Tax reliefs under the Corporate Income Tax Act
Bulgarian tax law provides for a number of tax reliefs in various forms. The law distinguishes between full exemption from income tax and relief in the form of assignment of corporate tax. The legal definition of the latter is contained in Art. 166, namely the right not to pay into the state budget those amounts of the corporate tax which remain in the patrimony of the taxable person who must use them for the purposes determined by law (Art. 174-190 of CITA).
According to Art. 174-176 of CITA, collective investment schemes and investment companies of closed type, companies of a special investment purpose and the Bulgarian Red Cross are exempt from the corporate tax.
Abatement of corporate tax is carried out in the statutory cases under Art. 177-190 of CITA. The taxable persons are entitled to abate their accounting financial result providing that they have employed a person under an employment contract for at least 12 consecutive months and at the time of employment the said person has been registered as unemployed for more than a year, or is a registered unemployed person aged 50 or more, or is an unemployed person of reduced capacity to work, as under Art. 177 (1) of CITA. The abatement is formed by the amounts paid as remuneration and the contributions by the employer for health and social security for the first 12 months of employment. This is carried out once in the year of expiry of the 12-month period.
Tax reliefs also apply to legal entities where the percentage of employees with disabilities is not negligible. A requirement for tax relief under Art. 178 (3) of CITA is to spend the assigned tax use only on the integration of the persons with disabilities or on maintaining and creating new jobs for persons with reduced capacity for work within a period of at least two years following the year for which the assignment is enjoyed.
Art. 181 of CITA regulates a tax relief for social and health insurance funds, whose business activities are connected with or helpful to the performance of their basic activity. The assignment of their tax must be invested in the basic activity of the company by the end of the year following the year for which the assignment is enjoyed.
Sections IV and V of Chapter 22 of CITA regulate the cases in which the tax relief is regarded as State Aid. Art. 182 specifies the cases in which taxable persons are not entitled to tax relief, representing De Minimis or State Aid under Art. 183 ff. CITA - persons that carry out activities in sectors including coal mining, steel manufacture, shipbuilding, synthetic fibers manufacture and fisheries. Not entitled to tax relief are also taxable persons that are in liquidation or rehabilitation proceedings or are defined as entities in a difficult position.
A 100% tax exemption representing State Aid for regional development or De Minimis aid is enjoyed by taxable persons that carry out production activities in municipalities with unemployment rates higher than the national average (Art. 184 CITA). Municipalities are determined annually by the Minister of Finance. If a municipality is no longer included in the list as a result of increased employment, the taxable person can retain the right to tax relief for a period of 5 years from the year in which the municipality was excluded from the list.
Art. 189b CITA allows for tax relief in the form of State Aid to agricultural producers. It represents an assignment of 60% to taxable persons registered as agricultural producers for their taxable profit from activity of production of non-processed plant and animal products. In order to take advantage of the tax relief, the remitted tax must be invested in new buildings and agricultural equipment needed to carry out the respective agricultural activities. State Aid under Art. 189 CITA is granted automatically by filing the annual tax return, and a special order or a separate submission are not provided.
Using more than one of the above mentioned tax reliefs within the same year is prohibited under Bulgarian tax law.
Tax amortizations in the Republic of Bulgaria
The Bulgarian Corporate Income Tax Act also provides for the so-called tax amortizations.
Here, exempt from taxation are profits realized from transactions with certain financial assets when the transactions are carried out on the stock exchange. Similarly to profits - losses are not recognized for tax purposes. The transaction must be completed in a regulated securities market in Bulgaria or any other Member State of the EU/EEA (transactions carried out outside this market or in a third country is taxed subject to the general procedure). The financial assets that are subject to the amortization include shares, rights and units in collective investment schemes, including transactions for the redemption of units/shares of the collective investment scheme. This amortization can be enjoyed by local and foreign legal entities, such that the realized income of the latter is exempt from tax withheld at the source.
Another tax amortization is regulated in Art. 55 (3) and (6) CITA. It represents an accelerated tax amortization in an amount not exceeding 50% for machinery, production equipment and apparatuses that form part of the initial investment or are acquired in connection with the investment made to increase energy efficiency. The amortization can be enjoyed by local legal entities and by foreign legal entities with places of agricultural activity in Bulgaria, which generate profit under CITA.
Art. 69 CITA provides for tax depreciation of 100% of an fixed intangible asset, formed as a result of research and development activities which are carried out in connection with the occupation of the taxable person and which have been assigned by way of an order of a scientific research institute or a higher-education institution. The historical value is recognized as a one-time tax expense in the year of its formation. This preference is aimed at stimulating scientific research.