Tax treatment of motor vehicle expenses

Under Bulgarian tax law, three main groups of expenses are subject to a taxation at a 10% tax rate:

1. The expenses of representation relating to the activity;
2. Social expenses provided in kind to workers and employees (food vouchers, voluntary pension, health and other insurance, life insurance);
3. The expenses connected with the operation of vehicles.

The tax on expenses is final.

The basis of taxation and the tax on the expenses connected with the operation of transport vehicles are recognized for tax purposes in the year in which they are assessed and do not form a tax temporary difference.

Pursuant to §1, item 39 CITA, "Expenses connected with maintenance, repair and operation of transport vehicles" shall denote those accounting expenses connected with maintenance, repair and operation of transport vehicles which relate to:

1. fuel, lubricants and other consumables;
2. spare parts;
3. repair work, including painting and tinsmith services;
4. technical examination and parking;
5. cosmetics and accessories.

Bulgarian tax law defines cars as motor vehicles on three or more wheels used for the transport of passengers, in which the number of seats, excluding the driver seat, does not exceed 8 people.

The tax regime of the expenses connected with the operation of motor vehicles is determined depending on the purpose for which these cost-incurring vehicles are used, and can be separated into the following categories:

1. Taxation of expenses connected with the operation of vehicles used in economic activity
2. Taxation of expenses connected with motor vehicles used in managerial activity
3. Taxation of expenses connected with the operation of vehicles for the
4. Transportation of staff
5. Taxation of expenses connected with motor vehicles used for representative purposes
6. Taxation of expenses connected with motor vehicles used for the personal needs of owners, partners and other members of staff
   
   

Basis of taxation and Tax rate

The basis of taxation represents the expenses accrued during the calendar month for the maintenance, repair and operation of vehicles, reduced by the accrued income from insurance benefits, relating to the vehicles in question, up to the amount of the incurred cost of repair to which the insurance applies.

The rate of tax on expenses of maintenance, repair and operation of vehicles is 10 per cent.

The tax on expenses is declared with the annual tax return, submitted by the taxable person and payable until 31 March of the following year.

 

Taxation of expenses connected with the operation of motor vehicles used in economic activity

These expenses are not subject to taxation under the tax on expenses.

In order to recognise the costs associated with the operation of a vehicle, proof is needed of the actual use of the same for the activity of the company. This is evidenced by an invoice for goods and services received, as well as a document such as a road map, or other similar documents proving the usage of the vehicle for a specific company-related activity. The lack of such document reflecting the costs incurred will lead to rejection of the expense for tax purposes and to increase in the statutory financial result.

hese will be considered as expenses for tax purposes, if the reported accounting expenses for a rented motor vehicle, including rent, maintenance and operation of the same, are related to the activity of the company, which should again be supported by the relevant documents.

 

Taxation of expenses connected with motor vehicles used in managerial activity

Under the law a tax on expenses is only owed by the taxable persons that are subject to the corporate tax.

The basis of taxation for determining the tax on expenses is the expenses accrued during the calendar month for the maintenance, repair and operation of vehicles, reduced by the accrued income from insurance benefits, relating to the vehicles in question, up to the amount of the incurred cost of repair to which the insurance applies.

If the business conduct and managerial activity are conducted simultaneously, the basis of taxation for distribution is:

• operating expenses related to the managerial activity based on the traveled kilometres for the purposes of this activity during the calendar year;
• expenses for the maintenance and repair related to the managerial activity based on the traveled kilometres for the purposes of this activity to the total mileage of the same vehicle for the calendar year.

When the basis of taxation is negative, it is deducted from the basis of taxation successively for the subsequent years.

Activities connected with the management of the enterprise include: the supply of materials related to the main activities of the enterprise; transport of official correspondence, finances and other similar activities serving the administrative managerial personnel; advertising and marketing; conclusion of contracts; training and others which form part of the administrative and managerial activities of the commercial or industrial establishment.

Art. 204, item 3 CITA specifies the scope of expenses which, however, does not include:

• Taxes, fees and insurance of vehicles;
• Salaries and benefits of drivers;
• Interest on leases of the vehicles;
• The cost of renting the vehicles;

 

Taxation of expenses, connected with the operation of vehicles for the transportation of staff

Subject to the tax on expenses are social expenses provided in kind to workers and employees and persons employed under management and supervision contracts. One of the requirements in order to incur social expenses for tax purposes is to have no monetary relations between the employer and the staff.

Social expenses for the transportation of workers and employees and persons employed under management and supervision contracts from their residential address to the place of work and back, organised by the employer, are not subject to the tax on expenses.

Expenses are taxed at a 10% tax rate, payable by 31 March of the following year, when formed as social expenses in kind and the transportation is performed by car.

If an employer provides monetary compensation for the transport services from the employee's residential address to the place of work and back, an increase is foreseen of the accounting financial result.

Pursuant to Art. 24 (2), item 9 ITNPA, the taxable income originating from employment relationships does not include those expenses on transport from the employee's residential address to the place of work at the account of the employer.

Social expenses connected with the transportation of workers and employees and persons employed under management and supervision contracts from their residential address to the place of work and back, where the transportation is carried out to hard to reach places and remote areas, are not taxable.

 

Taxation of expenses on vehicles, used for representative purposes

Expenses incurred on vehicles, used for representative purposes (reception of guests and delegations, business metings and celebrations, entertainment events and excursions) are subject to a 10% tax on expenses.

Taxation of expenses on vehicles, used for the personal needs of owners, partners and other members of staff

Where the vehicles are used for personal needs of owners, unrelated to the business activity
of the company, they need to be added to the financial result in the manner provided for in CITA.