with bonds are not subject to Bulgarian withholding tax. 

The amendments become effective from 1 January 2015, except for the provisions for the de minimis aid and the state aid which come into force as of 1 January 2014.

Value Added Tax Act (VATA) 

The main amendments concern the VAT treatment of telecommunications, broadcasting and electronic services, the de minimis aid granted for investment projects and the reporting of refueling with liquid fuels for own purposes. 

Telecommunications, broadcasting and electronic services

From 1 January 2015, in accordance with the provisions of Directive 2008/8/EC, the rules concerning the place of supply of telecommunications, broadcasting and electronic services rendered to non-taxable persons within the EU will change. Under the new general principle of taxation, these services will be subject to VAT in the EU Member State where the recipient is established. Until 31 December 2014, similar services were VAT taxable in the EU Member State of establishment of the supplier. 

Based on the new rules, businesses providing telecommunications, broadcasting and electronic services will have to register for VAT and pay local VAT in the EU country where their customers are established. To facilitate the local VAT compliance of the suppliers, the amendments introduce a special scheme (“mini one-stop shop” or “MOSS”) for registration and reporting. The special registration scheme is optional and depends on the place of establishment of the supplier. In practice, MOSS allows businesses which supply B2C telecommunications, broadcasting or electronic services to determine a single EU Member State of identification for MOSS purposes, from where they will be able to fulfill their obligations for registration, reporting and payment of the local VAT in the EU Member State of their customers. 

Suppliers of telecommunications, broadcasting and electronic services which intend to register for MOSS purposes in Bulgaria may file an application for registration electronically through a dedicated web-based application available on the website of the National Revenue Agency. 

Investment projects

In accordance with Regulation (EC) № 1407/2013, amendments to the de minimis aid granted for investment projects are introduced. The main changes concern (i) the threshold of the amount of the de minimis aid and its accumulation, (ii) introduction of the concept of a "single undertaking" and (iii) the submission of returns for the de minimis aid received.

The amendments to the VATA with respect to the de minimis aid are similar to those adopted in the CITA. 

Reporting of refueling with liquid fuels for own purposes 

According to the changes in the VATA promulgated with the State Gazette issued on 24 December 2014, taxable persons refueling liquid fuels for their own purposes for vehicles, machinery or other equipment will be obliged to register and report the refueling under the rules provided for in Regulation № H-18 from 13 December 2006. An exception from this obligation will apply only to recipients of liquid fuels that are budget organizations within the meaning in the Public Finance Act or municipality bodies and which do not perform subsequent supply of these fuels. Under the current rules provided for in Article 118, para. 9 of the VATA, under certain circumstances, entities refueling liquid fuels for their own purposes were not obliged to report the refueling under the above mentioned Regulation. 

In addition, the revenue authorities will have to inform the respective competent bodies if they find infringements concerning the obligation of end-suppliers selling liquid fuels from commercial sites to hold fixed underground or attached to the ground containers. This rule does not apply to suppliers of liquid fuels used for the purposes of river and sea transport. 

Other changes 

When determining the taxable base of importation of goods for VAT purposes, the list of the costs aimed to increase the customs value of the importation should be considered indicative and not exhaustive.

In addition, amendments are introduced in relation to the territories of the Republic of France, which remain outside the territorial scope of Directive 2006/112/EU. 

Excise Duties and Tax Warehouses Act (EDTWA) 

The main amendments to the EDTWA concern the requirements for measurement and control devices of excise goods, the excise duty rates for cigarettes, the procedure for appealing against decisions regarding excise duties and others. 

Measurement and control devices

The main amendments concerning measurement and control devices for excise goods are as follows: 

  • Listing of the different types of measurement and control devices the data from which should be recorded in the accounts of the persons as well as electronically transmitted to their automated reporting systems and to the Head Office of the Customs Agency. 
  • Enumeration of the persons for whom the provisions regarding electronic transmission of data are not applicable (such as registered consignors, end users exempt from excise duty, recipients of excise goods released for consumption on the territory of another Member State and others). 
  • Possibility for customs authorities to perform adjustments to the tax base and the excise duty in cases of differences between the accounts of the persons, the actual stocks of goods and the data from the measurement and control devices.

Persons who use measurement and control devices and meet the requirements of the law are considered compliant after a positive decision of the European Commission (EC) following a notification procedure by the Ministry of Finance. As an exception, certain categories of persons, who are required to use particular types of measuring devices, are to be aligned with the requirements within 6 months following the issuance of a positive decision by the EC (e.g. devices such as ones used for measuring ethyl alcohol, cut tobacco blend, counters for cigarette pieces and certain energy products). 

Increase in the excise duty rate of cigarettes 

The changes in the EDTWA provide for a gradual increase in the excise duty rates of cigarettes throughout the period 2016 – 2018 with the aim of reaching the minimal excise duty of EUR 90 per 1000 pieces of cigarettes by 1 January 2018 as per the requirements of Directive 2011/64/EU. 

Procedure for appealing against decisions regarding excise duties 

Based on the amendments in the excise legislation, the decisions of the customs authorities regarding the determination of excise duties will be appealed according to the regulations of the Tax and Social Security Procedure Code (TSSPC) and not, as was the practice prior to the changes, under the regulations of the Administrative Procedure Code (APC). The persons will have the opportunity to request a suspension of the provisional implementation of the decision under the TSSPC. This, however, does not apply to proceedings initiated prior to the entry into force of the discussed amendment as such proceedings will be concluded following the order of the APC. 

Excise duty due upon termination of the certificate for end users exempt from excise duty

The EDTWA explicitly provides for the case where the termination of the certificate for an end user exempt from excise duty is considered release for consumption in relation to the available excise goods.

Procedures for the issuance of a license and certificate 

Persons who have applied for a license or are subject to compulsory registration under the EDTWA are provided with the option of requesting a suspension of the procedure for issuing a license or certificate. The suspension may be for 3 months when this is necessary in order to clarify additional facts or circumstances. 

The requirement for provision of annual financial reports for the past three years in cases regarding the issuance of a license for a tax warehouse is removed. 

Other 

The requirement to provide customs authorities with access to the full functionality of the automated reporting system of licensed warehousekeepers, registered consignees and persons registered under Article 57a of the EDTWA is removed. 

The possibility for licensed railway carriers and railway infrastructure managers to receive reimbursement of the excise duty paid on electricity is revoked and the refund procedures that started prior to the entry into force of the EDTWA amendments are terminated.

The possibility of mixing biofuels with petroleum-based fuels released by the State Agency State Reserve and Wartime Stocks with the aim of aligning them with the requirements of the Energy from Renewable Resources Act is removed. A transitional regime is provided for in this regard.

The definition of “private pleasure flying and sailing” is clarified with the specification that this category does not include energy products intended for the fueling of vessels and aircraft used for the transport of goods or passengers against payment.

New provisions are provided for in relation to the procedure for utilization and destruction of tobacco waste.

Additional requisites for excise tax documents are introduced effective as of 1 July 2015. 

Personal Income Tax Act (PITA) 

The main amendments to the PITA relate to the taxation of interest income from bank accounts and bonds, the scope of tax reliefs, the filing of an annual tax return and taxation of income from another business activity and rent for the last quarter. 

Interest income from bank accounts and bonds

Interest income from all types of bank accounts is taxed without exceptions as of 1 January 2015. The reduction of the applicable rate is repealed and it remains 8% for 2015. 

The amendment to the legislation introduces an exemption from taxation of interest income received by foreign tax residents on issued state and municipal bonds traded on the regulated Bulgarian, EU or EEA markets. Interest generated by non-residents from corporate bonds would remain subject to one-off tax (unless it is exempt on other grounds, i.e. the recipient is an EU tax resident).

Tax reliefs

The amendments in terms of tax reliefs are more significant, namely:

  • The tax relief introduced in 2014 on income not exceeding the minimum wage is effectively repealed as of 1 January 2015. 
  • Tax relief for dependent children is introduced: According to the amendments, one of the parents will be able to reduce their annual taxable base by up to BGN 200 (for each child up to the third). The tax relief could be used through filing an annual tax return under the PITA or, in the case of employment, through the employer by means of the annual tax recalculation. The PITA explicitly stipulates the requirements for the use and documentation of the right for tax relief. 
  • Tax relief for disabled children is introduced, i.e. the annual tax base of one of the parents will be reduced by up to BGN 2,000 for disabled children with 50% or over 50% degree of disability. The PITA explicitly stipulates the requirements for the use of this tax relief. 

 

Annual tax return

As of 1 January 2015, the preliminary term for filing an annual tax return which allowed for a 5% reduction of the final tax liability under certain circumstances is revoked. The right of a 5% reduction in the final tax liability remains eligible upon electronic submission of the annual tax return under the PITA. However, additional requirements for the use of this right are introduced: 

  • Filing of the annual tax return under the PITA until 31 March of the year following the reporting one 
  • In the absence of enforceable public obligations and 
  • The tax is paid to the state budget until 30 April. 

The deadline for filing of the annual tax return under the PITA has not been changed, i.e. 30 April of the year following the reporting one.

These amendments to the PITA are effective for the annual tax return under Article 50 of the PITA for 2014. 

Income from other business activities and rent 

The general rule remains that advance tax on the income of another business activity and rent acquired during the fourth quarter is not deducted. A possibility is introduced for the person to declare before the payer of the income that the latter is to continue to withhold the advance tax on income under the PITA. If the advance tax is withheld during the last quarter, the tax should be paid until 31 January of the following year. 

