2021 – Amendments to Tax Legislation Regarding Natural Persons and Corporate Income Tax
At the end of 2020, amendments to the Income Taxes on Natural Persons Act (ITNPA) and the Corporate Income Tax Act (CITA) were promulgated in the State Gazette. The amendments will enter into force this 2021. Below is a brief overview of the amended acts.
1. Amendments regarding natural persons
1.1. Tax relief for expenses on residential property renovations
A new tax relief for repair or improvement works of owned residential property is being introduced. According to the new Art. 22f of ITNPA, resident natural persons, as well as non-resident natural persons who are tax residents in EU country shall be entitled to deduct the expenses for the works done from their annual taxable income for the amount of up to BGN 2,000. In other words, the law effectively provides for a tax deduction of a BGN 200 from the total annual income under ITNPA of the respective person. It should be noted that law provides for the deduction of payments for the works done – those for the materials used are not included.
The tax relief is subject to the following conditions:
the residential property is located in the territory of Bulgaria;
the taxpayer is an owner or a co-owner of the residential immovable property (users are excluded from the relief);
the improvement and/or repair works have been done by tax resident persons of an EU or EEA country;
the property is not included in the enterprise of a person performing business activity as a trader within the meaning of the Commerce Act;
the taxpayer possesses a primary accounting document for the expenses on the improvement and/or repair works done, as well as a document evidencing the payment (fiscal receipt, receipt, bank payment order or another type of document);
the taxpayer and the person who carried out the repair works are not related persons.
If case of a co-owned property – the total amount of the relief used by all co-owners may not exceed the amount of BGN 2,000.
The relief may be used when determining the tax income for the year 2021. This means that the relief shall is not applicable when filing the annual tax return for 2020.
1.2. Increased deductible amounts of the tax relief for children and children with disabilities for tax income for 2021
New increased amounts of the tax relief have been envisaged with § 9 of the Transitional and Final Provisions of the State Budget Act. The following amounts shall be deductible when determining the tax income for the year 2021:
BGN 4,500 for one child (instead of BGN 200);
BGN 9,000 for two children (instead of BGN 400);
BGN 13,500 for three or more children (instead of BGN 600);
BGN 9,000 for children with disabilities (instead of BGN 2,000).
The increased amounts shall be applicable only to the income acquired in 2021. This means that for the years 2020, 2022 and the following, the previous amounts shall apply.
Natural persons may benefit from the benefit by filing an annual tax return under the ITNPA. The rest of the terms and conditions for the use of the relief provided for in Art. 22c and 22d of ITNPA remain unchanged.
1.3. Income documenting
The natural persons’ obligations regarding the documentation of the income have been amended and concern income from (1) other business activity and/or (2) rental income or other royalty income for using rights or property.
Pursuant to the new wording of Art. 9, Para 2 of ITNPA, such persons shall no longer issue a document under with Art. 6, Para 1 of the Accountancy Act (AA), but under Art. 6, Para 3 instead. According to the said provision, the document shall contain date, name and number of the document, issuing party, as well as subject matter and physical and monetary terms of the business transaction.
The main difference from the previously applied requirements is that the document under Art. 6, Para 3 of the AA does not contain detailed identification data of the income payer and income recipient.
The rule provides the following exceptions. The document on the income received shall not be issued if one of the following conditions is met:
for the income the payer issues the form named “Account for amounts paid”,
income is subject to final tax, or
income is exempt from taxation on the grounds of Art. 13, Para 1, item 24, or
income is paid to the natural person’s bank account;
the income recipient is obliged to issue a receipt pursuant to Art. 118 of the Value Added Tax Act (VATA) and Ordinance № Н-18 of 2006 of the Ministry of Finance.
The income is documented under the previous regime where the payer of the income from other business activity is an enterprise, and the recipient is a self-insured person.
1.4. Extended deadline for filing annual tax returns by persons carrying out business activity as traders
With the amendment of Art. 53, Para 1 of ITNPA, persons carrying out economic activities as traders, incl. sole traders and agricultural producerswho have chosen taxation on the total annual taxable base, shall declare the tax payable between March 1 and June 30 of the following year, not until April 30 as used to be the case. The tax is due by 30 June.
