An amendment to the VAT Act has been adopted, providing for the possibility to reduce the taxable amount of supplies for which the receivables have become uncollectible
Up until recently, the VAT Act did not provide a clear mechanism for traders to recover VAT where a receivable has become uncollectible. In several judgments, the CJEU has ruled that this is in breach of the basic principles of VAT legislation.
Therefore, an amendment to the VAT Act has been adopted, which entered into force on 1 January 2023. This amendment provided for the possibility to reduce the taxable amount of supplies for which the receivables have become uncollectible. In other words, clear rules are now provided for the refund or deduction of VAT charged on such receivables.
The law explicitly lists the circumstances under which a receivable will be considered uncollectible, such as:
Small receivables - of up to BGN 600 will be considered uncollectible after 365 days from the moment they became due.
What are the conditions for the application of the mechanism:
The law also provides for cases in which the mechanism cannot be applied, namely:
The mechanism is applied by issuing a report or a credit note depending on whether the debtor has been registered for VAT. For receivables over BGN 100,000, a permission from the NRA to apply the mechanism should also be requested.
The document reducing the tax base and the tax due is issued within three months of the uncollectibility arising.
Amendments to the Implementing Rules of the VAT Act are still to be adopted and will further specify the procedure.