The amendments to the Value Added Tax (VAT) Act has been published in the State Gazette on 6^th December 2016. This amendments will be applicable from 1^st January 2017. The most important amendments are summarized below:

New rules for input VAT deduction

New VAT deductibility rules regarding immovable property are announced and other long-term assets used for both business and reserved purposes. In this cases, the input VAT must be taken proportionally depending on the proportion of the business use. For the purpose of computing the VAT credit, an allocation code must be used that gives the most precise calculation of the VAT amount related to the business use, considering the specifics of the immovable property or assets. The likelihood of a proportional VAT deduction is also announced for services and assets (other than long-term assets).

Annual adjustment to input VAT deduction

An annual adjustment to the input VAT deduction for immovable property and other long-term fixed assets is introduced by replacing the current one-off adjustment rule. The adjustment must be prepared in the final tax period of the year by issuing and reporting a protocol. The period for annual adjustments of immovable property will be 20 years (beginning from the later of the year of deduction of input VAT and the year of initiation of the actual use) and for other assets, the period will be 5 years.

Definition of long-term assets under the VAT Act

A definition of a long-term asset for the purposes of the VAT Act is introduced as immovable property or vehicles or goods/services qualifying as long-term assets under the Corporate Income Tax Act, given that the cost of acquisition, production or importation is at least BGN 5,000 (approximately EUR 2,560).

New VAT rules for groups

The contributions of goods/services by partners in unincorporated entities (i.e. consortiums) cannot be considered supplies of goods/services if they are contributed (without any remuneration having been explicitly agreed) for the achievement of a common goal under an agreement for the establishment of an unincorporated entity. The partner contributing goods/services for the achievement of that goal will have the right to deduct input VAT and the obligation to make adjustments to the VAT credit. No rights and obligations, respectively, with respect to the goods/services received will arise for the unincorporated entity under the VAT Act. Besides, the involvement of a VAT-registered partner in an unincorporated entity will automatically trigger a mandatory VAT registration for the unincorporated entity. If such entity is established, but not VAT registered before 1^st January 2017 and has a partner which is VAT registered in Bulgaria, the separate entity will be obliged to submit an application for a VAT registration by the end of January 2017.

New rules for B2B supplies between tour operators

From 1^st January 2017, supplies of single tourist services between tour operators will fall within the scope of the tour operator margin scheme (TOMS). Currently, these supplies are explicitly omitted from the TOMS, with the general VAT rules for services being applied.

Changes in the pro-rata coefficient for input VAT deduction

Currently, the denominator of the pro-rata coefficient for input VAT deduction includes, in addition to other components, the sum of the supplies or activities outside the scope of the economic activity of the person concerned. According to the amendments, they must be included in the denominator only if input VAT related to these supplies or activities has not been deducted.

New rules for issuing debit or credit notes in specific cases

New rules are introduced for issuing credit notes for advance payments being refunded or offset, which must be issued not later than 5 days after the date on which the advance payment is refunded/offset and a debit/credit note issued after the date of a person’s VAT deregistration must be initiated only upon prior written notification to the tax authorities.

Corrections of incorrectly reported or missing tax document in specific cases

An opportunity to correct incorrect tax reporting documents is introduced in cases in which the person has already been deregistered for VAT purposes. In this situation, the entity must issue a written notification to the tax authorities for the incompliance established. Upon getting a confirmation from the authorities, the corrections must be made through submitting a new VAT return and ledgers.