The provision is also applicable to income acquired in 2020. That is, natural persons could benefit from the extended term this year as well.
It should be stressed that the deadline for declaring and paying tax for all other natural persons (non-traders) remains unchanged – 30 April.
2. Amendments to the Corporate Income Tax Act (CITA)
2.1. Extended deadlines for declaring and paying the due tax
The deadline for submitting an annual tax return for the due corporate tax for 2020 is between 1 March 1 and 30 June, 2021. The extended term for 2020 provided for by State of Emergency Act1, has been fully introduced by this amendment, with a staring date being 1 March. The tax due is to be paid by 30 June.
Activity report is to be submitted along with the annual tax return.
The deadline for paying the tax on expenses has also been extended until 30 June 2021, which is subject to declaration along with the annual tax return under Art. 92 of CITA.
2.2. Amendments regarding advance contributions
The amendments provide that net sales revenues for the year preceding the previous year shall be considered when determining whether an entity is required to pay advance contributions, as well as when determining whether such will be paid on a monthly or quarterly basis. In other words, 2019 net sales revenues will be taken into account to consider whether a person is required to pay advance contributions in 2021.
The thresholds for the arising of the obligation for advance contributions remain unchanged. The same applies to the threshold of BGN 3 million when determining whether the entity is obliged to pay quarterly or monthly contributions.
Due to change in the deadline for filing the annual tax return, the deadlines for declaring and making advance contributions have also been changed. Advance contribution shall no longer be declared along with the annual tax return but in a separate template declaration in the period between 1 March and 15 April in the same year. The new deadline for filing a corrective declaration is 15 November.
The monthly advance contribution shall be paid as follows:
for January, February and March – by 15 April of the current year;
for the period from April to November – by the 15th day of the month to which they refer;
for December – by 1 December of the current calendar year.
With regard to the quarterly contributions, the deadline for paying the contribution for the third quarter been changed – 1 December.
The threshold of the admissible excess of the corporate tax over the determined advance contributions for the respective year is increased from 20% to 25%, in which case default interest is due.
The amendments discussed above apply in determining and paying the advance contributions for the current 2021.
2.3. Accelerated depreciation of retail sales management software (RSMS) and peripherals on which it is installed
A maximum tax depreciation rate of up to 100% percent has been set for RSMS and computers, peripherals for them or mobile phones on which it is installed, given that the obligation to use only RSMS approved by NRA, has been lifted. The same rate applies when determining the annual tax depreciation of the respective assets for 2020.
2.4. Other amendments
By amending Art. 209, Para 1 of CITA, the exempt social expenses for food vouchers are being increased to BGN 80 per month per person (instead of BGN 60).
Certain deadlines have been extended as follows:
- for applying the tax relief representing the minimis aid by 31 December 2023.
- for applying the tax relief representing state aid for regional development by 31 December 2021.
- for investing the retained tax (in new buildings and new agricultural machinery) – by the end of the second year following the year of the retention.
Until 31.12.2025, the tax reliefs for the profits from disposal of financial instruments (Art. 44 and Art. 196 CITA) are also applicable to the transactions with units and shares of collective investment schemes and of national investment funds, shares, rights and government securities executed on growth market within the meaning of Art. 122, Para 1 of the Markets in Financial Instruments Act.
The scope of the definition of “Disposal of financial instruments” has been expanded. In § 1, item 21 a new letter ‘e’ has been added, according to which transactions with shares carried out in a third country market, which is considered to be the equivalent of a regulated market and for which the European Commission has adopted a decision on the equivalence of the legal and supervisory framework of the third country. Similar EC decisions have so far been adopted with respect to the United States, Australia and Hong Kong.
It is important to note that this amendment has not been reflected in the definition of “Disposal of financial instruments” in §1, item 11 of ITNPA. That means that income from trading in equivalent regulated markets outside the EU continues to be taxable when determining the tax liabilities of natural persons non-traders.