Value-added tax on distance sales in Bulgaria
This article will introduce you to one of the new regimes, which regulate tax relations between Bulgaria and the EU Member States, namely the regime of taxation of distance selling. The Value Added Tax Act (VATA) stipulates that these supplies are subject to a special VAT taxation procedure.
In order for there to be distance selling, the following two conditions must be fulfilled:
- The goods must be dispatched or transported by or on behalf of the supplier from the territory of one Member State to the territory of another Member State where the transport terminates. To facilitate the process, if these goods are imported from a third party in the country from where they were dispatched, it is assumed that they are dispatched or transported from the Member State of importation.
- The supplier of the goods must be registered for VAT in the Member State from where the goods are dispatched or transported, and the recipient is not obliged to charge VAT on intra-European Union acquisition of goods in the Member State where the transport terminates. Therefore, the recipient must be a person not registered in another Member State and the goods may be anything but new transport vehicles; those goods that are mounted and/or installed by or on behalf of a supplier and those for which a special procedure is provided for levying the price margin.
The definitions of non-taxable persons are given in Art. 3 (5) VATA, of new vehicles - in § 1, item 17 of the SP, and the special procedure for levying the price margin is outlined in Arts. 143 to 151 VATA.
Place of performance of distance supplies
The classic requirement of VATA is that goods be taxed according to the place of destination, i. e. where the same will be used or consumed.
Distance selling presupposes the existence of a lot of unregistered buyers in different countries, therefore this requirement would be fulfilled if the supplier is registered in each of these countries. To avoid this inconvenience, a tool called "distance selling threshold" has been introduced. When the amount of sales made by the supplier during the year exceeds the threshold, the conditions change. According to Art. 34 of Directive 2006/112, the threshold is EUR 100,000 but because Member States have the option to determine it, most of them have established lower figures. In Bulgaria it is BGN 70 000.
According to Art. 20 VATA, the place of supply of goods under the terms of distance selling is the territory of the Member State where the transport ends and where the following conditions are simultaneously fulfilled:
- The supplier is a person registered under this Act and
- On grounds other than for registration for intra-European Union acquisition
- The supplies effected by the said supplier under the terms of distance selling for a Member State exceed the threshold established in the legislation of that Member State for the current calendar year or have exceeded the said threshold for the last preceding calendar year.
Of course, if the rate of tax in the other Member State is lower and the supplier company finds it more advantageous to register there, the legislature has provided for such opportunity through the provision of Art. 20 (5), under which persons may notify the territorial directorate that they wish the place of performance to be the territory of the Member State where the transport ends and before their turnover has exceeded the specified threshold.
VAT taxation of distance selling
Any Bulgarian supplier registered in another Member State of destination of the supplies must state in all invoices issued the identification number for VAT purposes issued by that other Member State, the rate of tax applicable to the supply in that other Member State, the amount of tax due on the supply (Art. 114 (2) VATA, Art. 78 (1) RAVATA). The invoice must contain all essential elements in accordance with Art. 114 (1) VATA.
Acceptance by the recipient of electronic invoices and electronic notifications to invoices is deemed to comply with the requirements of Art. 114 of the Act, whether the adoption is done in written form (official or not) or tacitly (by treatment or payment for invoices and notifications to invoices).
When selling goods to natural persons from Bulgaria, Art. 12 (1) applies. Taxable supply is each supply of goods or services within the meaning given by Arts. 6 and 9 VATA, where effected by a taxable person under this Act and whereof the place of transaction is within the territory of the country, as well as the zero-rated supplies effected by a taxable person, save in those cases where the Act provides otherwise. Such supplies are subject to a 20% tax rate as per Art. 66 (1), item 1 VATA.
When selling goods to persons outside the European Union, Art. 28 VATA and Art. 21 RAVATA apply. Within the meaning of Art. 28, item 1 VATA, the supply of any goods which are dispatched or transported from a place within the territory of the country to a destination in a third country or territory, by or for the account of the supplier. The documenting procedure for such supplies is regulated by Art. 21 RAVATA, namely: where the goods are dispatched or transported to a third country, to prove the supply under Art. 28, items 1 and 2 VATA, the supplier must be in possession of the following documents: a written customs declaration naming the supplier as the exporter of the goods, certified by the exit customs office; an invoice on the supply; a document of transportation of the goods.
Pursuant to Art. 73 (3) RAVATA, all registered persons effecting supplies of goods under the terms of distance selling must determine on a current basis the total amount of the supplies of goods under the terms of distance selling for every individual Member State separately; determine for every of the two calendar years preceding the current the taxable amounts of the effected supplies under the terms of distance selling for every individual Member State separately.
For their part, unregistered persons in Bulgaria, receiving deliveries by mail from other Member States must ensure that the value of their orders will not exceed BGN 20 000 (the threshold in Bulgaria for intra-European Union acquisition of goods).
It should be noted that if the Bulgarian suppliers make deliveries by mail to registered persons under VATA an EU Member State, the supplies will be considered as intra-European Union acquisition if the recipient has provided their VAT identification number, or the said supplies will be regarded as distance selling if the recipient has not provided their VAT identification number.
Registration and deregistration for distance selling
When distance selling performed by a foreign supplier in Bulgaria exceeds the threshold of BGN 70 000, the supplier must register under VATA in Bulgaria and then charge their buyers with 20% VAT. For this purpose, the foreign supplier must apply for registration within 7 days prior to the date of the chargeable event for the supply by which the total value of distance sales carried out by them on the territory of Bulgaria for the current year exceeded BGN 70,000.
As already mentioned, companies engaged in distance selling in the Member States with a lower tax rate may, if they so wish, register under VATA and before their distance selling volumes exceed the respective threshold. Reciprocally, the Bulgarian legislature has provided an opportunity for foreign suppliers to register under VATA in Bulgaria before they reach the threshold of BGN 70,000, after informing their tax administration by registration of their choice to do so.
In respect of any persons registered under VATA for distance selling performed, registration may not be terminated neither for the current nor the subsequent year, even if their value falls below the threshold in the second year. A foreign supplier may opt for optional deregistration where the sum total of the taxable amounts of the supplies effected under the terms of distance selling within the territory of the country does not exceed BGN 70,000 for each of the two calendar years preceding the current year, and at the date of submission of the application for deregistration, grounds for compulsory registration do not exist (Art. 108 (1) VATA).