Local Taxes and Fees Act (LTFA) 

The main amendments to the LTFA relate to determination, payment and declaration of the tax on immovable properties and garbage collection fee, the tax on vehicles and the tax on acquisition of property through donation or other gratuitous transfers of ownership. 

Tax on immovable properties and garbage collection fee 

The law introduces a requirement for notification of the tax payer for the amount of the tax on immovable properties by 1 March of the year for which the tax is due. The provisions of the LTFA in force until 1 January 2015 did not specify a deadline for notification. The deadline for payment of the first installment is not changed and remains 30 June. The deadline for the second installment is 31 October; however, according to the amendment to the LTFA, the tax can be paid even before 1 March of the relevant year.

The requirement that, as of 1 January 2015, the amount of the garbage collection fee cannot be determined on the basis of the tax valuation, the carrying amount or the market price of the immovable property, has been postponed to 1 January 2016. 

Tax on vehicles 

The amount of the vehicle tax will be determined ex officio based on the data in the register of vehicles maintained by the Ministry of the Interior. A tax liable person will be notified about the amount of the vehicle tax.

The ex officio determination of tax on vehicles will exclude vehicles that are not registered for operation in Bulgaria, vehicles acquired through inheritance, vehicles owned by more than one person, vehicles whose owners have no permanent address, respectively no registered office in the country. The ex officio determination of the vehicle tax is not made in cases of tax exemption or granting of tax incentives, except for the cases of use of relief for environmental categories Euro 3, Euro 4, Euro 5, Euro 6 and EEV, when the register of the Ministry of the Interior has information about them. 

The tax liable persons not covered by the ex officio determination of the vehicle tax have to submit tax returns for the acquired vehicles in accordance with the LTFA provisions currently in force, i.e. within two months from the acquisition of the vehicle. Tax incentives, except for the vehicles for environmental categories as indicated above, are also to be claimed with the tax return under the LTFA.

Evidence on the amount of the tax paid at acquisition of motor vehicles should be presented if the municipal authorities do not have information about it.

The deadlines for payment of tax on vehicles have been unified with the deadlines for payment of the tax on immovable properties. 

Tax on acquisition of property through donation or another gratuitous way 

The amendments to the LTFA determine the cases of gratuitous acquisition of property, for which no tax is due, and for which no tax return under the LTFA is to be submitted. These include customary gifts and non-cash capital contributions. 

Other amendments

The amendments to the LTFA provide for a new opportunity that all tax returns under the LTFA can be filed electronically, including by using only the personal identification code issued by the National Revenue Agency.

An explicit obligation is introduced for the municipalities to provide to the Ministry of Finance, on a daily basis, electronic information with details of all tax liable persons and the taxable objects under the LTFA, as well as other data for determination and collection of local taxes and fees. 

Tax and Social Security Procedure Code (TSSPC) 

The main amendments in the TSSPC relate to the electronic filing of tax and social security returns, the ex officio provision of tax and social security information to other authorities and the application of a new rule regarding the extinguishing of public liabilities, which have arisen before 31 December 2007.

As of 1 January 2015, the existing procedure for electronic submission of tax returns and other documents has been facilitated. In addition to the qualified electronic signature used so far, it will be possible for the tax liable persons to submit tax documents to the National Revenue Agency through a personal identification code. As of 1 January 2013, the personal identification code has been implemented with the purpose to provide access to the tax and social security account of the tax liable person, however, it was not used as a substitute to the electronic signature. The main purpose of the amendment is to eliminate this constraint.

Following the amendments, there is no restriction for provision of confidential tax and social security information to other state authorities in cases of provision of state aid or de minimis aid within the meaning of the applicable EU and state regulations.

The order for settlement of public liabilities based on the timing of their occurrence has been changed for liabilities whose deadline for payment expired before 1 January 2008. Under the new rules in force as of 1 January 2015, such liabilities cannot be settled against current payments unless the tax liable person provides an explicit written request for this. 

Insurance Premium Tax Act (IPTA) 

The amendments to the IPTA aim to overcome the existing discrepancy between the term for payment of IPT on a monthly basis and the submission of quarterly IPT returns. Following the amendments, the tax period for IPT purposes will be the calendar quarter and the IPT due for the period will have to be paid by the end of the month following the referred calendar quarter.

The requirement for tax representatives and insurers acting without a tax representative in Bulgaria to file a single tax return for the first month for which IPT has become due is abolished. As a result, tax representatives and insurers acting without a tax representative will register in Bulgaria based on the first quarterly submitted IPT return.

The tax due for the last tax period for 2014 (i.e. December) is to be paid according to the rules applicable until 31 December 2014, i.e. by 31 January 2015. 

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