Income taxes on self-insured persons and agricultural producers
The article will examine the mechanism of taxation of income received by persons carrying out freelance activities or craftsmanship. According to insurance legislation, these persons may be registered as self-insured persons, but they may also cover any insurance risks by registering with an employer.
A self-insured status is acquired under the Social Insurance Code, such that the person is legally required to make insurance contributions at their own expense. In such cases the Income Taxes on Natural Persons Act (ITNPA) provides for an exception to the monthly taxation under the Act, i.e. self-insured persons are subject to a three-month advance taxation under ITNPA. If the person in question receives income from other business activities (is a freelance practitioner or carries out other activities outside a legal employment relationship), except for sole proprietors, and this has not been declared to the payer of the income, they are still subject to the monthly taxation by a flat tax of 10%.
Pursuant to Art. 29 ITNPA the taxable income originating from business activities of those natural persons who are not traders within the meaning of the Commerce Act is determined by way of subtracting the statutory operating expenses from the income received. For each type of business and freelance activity the tax is reduced by the respective statutory amount.
- by 60 per cent for income from the activity of natural persons, registered as agricultural producers, for the production of non-processed agricultural products, except for the income from production of decorative plants;
- by 40 per cent for:
a) income originating from the activity of natural persons for production of processed or unprocessed agricultural products;
b) author's and licence remuneration;
c) income originating from craftsmanship which is subject to a patent tax pursuant to the Local Taxes and Fees Act.
- by 25 per cent for the income originating from working as a freelance practitioner and for the income originating from legal relationships other than the employment ones.
Annual basis of taxation
The annual basis of taxation of income originating from other business activities is determined by way of reducing the taxable income above by:
- those contributions due by the self-insured person during the year at their own expense;
- those withheld mandatory insurance contributions made at their own expense (if the person is not self-insured);
- mandatory insurance contributions, deposited abroad, which are at the expense of the natural person.
Advance taxation of income under Art. 29 is regulated by Art. 43 (1) - (8) ITNPA.
According to para. 1 of the same, this type of income is subject to an advance tax on the difference between the taxable income and the contributions which the liable person is obliged to make at his/her own expense for the months of the quarter in which the taxable income was acquired, and in case the person is not self-insured – the difference between the taxable income and the deducted mandatory insurance contributions.
The amount of the tax due is calculated by multiplying the difference referred to in above by a tax rate of 10 per cent.
Where payer of the income of business activity is an establishment or a self-insured person, the tax amount is determined and the tax is withheld by the payer of the income upon its payment. This provision does not apply where the person receiving the income is a self-insured person within the meaning of the Social Insurance Code and has declared the said circumstance in a written declaration to the payer of the income.
Where the payer of the income of business activity is not an establishment or a self-insured person and where the person receiving the income is a self-insured person and has declared the said circumstance to the payer of the income, the tax amount is determined and the tax is paid by the person receiving the income.
Calculation and payment of income tax of self-insured persons receiving income from business activities under Art. 29 ITNPA
The income tax owed by persons receiving income from business activity under Art. 29 of the Act, who have declared their self-insurance status in writing to the payer of the income is determined and paid quarterly (for the first three quarters of the year of taxation). The tax is due by the 15th day of the month following the month in which the income was received, such that an advance tax is not due for the fourth quarter of the tax year.
The amount of the tax due is determined by the difference between the taxable income received by the persons in question for the months of the respective quarter and the deducted mandatory insurance contributions under the Social Insurance Code (Art. 43 (1) ITNPA).
The tax is paid into the state budget by crediting the account of the territorial directorate of the National Revenue Agency (Art. 68 (1) ITNPA).
Calculation and payment of advance income tax for persons with reduced working capacity
Any person with 50 or more than 50 percent reduced working capacity is liable for an advance tax for income from business activity under Art. 29 INTRA after the taxable income of the person from all income sources acquired from the beginning of the taxable year and subject to taxation by tax on the total annual taxable basis reduced by the withheld or paid on account of the person compulsory insurance instalments exceeds BGN 7920 (Art. 43 (2) ITNPA). The most likely assumption is that the person receiving the income must declare this fact on the account of sums paid. There exists no explicitly settled procedure to determine when the total taxable income of the person in question has reached that amount.
The person acquiring the income needs to certify the level of reduced working capacity by an expert decision of TEMC/NEMC valid at the date/dates of payment of the income (Art. 43 (9) ITNPA). When the tax is withheld and paid in advance by the payer of the income, this decision is presented once.