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  • Import of second-hand motor vehicles in Bulgaria and taxation of the sale thereof

Import of second-hand motor vehicles and taxation of the sale thereof

This article outlines the special arrangements for taxing the supply of second-hand goods effected by dealers under the Value Added Tax Act (VATA). These arrangements under Art. 143 (1) apply to supplies effected by a dealer of second-hand goods, including those transport vehicles different from ‘new transport vehicles’.
It should be noted that the current Act obliges dealers to use the special taxing arrangements, but they still have the deduct credit to choose the general taxation procedure (this choice applies to each party separately).



In order to properly apply the Act, the parties should be aware of the following definitions thereunder:

  • "second-hand goods" are any used movable property for further use as they are or after repair, which can be used for the purpose for which they were made (§ 1, item 19 VATA);
  • to be deemed as second-hand goods, vehicles need to not fit within the meaning of § 1, item 17 VATA for each type of vehicle;
  • "dealer of second-hand goods" is a taxable person, who, in the course of their economic activity, purchases, acquires or imports second-hand goods with a view to sell the same.

Special procedure of taxation of second-hand motor vehicles

The place of transaction of this type of supplies is where the taxable dealer has their registered office or fixed establishment from which the said dealer effects these supplies (Art. 144 (1) VATA).
The taxable event occurs according to the general rules under the Act (Art. 144 (2) VATA).
What differs from these general rules is that the supply tax under Art. 143 of the Act becomes chargeable on the last day of the period of taxation in which the taxable event for the supply has occurred as under Art. 25 VATA.
According to Art. 145 VATA, the basis of taxation is the price margin, which represents the difference, less the amount of the tax payable, between:

  1. the selling price, representing the total amount which the taxable dealer has received or will receive from the customer or the third party for the supply, including any subsidies and investment grants directly linked to such supply, the taxes and fees, as well as the incidental expenses on packing, transport, commissions and insurance, charged by the supplier to the recipient but exclusive of any trade discounts allowed;
  2. the amount which has been paid or will be paid for goods received by the persons under Article 143 (1) VATA, including the tax under the Act, and where the goods have been imported, the taxable amount upon importation, including the tax under this Act. It is important to note that the basis of taxation cannot be negative. Taxable are only the separate margins per each sale, not the total margin for the period of taxation.
    The tax amount is determined by the formula in Art. 88 RAVATA. The applicable tax rate is 20 per cent, in accordance with Art. 66 (1) VATA or zero, where the supply fulfils the conditions of Art. 28 VATA.

Documentation of the supplies carried out under the special arrangement of margin taxation is done by issuing invoices and notification to invoices containing "Art. 143 of the Act", which are then entered in the sales log for the respective period.
The taxable dealer does not have the right to deduct credit for input tax in respect of any goods received or imported thereby to which the said dealer applies the special arrangements for taxing the margin. From this follows that if the dealer has imported second-hand transport vehicles, the same will not be subject to deduction credit regarding the value added tax on the import (Art. 147 (5) VATA).
The taxable income of the dealer from supplies of second-hand motor vehicles is the sum total of the margins, as per Art. 149 VATA.
Upon deregistration under VATA, the dealer is liable for a tax on the added value of the goods subject to taxation under the special margin arrangement.

Where the dealer has chosen to apply the general VAT procedure, this right can be effected by not entering "Art. 143 of the Act" in the invoices and notifications thereto. In this case the dealer - person registered under VATA - based on Art. 86 (1) VATA, is obliged to charge the supply with the value added tax of 20 per cent on the basis of taxation, by issuing a tax document and indicating the tax on a separate line therein. Documenting these supplies is carried out under the general order under the Act.

General order of application of VATA

This term means that when the special taxation procedure is not applied, all other provisions of the Act that are relevant to the supply in question are applicable.
In the cases where the dealer has chosen to apply the general order for the goods to which Article 143 (3) applies, the right to credit for input tax shall arise and shall be exercised during the tax period in which the tax on the subsequent supply of such goods has become chargeable - Art. 151 (4) VATA.

Applying the provisions in various scenarios

Upon acquisition by the dealer of second-hand motor vehicles from persons registered for VAT purposes in another Member State, where such persons apply the special arrangements of margin taxation, there exists an intra-European Union supply for the supplier under their applicable law, and for the recipient exists an intra-European Union acquisition. In this case, the subsequent supply of those car dealer may choose to apply the general procedure for levying VAT or special arrangements for taxing the margin. If the person chooses general procedure for levying VAT, it should determine the tax bases of supplies made by him under Art. 26 and Art. 27 of the VAT Act. In case the person has chosen the special arrangements of margin taxation, they can not deduct tax credit for the goods they acquired or imported;

In cases of imports (within the meaning of VATA) of second-hand motor vehicles by the dealer, upon a subsequent sale thereof the dealer could choose to apply either the general order under VATA or the special arrangements of margin taxation in compliance with the above conditions;

Persons who have purchased, acquired or imported motor vehicles, but not for the sale thereof, and those motor vehicles at the time of sale do not meet the conditions under § 1, item 7 of the Supplementary Provisions of VATA, should not apply the special arrangements of margin taxation as per Chapter Seventeen VATA upon the subsequent supply. The subsequent supply of these motor vehicles should be subject to the general order under VATA, such that the taxable persons determine the basis of taxation of these supplies in accordance with Art. 26 and Art. 27 VATA. In this case Art. 151 (3) VATA does not apply, as the same is applicable only to persons effecting such sales in their capacity „as a dealer“.