The amendments to the Corporate Income Tax Act (CITA) were officially announced in the State Gazette at the close of 2023.
Here the highlights:
- Introduction of a new tax: Taxation of multinational enterprise groups and large-scale domestic groups with top-up tax and top-up national tax. This regulation applies to constituent entities (such as enterprises, permanent establishments, etc.) situated in Bulgaria or part of a multinational group whose consolidated revenues over the last 2 years out of the past 4 years exceed 750 million euros or their equivalent in BGN.
The purpose of these additional rules to the CITA is achievement of compliance with the general legislation of the European Union (“EU”) and ensuring minimum level of taxation for multinational enterprise groups and large-scale domestic groups, operating in the EU.
- Transfer of assets/activity to another part of the enterprise located outside the country (part of the general tax regulation regime for transfers between a part of one enterprise located in the country and another part of the same enterprise located outside the country) – in accordance with Council Directive (EU) 2016/1164, issued on 12.07.2016, which establishes regulations against tax avoidance practices directly impacting the internal market (“Council Directive (EU) 2016/1164”).
- New licence tax for legal entities, operating as mass-catering and entertainment establishments under the Local Taxes and Fees Act (“LTFA”). The purpose is to achieve compliance of the CITA with the LTFA, and these entities to be taxed not with corporate but with license tax.
- Conditions under the scheme for state aid for farmers in the form of tax relief – for implementation of Commission Regulation (EU) 2022/2472 of 14.12.2022 declaring certain categories of aid in the agricultural and forestry sectors and in rural areas compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the EU (“Commission Regulation (EU) 2022/2472”). The Regulation, effective from January 1, 2023, to December 31, 2029, alters the intensity and notification threshold for investment aid. This necessitates the creation of a new state aid scheme, subject to Commission approval.
- Expanding the range of violations expressed in hidden distribution of profit – with a view to the implementation of the Administrative Violations and Penalties Act (“AVPA”) and overcoming disputes about the terms under it.
Taxation of the multinational enterprise groups and large-scale domestic groups with top-up tax and top-up national tax
Due to the significant volume of new concepts and methodologies introduced regarding the determination of top-up tax and top-up national tax, we will provide detailed explanations in a separate article.
Licence tax
The legal entities/individuals under Article 2, para. 1, p. 1, 2 and 3 of the CITA, who operate as mass-catering and entertainment establishments within the meaning of the LTFA, are taxed with licence tax under the LTFA. For all other activities, these legal entities/individuals are taxed under the CITA.
- When the grounds for taxation with a license tax under the LTFA are no longer applicable, the incomes of these legal entities/individuals are taxed under the CITA. Any license tax due and paid up to the date of submission of the declaration indicating that the grounds for license tax are no longer applicable is deducted from the annual corporate tax. The certified amount of the license tax is determined by a document issued by the competent municipality. In these cases, legal entities/individuals are not required to make advance payments for the current year under the provisions of the CITA.
- If any of these legal entities/individuals are deregistered under the Value Added Tax Act, they are taxed according to the general rules of the CITA for the entire fiscal year.
The amendments come into effect on January 1stof the year following the year in which the European Commission ruled that the measure was not state aid or was compatible state aid.
The State aid for farmers in the form of tax relief
The reference in both the CITA and Personal Income Tax Act (“PITA”) in that section is to Commission Regulation (EU) 2022/2472.
The thresholds in the CITA are increased for the following:
- the ceded tax: It shall not exceed 65% of the current value of the new buildings and farmer machinery necessary for the performance of the activity.
- the current value of the new buildings and farmer machinery necessary for the performance of the activity: This value shall not exceed the threshold equivalent in Bulgarian leva of EUR 600,000.
These values shall be determined as of the date of granting of the aid.
The tax advantage provided under the CITA for farmers is only applicable after the receipt of the final aid number in the Registrar of the State Aids of the European Commission, in accordance with the terms and conditions outlined in Commission Regulation (EU) 2022/2472. Until that date, ceding of advance payments of corporate tax is prohibited. For the tax year 2023, the tax advantage is applicable if the final aid number is received by June 30, 2024. Similar amendments have been made in the PITA regarding the ceding of part of the tax on the annual tax base for commercial income as a sole trader of farmers (Article 48, paragraph 6 of the PITA).
The tax advantage provided under the CITA for farmers can be utilized until December 31, 2029, including for the corporate tax for the year 2029. Similar amendments have been made in the PITA.
The ceded tax under the CITA for the years 2023 and 2024 must be invested in new buildings and new farmer machinery by the end of the second year following the respective tax year for which the ceding is utilized.
These amendments in the CITA and PITA have been in force since January 1, 2023.
Hidden distribution of profits
A taxable legal entity or individual who made a hidden distribution of profit without indicating this fact in the tax declaration will face a sanction equivalent to 20% of the hidden distribution amount. The amended provision retains the same meaning as the previous one.
Starting from January 1, 2024, hidden distribution of profits is now included among the cases specified in Article 34, paragraph 2 of the AVPA, where administrative criminal proceedings are not initiated:
- if an act for establishment of the violation has not been drawn up within 6 months from the discovery of the violator or
- if more than 5 years have passed since the commitment of the violation.
The explanations above are not exhaustive. You can read the full text of the amendments to the CITA here:
